Why I’m preparing now for a 2023 stock market correction

The Australian stock market has kicked off 2023 on the right foot. The S&P/ASX 200 Index (ASX: XJO) has already recuperated all of last year’s losses, soaring to hit its highest point in nine months yesterday.

But the market typically ebbs and flows. While it has historically always moved higher, it’s done so over time, with its ups outweighing its downs.

Experts were taken aback when inflation unexpectedly increased last quarter, leading many to predict the Reserve Bank of Australia will hike rates again next week. Meanwhile, major economies around the world are expected to fall into recession this year.

All that (and potentially more) is likely to impact the stock market in 2023. Indeed, experts at ANZ Group Holdings Ltd (ASX: ANZ) recently tipped the ASX to “test a new bottom” this year.

That’s why I’m preparing for a stock market correction now so I can build wealth during any potential downturn. Here’s how.

Share price versus value

Correctly valuing a company is a tricky thing, and the market doesn’t always get it right.

An ASX company’s market capitalisation is simply its share price multiplied by the number of outstanding shares it has. Meanwhile, its true value considers its underlying business and assets.

The two measures don’t always move in line, however. For example, if many investors all like the look of a single stock and decide to buy in, demand will generally see the price increase despite no change to a company’s business.

Thus, when sentiment abates amid a stock market correction, it can lessen demand for quality companies, thereby lowering prices.

Getting ready for an ASX stock market correction

My method for preparing for a stock market correction in 2023 is simple. I’m building a list of ASX shares I wish to own now, if only the price was right.

That way, if their price suddenly dives amid a market downturn, I’ll be ready to pounce on businesses I’ve previously deemed to be worth owning for a price I believe to be good value.

That’s a philosophy famously employed by investing great Warren Buffett. And it’s a strategy I’m preparing to engage in 2023.

Embracing downturns

Of course, there’s no guarantee the stock market will see a correction in 2023. However, I believe one will occur at some point in the future. And when it does, things will likely move fast.

Corrections can last anywhere from days, to weeks, to months, and I might not have time to decipher which shares I believe to be buys amid the chaos.

A little proactivity now could see me ready to snap up quality stocks in the bargain bin amid a downturn. And by doing so, I could be positioned to make the most of what I believe would be an inevitable recovery.

The post Why I’m preparing now for a 2023 stock market correction appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Bears beware! ASX 200 recoups all of 2022’s losses plus more in January
• Investing in ASX 200 gold shares? Here’s what to expect from the yellow metal in 2023
• Here are the 3 most heavily traded ASX 200 shares on Wednesday
• ASX shares investors rejoice! RBA says inflation has now peaked

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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