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Nasdaq Approaches 10% Correction: Time to Buy?

By Dan Caplinger – Sep 4, 2020 at 12:32PM

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Volatility has come fast and furious yet again.

The stock market has made volatile moves in 2020, and the last two days have been a whirlwind. After rising to record highs on dozens of occasions, the Nasdaq Composite (^IXIC -3.55%) is on the cusp of completing a 10% correction in less than two days. Shortly before noon on Friday, the Nasdaq was down almost 3%, after having been down as much as 5% earlier in the session. The day's low brought the index to within 10 points of an official 10% drop from its all-time intraday high.

Many investors have complained that with stocks moving straight up, there hasn't been a good time to buy. Yet when a correction like the current one comes, it can be just as hard to buy. Below, we'll look at some stocks that are down quite a bit more than 10% and see whether it makes sense for long-term investors to pull the trigger now.

Clock reading "time to buy."

Image source: Getty Images.

Some bargain buy candidates

If you like getting stocks at a discount, here are some thoughts to consider:

  • Zoom Video Communications (ZM -2.82%) traded between 25% and 30% below the highs it reached just earlier this week. For those who were disappointed to miss out on buying shares of the video collaboration superstar after it announced amazing second-quarter results, you've gotten a rare second chance to reconsider.
  • DocuSign (DOCU -1.08%) is down 11% today despite releasing promising financial results of its own late Thursday. That brings the losses for the electronic signature specialist's stock to around 25% from its all-time highs, which like Zoom's came just a few days ago.
  • Even among big stocks, Apple (AAPL -5.56%) is down another 5% Friday, bringing its decline from its all-time high to around 20%. That's extreme volatility for a stock that's still worth around $2 trillion, and investors are still excited about the rise of its services business and its prospects for a solid holiday season to close the year.

These are just a few of the stocks that have been hit hard during the current correction. Yet if you really like these companies, then the buying opportunities they're giving you now should make you excited, not scared.

What if they keep going down?

The problem with investing in down markets is that nobody ever tells you exactly when a stock is going to hit rock bottom. Even when you're buying with a time horizon measured in years, it hurts psychologically to see a stock you've just bought lose more value right after you pull the trigger. It's almost impossible not to second-guess yourself and wish you'd just had the discipline to wait.

The way to get over that fear is to realize the consequences of not buying. Sure, you might see the stock go lower and be able to buy shares even more cheaply. But what happens more often is that you never get around to buying the stock. The price usually rises, whether the same day or further into the future, and then you feel like a real idiot for missing out. That leaves you waiting for another pullback, which often doesn't happen until the stock price is much, much higher.

Take a good deal when you see one

The best investors will tell you that when you have an opportunity to buy shares of a great company at a reasonable price, you shouldn't hesitate. You simply have to accept that the ups and downs of the market won't let you time your purchases perfectly.

If you have stocks on your watch list -- whether they're high-growth tech stocks or ones in a different industry entirely -- take a close look at them right now. If they've fallen from recent highs, it might be the perfect time to add a few shares and see what happens next. Over the long run, you'll likely be happy you did.

Dan Caplinger owns shares of Apple. The Motley Fool owns shares of and recommends Apple, DocuSign, and Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$141.51 (-5.56%) $-8.33
DocuSign Stock Quote
$54.71 (-1.08%) $0.60
Zoom Video Communications Stock Quote
Zoom Video Communications
$73.75 (-2.82%) $-2.14
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$10,659.54 (-3.55%) $-392.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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