How I think about market downturns (instead of panicking)

The market dropped 35% in March 2020 in 23 days. It dropped 25% in 2022 over 10 months. Both felt terrifying in real time. Both were obvious buying opportunities in retrospect. The difference between investors who win and investors who lose is almost entirely how they handle the gap between those two states. Here is the framework I use when the screen turns red.

Bear markets are wealth transfers from people who panic to people with a process, and the process is more important than any individual stock decision you make in that window.

Most retail investors do exactly the wrong thing: they sell into weakness because the pain of watching losses compound is greater than the abstract upside of holding. They lock in losses at the worst possible point. Then they wait too long to re-enter and miss the recovery. The 2008 and 2020 examples are textbook.

1. Pre-commit to my asset allocation BEFORE the drawdown starts. A 60/40 or 70/30 split written down somewhere I can see when emotions hit.

2. Pre-commit to rebalancing trigger thresholds. When stocks drop 20% and bonds are unchanged, I sell some bonds and buy stocks to get back to my target allocation. The math forces me to buy low without requiring me to feel good about it.

3. Keep 15-25% in cash and short Treasuries during high-valuation regimes (like 2026). That dry powder gets deployed in tranches at -20%, -30%, and -40% drawdowns. Three pre-defined buys per major correction.

4. Stop checking the screen daily. Daily price movement amplifies emotion. Weekly or monthly checks during a drawdown are sufficient.

5. Hold high-conviction long-term positions through volatility unless the underlying thesis is broken. Volatility is not a thesis break.

I followed the framework. I redeployed cash in tranches. The positions I bought at -25% from peak are up 80%+ as of mid-2026. The same money sitting in cash would have lost real purchasing power to inflation. The framework worked.

Watching neighbors and Twitter post their drawdown losses. Reading headlines predicting Great Depression 2.0. Forgetting that every prior major drawdown was followed by a higher high within 24-48 months. Letting the pain of the moment override the math of the cycle.

You will see another 20-30% drawdown in the next 5 years. Probably the next 2. The question is not whether, it is whether you have a written framework before it happens. If you don't, you are guaranteed to make emotional decisions when it does.

Read next: Position Sizing in High-Valuation World | Why Buy The Dip Is Dangerous

*⚠️ Disclaimer: This post is for educational and entertainment purposes only. MentorSurge is not a financial advisor. Nothing on this site is investment or financial advice. Individual financial situations vary. Always consult a licensed financial professional before making investment decisions.*