The Nasdaq technology index has been on a bull run for the ages.

You didn’t think it was going to last forever, did you?

In the past 10 years, we’ve only had three little blips, one in 2019 from the temper tantrum, then the 2020 pandemic selloff, and now the 2022 inflation problem.

It’s more or less been strong performance aside from those quick corrections where the Nasdaq bounced back even stronger.

The truth is that meaningful corrections don’t happen that often and every time one has occurred, it’s been a great buying opportunity.

I know it sounds scary in the face of red drowning out your screen, but the silver lining is that this will give readers a chance to grab high quality stocks that are rarely, if at all, on sale.

Here are a few tips on how to navigate a tech market correction.

1. Put Market Corrections in Context

Since 1928, a correction of at least 10% has happened about once every 19 months – not that often. Of the 27 corrections since World War II, the index has experienced an average decline of 13.7%.

This highlights the simple truth that investing is not a contest of who can dump stocks as fast as possible.

If you’re convinced a sell-off is on the horizon, consider making the following changes.

2. Take Profits

Sell stocks in your portfolio that you think have peaked.

Alternatively, you may want to establish a selling strategy that dictates when you sell stocks and remove any emotion from the decision.

This type of strategy is a method of managing stress and you will avoid misusing that fat finger to get rid of your best assets.

3. Focus on Asset Allocation

Preside over a healthy mix of different types of investments that will hold their value until you can jump back into tech stocks.

Don’t put all your money into Facebook (FB) and feel wounded after it drops 25% after their business model collapses (which is essentially what just happened.)

Rarely will everything go down all at once.

The tech sector usually experiences more downside in a correction than others due to their high growth nature.

This is when dividend-paying stocks start to outperform and a huge rotation rapidly takes place.

4. Smarten Up by Placing Limit Orders

It is essential to always place limit orders and not market orders. With a limit order, you specify the price you want to buy or sell at, and the trade is only executed at that price or better.

Meanwhile, opting for a market order means your trade is at the whim of the market. The final filled order could be a few percentage points of where you expected it.

This nasty surprise is easy to avoid.

5. Don’t Lose Sight of Your Ultimate Goal

Even if you’re a buy-and-hold investor, you’ll eventually want to sell some of your investments.

Minimizing risks is the name of the game and most investors have a number in mind at the end of the day.

This number is complemented by a timeline; don’t lose sight of the path towards that, and the process needed to achieve that final number.

Markets almost never sell off by 20% and many of these market corrections are great chances to get into the best of tech.

Let’s be honest, tech has been very expensive the last few years and to get a great company like Google, Apple, or Microsoft on discount is something that people pray for.

The tech market has always recovered from its short- and longer-term market dips and this correction won’t be any different.

The tech market appears to be stalling out confronting uncertainty on a host of fronts, but investors betting on one theme—the unfolding economic recovery—appear positive.

What is certainly uncertain is that elections, brazen geopolitics, healthcare bills, inflation, forbearance, natural disasters are piling up like a dirty laundry basket of heightened risk.

Cyclical outperformance has been the catchphrase since the start of September, and the establishment on Wall Street has been barking for a rotation in market leadership from mega-cap tech.

As much as I love the business models of Apple, Google, Amazon, Microsoft, and Netflix, they have come too far — too fast.

We are currently smack dab in an economic phase where growth stocks won’t perform like they did when the broader economy was humming along just before March and the shelter-at-home trade has faded away from its initial boost.

There are knock-on effects and big tech doesn’t just live in a silo which is why investors are searching for reasons to take tech higher.

That being said, big tech did harvest the lions’ share of the gains from March until the end of August and in relative terms, they have emerged the ultimate winners during this health crisis.

Many upper-middle-class families are beginning to feel the economic pinch as well, as the damage is starting to be felt further up the economic food chain.

But these families will still need their tech software and services when they do a cost-benefit analysis and items such as car loans, entertainment, and food delivery will be more likely on the cutting block.

The overextended S&P 500 technology sector has lost 8% in September, while value-oriented materials and industrials have added 6% and 2%, respectively. The overall S&P 500 has declined 4%.

The valuation of the market is arguing for a rotation, not a continued leg up.

In the short term, tech stocks could lose out to U.S. small-caps and specifically small companies with high returns on equity, or ROE.

Low-ROE and nonearning stocks have dominated the Russell 2000’s rebound since late March, as investors focused on revenue growth above all else. That has benefited a lot of software, biotech, and other stocks, but forced investors to pay a high premium.

When the economy is in free fall, many companies have negative sales growth, and the market will favor those who aren’t overvalued.

By my estimation, tech is overvalued in the short-term but still a great long term bet.

Now that the fiscal morphine shot is wearing off, tech appears to be resting while it consolidates while waiting for an “event” to give it more juice.

Some fiscal tools just don’t work now like share buybacks. Management would be tone-deaf to the economic carnage going on in the U.S. — not to mention that tech stocks just visited all-time highs.

The Federal Reserve now sees 4% gross domestic product growth in the U.S. next year, followed by 3% in 2022.

This small-cap rotation will come and go, and once tech gets a little cheaper, the dip will be bought.

As the retracement goes from 20 days to one month, some positive news comes in the form of Walmart and Oracle acquiring parts of TikTok even in a highly diluted form.  

Fortunately, the tech portfolio has been in 100% cash as I sensed the consolidation in time.

We will search for better entry points and will need to be patient.