Why a stock market correction could be a golden opportunity to get rich

Stock market corrections are where investing fortunes can be made. Stephen Wright looks at the opportunities for investors right now.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Closeup of "interest rates" text in a newspaper

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Key Points

  • Stock market corrections give investors a chance to buy shares in strong companies at unusually attractive prices
  • US banks are caught up in the fear around the sector at the moment, regardless of whether they deserve to be
  • UK real estate prices have been falling, but rent collection statistics remain strong

Investing in the stock market can be a great way of building wealth. And having the courage to keep buying shares when others are looking to get out is how some of the best in the business have done so.

Right now, the FTSE 100 is within 6% of its recent highs. But with the FTSE 250 (down 11%) and the S&P 500 (down 17%) firmly in correction territory, I’m looking for long-term opportunities.

Volatility

I think that the best returns in the stock market come from buying shares in strong businesses at good prices. And one of the best ways to find good prices is when everyone else is looking the other way.

Warren Buffett knows this better than most. At a time when American Express was in the middle of a scandal, the Berkshire Hathaway CEO made a big investment in the company. 

That decision has paid off spectacularly. The initial $1.3bn investment has a market value today of around $24bn (and that’s not including the $40m in dividends that Berkshire has received).

Finding these opportunities can be difficult (especially without his cash and research resources). But when share prices start falling across the board, it’s much easier for investors to find something they like at an attractive price. 

That’s why a stock market correction can be a great opportunity. The most recent one has been caused by rising interest rates weighing heavily on two sectors in particular.

US banks

The first is US banks. With rising interest rates leading to the failure of SVB Financial and Signature Bank, share prices across the sector are under pressure. 

I don’t think the risks across the board are equal though. I think the bigger banks are much less likely to experience liquidity issues than their smaller counterparts.

They’re more closely regulated, have better asset portfolios, and more stable deposit bases. But their share prices have also been falling and Citigroup in particular looks to me like a bargain. 

I’ve thought that the stock was undervalued for some time now. And the additional decline in the share price last week only makes it look more attractive to me. 

The risk with the stock comes from its complicated restructuring process. But an extra 7% discount to the company’s share price just gives me a bigger margin of safety when pricing this in.

UK real estate

The other area that’s been hit by rising interest rates is the property market. And it’s the industrial sector that has seen the biggest losses. 

Companies that make their money leasing warehouses and distribution centres have seen the value of their assets fall sharply. But I think there’s a big opportunity here.

Rent collection across the sector is strong and more warehouse space is being leased than ever before. I think that makes Warehouse REIT – an industrial property specialist – attractive.

There’s a risk that a recession might act as a significant headwind here. But I think this could be a great stock to own for the long term, especially for an investor buying at today’s prices.

The stock being down 6% over the last week just makes it look like more of a bargain to me. I’m looking to take advantage of some great prices on offer from the stock market correction.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Stephen Wright has positions in Berkshire Hathaway and Citigroup. The Motley Fool UK has recommended Warehouse REIT Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Here’s why I think the Lloyds share price could hit a 5-year high in 2024

It's up 13.5% so far in 2024, and reaching new highs. But where might the Lloyds Bank share price go…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

If I’d put £15k into this FTSE 250 stock in 2008, I’d have over £1.26m today

This multi-billion-pound business has created plenty of millionaires over the last 16 years, but can it repeat this performance?

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

3 dividend shares I’ve bought for the next decade!

I think these UK dividend shares can amplify my long-term passive income, and could even be on track to becoming…

Read more »

Investing Articles

If I’d put £5,000 in Scottish Mortgage shares at the start of 2024, here’s what I’d have now

Scottish Mortgage shares have staged a recovery lately, powered by the public and private growth stocks held in the portfolio.

Read more »

Happy couple showing relief at news
Investing Articles

9.9% dividend yield! Is this FTSE 100 stock a brilliant bargain?

This leading British enterprise looks like a delicious deal for passive income, trading at a low multiple while offering a…

Read more »

Investing Articles

If I’d put £5k in a FTSE 100 tracker fund 5 years ago, here’s what I’d have now

Investing in a FTSE 100 index fund is a terrific way to start building wealth passively with minimum effort. But…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

What’s going on with the Scottish Mortgage share price now?

The Scottish Mortgage share price is up 30% over the past 12 months, outperforming the index. Our writer explains why…

Read more »