As the market closes on its fourth consecutive day of steep losses, investors are coming to terms with the S&P/ASX 200 Index (ASX: XJO) now being in a correction. To say there has been plenty of red across ASX shares lately is perhaps an understatement.
It can be difficult to stay the course when portfolios are relentlessly ticking lower. Each day can feel like a one-way ticket to more losses. It is in these times that the fortitude of an investor is truly put to the test.
Now, it is a different story if the intention is to sell. However, more often than not, the pressure to sell during a downturn comes from a place of fear.
With that being said, now seems like an appropriate time to brush up on some fundamental investing principles that have stood the test of time.
These lessons have served many investors over the years during countless rough patches. Considering the start to 2022, they might need to be deployed once again.
Follow the business, not the share price
The first investing principle to remember during a sell-off is that the market can be erratic, but the underlying company often remains unchanged. One of the greats, Peter Lynch, once said:
Behind every stock is a business, find out what it's doing.
In the long run, the price of an ASX share will be determined by the success of the business itself. Whereas, in the short-term, the share price bounces violently around changes in emotions and sentiment from investors.
A lot of pain can be avoided sometimes if investors focus less on what the share price is doing, and more on how the company is performing. Whether that be an assessment of revenue/earnings growth, board quality, or customer satisfaction. These are the factors that many investing greats have paid attention to during difficult times in the market.
Why do you own that ASX share in the first place?
Another principle that can help with weathering the storms is rooted in a bit of self-awareness.
Warren Buffett has said in the past:
Risk comes from not knowing what you are doing.
It could be reasonable to tack onto the end of that: why are you doing it?
Understanding what you are invested in and why you are investing provides some degree of self-certainty during an otherwise uncertain time.
As an investor, if you can feel confident in the ASX shares you hold — both knowing what the company does, and why you are invested in it — conviction is pre-built and at the ready when the volatility hits.
In addition, this is often the difference between selling out of a company you may like at a lower price; compared to buying more shares in it at a discount.
Foolish takeaway
In essence, difficult times in the share market sort the investors from the traders. Those with conviction and those without it. Ultimately, there are no right or wrong decisions in absence of hindsight. However, sometimes as investors, we can lose sight during rough waters — only to realise we detoured from our previously chartered course after the fact.
Many investing greats know this. They have lived it through the experience of many treacherous times in the market before. Fortunately, each time the market has come out the other side — proceeding to reach new all-time highs.
While the past performance of ASX shares is not an indicator of future performance, the abovementioned principles offer us a glimpse of how successful investors have navigated these seas before.
