Here’s a quick way to ride out the sell-off in ASX shares

It’s time to pull out those trusty investment principles…

Dollar signs floating in the sea.

Image Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on How to invest

Young female investor holding cash ASX retail capital return
How to invest

Why I think these two ASX shares could turn $5,000 into $100,000

Here are two ASX shares that I believe could generate big returns for investors.

Read more »

A happy, smiling woman rides on the back of a trolley down the aisles of a supermarket representing Coles shares as an ideal stock to buy for beginners investing in the ASX 200
How to invest

How to start investing in stocks: This ASX 200 share is where I’d begin

This could be a great time to start investing in stocks. Here's an ASX 200 share that I think is…

Read more »

Two men lok sxcited on the trading floor.
How to invest

Despite rising bond yields, here’s why I’ll keep investing in ASX shares

This is why I believe investing in shares trumps all other options...

Read more »

Model bear in front of falling line graph, cheap stocks, cheap ASX shares
How to invest

How long do ASX bear markets last on average?

The ASX is certainly closer to a bear market this week than it was last week. But how long do…

Read more »

Swyftx and Superhero co-founders Alex Harper, Wayne Baskin, Angus Goldman and John Winters
How to invest

Popular ASX shares and crypto platforms merge in $1.5bn deal

Two Australians apps that have enjoyed explosive user growth during COVID-19 are combining to offer both stocks and cryptocurrency trading…

Read more »

Deterra share price royalties top asx shares represented by investor kissing piggy bank
How to invest

This is the top ASX 200 share I wish I’d bought when starting out

Looking for a top ASX 200 share to start investing with? Here's one idea that I wish someone told me…

Read more »

A child covering his eyes hiding from a toy bear representing a bear market for ASX shares
How to invest

Is a big scary bear coming for ASX 200 shares, or could it be just a playful cub?

We check whether a bear market could be coming to an exchange near you.

Read more »

A businessman in a suit wears a medal around his neck and raises a fist in victory surrounded by two other businessmen in suits facing the other direction to him.
How to invest

This fundie has beaten the ASX 200 every year for the past 2 decades. Here’s how

This ASX fundie has a pretty impressive market-beating track record. Here's how his fund beats the market.

Read more »