At the time of this writing, the Nasdaq Composite (^IXIC 0.70%) is down 9.4% from its 52-week high, while the S&P 500 (^GSPC 0.55%) is down 6%.
While we are nowhere close to a full-blown market crash, the Nasdaq is close to correction territory, which is a drawdown of at least 10%. A crash is usually defined as a swift sell-off of at least 20%, and a bear market is a prolonged decline of more than 20%.
No one likes losing money. But stock market sell-offs and bear markets can present tremendous buying opportunities for long-term investors.
Here’s how to navigate a sell-off, and how you can use periods of pessimism to build lasting generational wealth.
The pendulum swings
Economist Benjamin Graham, author of the 1949 book The Intelligent Investor, famously wrote: “In the short run, the stock market is a voting machine. But in the long run, it is a weighing machine.”
This means that short-term movements in stock prices have nothing to do with a company’s intrinsic value. They’re merely representative of whether the stock is in or out of favor.
During bull markets, investors are optimistic and may be willing to pay a higher price based on a company’s growth potential. During bear markets, investors are pessimistic and want to pay less for a company based on its value or potential.
