Mind over market: 7 habits of investors who thrive during corrections

Here are seven ways to turn a market downturn into a chance to strengthen your portfolio and your investing mindset.

Resist the urge to rewrite history

When markets tumble, it’s easy to look back and convince yourself that the signs were obvious. 

“I knew I should have sold when valuations started looking stretched!” 

But the reality is, valuations can be stretched for a while and predicting the exact timing of a correction is nearly impossible, even for professional investors. Attempting to time the market often leads to missed opportunities or locked-in losses. Focus on making forward-looking decisions based on your long-term investment plan and risk tolerance, rather than second-guessing past choices.

Tuning risk tolerance

Market downturns offer an opportunity to better understand your emotional connection with risk. Pay attention to the investments that cause you the most anxiety and use this awareness to refine your investment approach.

Also read: Falling markets are just what you needed. Here’s why

If specific holdings are keeping you awake at night, they may not align with your risk tolerance. Tailoring your portfolio to match your true risk profile will help you navigate future market volatility with greater confidence.

Strategic rebalancing

When markets are volatile, it’s tempting to make impulsive decisions driven by fear. However, a more strategic approach is to use the correction as an opportunity for intentional rebalancing. 

For example, let’s say your target asset allocation is 60% stocks and 40% bonds. A significant stock market decline may have shifted that balance to 50/50. By selectively buying more stocks at lower prices, you can restore your desired allocation while positioning yourself for potential gains when the market recovers. Think of it as a disciplined “buy low” strategy rather than an attempt to time the bottom.

Media detox

During a market correction, the 24×7 news cycle can be your worst enemy. The more you consume short-term-focused financial media, the more likely you are to make emotionally driven decisions that can harm your long-term returns. Go on a financial media diet and study market cycles.

Also read: Investors lose nearly ₹50 trillion in 7 weeks

Use this time to shift your perspective and dive into the rich history of financial markets. By studying past market cycles, you can gain valuable insights into the long-term trends and patterns that have shaped the investment landscape over decades. I’d recommend Burton Malkiel’s A Random Walk Down Wall Street for an accessible and engaging read.

Portfolio refresh

Market corrections, while challenging, can offer a chance to enhance your portfolio’s quality. 

Evaluate your investments to ensure they align with your goals and risk tolerance. Identify holdings that no longer fit your strategy and consider selling underperforming or overvalued assets. 

Likewise, explore opportunities to invest in sectors or companies previously out of reach due to high valuations. Use the correction to reposition your portfolio with stronger, more reasonably priced investments.

Stay the course

It may sound counterintuitive, but one of the most effective strategies during a market correction is to simply do nothing. 

Decades of market history have shown that investors who stay the course during downturns are often rewarded as markets eventually recover. In fact, some of the best opportunities to buy stocks at attractive valuations occur during times of peak uncertainty. As tempting as it may be to “take action” when prices are falling, often the wisest move is to stick with your existing investment plan and let time work in your favour.

Long-term lens

Finally, remember that short-term market movements are just one small chapter in your long-term investing story. 

While it’s natural to feel anxious during a correction, try to keep things in perspective. Historically, the stock market has delivered positive returns over the long run, despite numerous corrections and bear markets along the way. 

In hindsight, every downturn has turned out to be a good time to invest more. By staying focused on your ultimate financial goals and maintaining a disciplined, patient approach, you’ll be well-positioned to weather any short-term turbulence and emerge a stronger, more resilient investor.

Also read: How to approach asset allocation in bullish times

Market corrections are a normal and necessary part of the investing cycle. By using these challenging periods as opportunities for learning, reflection, and strategic decision-making, you can turn a potential setback into a chance to strengthen your financial foundation.

Stay the course, tune out the noise, and trust in the power of long-term investing. Your future self will thank you.

Anoop Vijaykumar, Investments & Head of Research at Capitalmind.