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Goldman Sachs: Global equities could drop by 20%

Kevin Gandiya

According to Bloomberg, top strategists at Goldman Sachs are predicting a market correction in global equities of between 10% and 20% in the coming months.

The broker notes that despite strong returns in 2017, the current start to 2018 has been the strongest start for the global equity market since 1987 and this rise in valuations could make the market more vulnerable to a correction. Goldman indicate that should a correction occur, this could be a buying opportunity.

Here in Australia, we are not immune to this global trend and some of the best quality businesses such as CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) have experienced gains of over 40% over the last year.

The current bull market has been going on for over 104  months and is the second-longest bull market in history. With all that in mind, is a market correction coming? If so, how should investors react?

I come back to a few basic principles of investing to remember:

  • The stock market can be volatile in the short term but is a great way of building wealth in the long run. Only commit funds to buying stocks that you won’t need in the short term.
  • For investors still in the wealth accumulation stage, a market correction is a good opportunity to buy great businesses at a great price.
  • Most of the time, the stock market goes higher. Just because stocks have gone through a bull run doesn’t mean that they can’t go higher.
  • The goal of investing is to find great businesses at good prices and this can be done regardless of the general market level. Over time, great businesses perform well which leads to higher share prices. A great example is how buying Amazon shares at the height of the dot com bubble would have been a terrible short term investment, but a long term bargain.

That’s why I’ll keep looking for revolutionary companies regardless of where the market is. You can do the same and start with these 3 revolutionary Aussie companies.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.