How to Handle a Market Downturn
As we continue to deal with an uncertain market, we offer some advice on dealing with a downturn so that you can emerge a better investor.
Sept. 27, 2022

Market downturns are an unfortunate certainty in the life of any investor. For those of you lucky enough never to have experienced the feeling of glancing at your portfolio only to be greeted by a sea of red, your time will inevitably come. How you react to this is often what separates the successful investors from the rest.

With the markets currently undergoing extreme volatility, it's easy to become fearful. With that in mind, here's some advice on how to handle a severe downturn and come out the other side healthy.

Don't panic, don't sell, do nothing

The first, and most important piece of advice, is not to panic. As evidenced by the numerous previous stock market crashes, the market will eventually recover. If you panic and begin selling off you could rob yourself of potential long-term gains. 

It's very easy to get caught up in the daily news mill, where the sky is falling and no businesses will ever recover. Remind yourself of the history of the stock market. Between 1854 and 2018 there were 33 recorded major recessions in the United States. Every single one of them saw the market bounce back past previous highs.

By exiting your positions you're locking in a loss, despite it being statistically likely that the market will recover. The hardest thing to do in times of unrest is nothing, but by honing this temperament you can put yourself in the best possible position to eventually outperform the market

Collect your thoughts

Once you've avoided the inevitable feelings of panic associated with a spiraling portfolio, it's time to collect your thoughts. Specifically, consider your investing timeline and reevaluate your current positions.

Short-term thinking can be extremely dangerous to any portfolio. By reminding yourself of your own timeline you can regain some clarity. A 20-year outlook makes each earnings report only representative of 1.25% of the time you plan on owning a stock for. Large companies won't fall apart over one bad earnings report, so remember to zoom out and think long-term.

Remind yourself of the reasons you already hold the stocks in your portfolio. If the underlying facts from these companies haven't changed, neither should your convictions. Companies will always rise and fall in the short term, the successful investors will hold on through this turmoil and come out the other end still holding a successful company.

Go on the defensive

With panic avoided and your thoughts focused, you can now look to take action. First, assess your portfolio for diversity. You should look to diversify in multiple ways if possible: geographically, stylistically, and through different industries. Doing this will protect your portfolio by ensuring you aren't overly affected by any one issue.

Next, consider rotating into some defensive stocks. Certain industries tend to do well in an economic downturn, such as utilities or healthcare. Owning strong-performing stocks in these industries could help mitigate any wider market issues.

Finally, consider anchoring your portfolio with large-cap, market-leading stocks that will more than likely be easily able to ride out any periods of economic strife. Apple (NASDAQ: AAPL) and Berkshire Hathaway (NYSE: BRK.B) are two that instantly come to mind.

Go on the offensive

Once your portfolio is adequately secured against a further downturn, you can consider making some purchases if the situation allows you to. By making calculated moves you could secure valuable stocks at a discount. Many investors rotate away from high-growth stocks in a downturn out of fear. If the underlying properties of these companies are still strong, you could potentially invest while they are undervalued.

Be careful to only buy what you can afford. Utilizing a strategy such as dollar-cost averaging could be of particular use here in order to remove some of the emotion from your purchases. As the 'Oracle of Omaha,' Warren Buffett, once said: 

"Be fearful when others are greedy, and greedy when others are fearful."

Top Ten Stocks To Buy Now
Commit to your future wealth today and join 1000s of subscribers receiving:
  • New stock picked every week out of 60,000 worldwide
  • Ten Foundational stocks to hold until 2034
  • A library of 60 stocks with analysis
  • 10 year Track record of performance
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

The Home of Successful Investing.

© 2024 MyWallSt Ltd. All rights reserved.







This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.