Canada’s main stock index recorded its biggest single-day drop in seven months on Friday and investors should not be surprised. Here is a news flash; nothing goes up in a straight line. With the S&P TSX and S&P 500 running largely unabated for 6 and 15 months respectively, a 2% daily drop, although it gets your attention, it should not send shockwaves around the world.

The reasons today were fear over growth in China, expectations that the U.S. Federal Reserve will scale back its stimulus program next week, and other financial and currency concerns in emerging-market assets. Mix them all together and you have a dent in what has been overly positive investor sentiment.

The fears about how developing markets will handle the Fed rollback, combined with soft economic data from China, pushed down the prices of some commodities, including oil and copper. In turn, the resource-sensitive Toronto Stock Exchange benchmark index fell for a second straight session and ended the week 1.2% lower. The index also hit its weakest level in a week.

Of course, ahead of Friday’s selloff, the TSX had been gaining steadily since the start of the year and hit a 2-1/2-year high on Thursday. Perhaps more importantly, broader valuations should not be considered cheap and in order for a rally to continue, growth would have to exceed expectations which may be difficult in the near term.

So what should the average investor do – run and hit the sell button? In a couple of the stocks you own, this may be a prudent option but it should be based on the individual outlook and valuations of that individual stock not a potential currency crisis in an emerging market or a 2% broader drop in a given day. That type of thought process will kill your investment returns overtime.

Timing the broader market is a fool’s game. It is time in the market with good, undervalued growth stocks that will help you succeed long term. There will be correction – mini and major overtime. Expect them but take a deep breath and do not react to them or the potential of them in the moment. Stick to your plan and buy great stocks when they are on sale and hold or sell them when they achieve rich valuations over a 1-10 year period.

Small-Caps – The Next Big One

Every investor dreams of finding the next big one.

Take well known investor favourite Starbucks (NASDAQ:SBUX) for example. Since the company’s initial public offering in 1992, the stock has delivered a 25% compounded annual return for its shareholders. A $10,000 investment that year would be worth $1.08 million today.

But you didn’t have to get in on the ground floor to earn a good return. Even investors that were late to the party have profited handsomely. The secret to earning up to two…5…even 10 times your original investment is to identify great businesses trading at low valuations, with solid long-term growth prospects and great management teams.

Of course with a market capitalization north of CDN$60 billion, Starbucks’ big gainer years are likely behind it – the cat is out of the bag on this company. But there are other companies right here in Canada that could potentially generate excellent returns for your portfolio both in 2014 and beyond.

So which stocks make our Small-Cap Research list? Make 2014 the year you start begin to employ our simple strategy of buying quality unknown cash rich stock in your portfolio.

Regards,

Jenny McConnell,

Administrative Assistant/Office Manager