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An asset valuation correction is a period wherein assets are
marked-to-market. Asset valuations get subjected to
market forces making them adjust to near-real current
valuations. Over-shooting can provide opportunities. |
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We use the term
"correction" to mean a downward (deflating)
market condition. |
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In the context
of a correction, valuations will often
over-shoot to the downside. That is,
valuations will often go lower than they
would have if they were constantly being
marked-to-market instantaneously. |
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Therefore,
during a correction phase, a wise, mature
person hoards cash while
waiting. Then -- sometimes during a
climactic downdraft -- when valuations over
shoot, opportunities to selectively buy may
become visible. The person holding cash may
grab some of those opportunities. He will
win or lose, but at least he bought lower
than he might have and he has the odds on
his side... maybe. |
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Similarly, on
the up side -- the inflating and possible
bubble-building phase -- valuations can
over-shoot to abnormally high levels. That
is, valuations will often go higher than
they would in a rational,
non-exuberance-filled, frequently
marked-to-market situation. |
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The question
to answer dynamically is
this: Is a given downdraft a
continuation of the possibly still-ongoing
correction, or is it an over-shooting
over-reaction worthy of
buying
into? |