Over time, equity markets tend to move higher. It's the nature of investment, that the more cash that needs a home, the higher asset prices go. But interruptions in this process are not uncommon: although mostly unwelcome, many are healthy and necessary functions of financial markets.
We're talking about corrections and other reversals such as bear markets, that interrupt the smooth upward price progression of assets, securities and other market price indicators.
For now, we'll steer clear of the concept of a market crash - as this phenomenon is not the same and is most often the result of highly dysfunctional markets.
Simply by measuring the inflows into funds over time, we know that the market for investment has grown rapidly as the world's population rises.
Funds to provide for that growing population's retirement provision are no longer enough and we're advised to make our own private contributions, where possible, for investing in our future.
Never before have there been so many different products available for private and institutional investors alike. Exchange-traded funds and derivative securities allow us access to markets that were once only traded by professionals.
But there are still only a limited number of investment opportunities for the rapidly-growing demand from those with ever-larger amounts of cash to invest.
This is why certain, popular assets and securities can begin to become overvalued, and here's where it's most likely a correction will occur.
Corrections and bear markets
Just as a forest fire releases a short, destructive force that kills off the aged and diseased plant life to make room for new growth to flourish, so too a correction relieves markets of overvaluations and nascent bubbles and brings prices back to levels where investment can thrive.
A correction is technically described in investment parlance as a fall in the price of an asset or security, or other price indicator, of more than 10% from its most recent cyclical peak.
Corrections are healthy for markets, and so long as investors don't panic sell their assets during the event it's likely they'll soon make back the losses once the correction is over.
Bear markets last longer and go deeper. Technically speaking, a bear market interruption in a bull market is fall of more than 20% from the most recent cyclical peak over the course of least two months.
But again, panic selling by inexperienced investors exacerbates a bear market.
What triggers a correction?
High valuations. From many years of experience, professional investors know when valuations are getting lofty. Brokerages and institutional investors will use certain metrics by which they measure valuations.
The most common is the price/earnings (p/e) ratio. Different sectors and, indeed, companies will have different p/e ratios that are regarded as normal, but simply put, this is the ratio between a company's selling price and its earnings per share (EPS).
If a company's EPS is £2 and its shares are currently selling for £20, it has a p/e ratio of 10.
So, why were we talking about lofty valuations in the tech sector six months ago - yet no correction?
This could have been for any number of reasons: that earnings continued to impress; large amounts of leveraged, speculative cash supporting prices; mergers and acquisitions.
Corrections often also need a catalyst. This can be an economic shock, geopolitical turbulence or other unexpected event, that causes some reallocation of investment funds.
Anatomy of a correction
Whatever the catalyst, experienced investors will use it to sell down what they think are their most overvalued holdings. Here's where equity prices appear to drop dramatically.
But now these investors have unallocated funds from this sell down. If, as they suspect, there's going to be a correction that lasts a few weeks, they'll find somewhere nice and safe to put it for the duration - short-term bonds.
Most likely one- or two-month Treasury bills, which are highly liquid and soon mature, meaning they can be quickly converted back to cash and reallocated to the stocks that were sold ahead of the correction.
This would be the ideal way to deal with a stock market correction. You've simply taken a minor hit to reallocate funds for a short period, before reinvesting.
Of course, it hardly ever runs this smoothly, but even if you did nothing it's not the end of the world.
If you don't have the skills, timing or market access to reallocate your portfolio during a correction, the next best thing you can do is nothing.
Riding out a correction
Veteran investors will know exactly how common corrections are and that their impact is fleeting.
At the more speculative end of the investment spectrum, however, investors need to be more careful. Especially when investing from highly leveraged positions, as losses during a correction can become heavy very quickly and leverage could multiply those already-heavy losses.