Byte #45: Do You Find Sell-Offs Exciting or Nerve-Wracking?
Dear Readers,
How you behave during a market sell-off says a lot about you as an investor...and about your underlying beliefs.
A strong investor stays rational and patient, viewing falling markets as opportunities to buy quality assets at a discount. Others flee, only to return after the rebound has already happened.
But let’s be honest...this mindset is much easier said than done.
🧠 The deeper truth (the hard part): Even the best investors go through phases where:
Every buy feels wrong
Every chart looks broken
Confidence dips
This is the price you pay for long-term compounding.
So, here’s the mantra I remind myself of to stay grounded:
A drawdown is not a disaster
My process is sound
My companies are strong
I am building wealth over years, not days
Red days are part of compounding...not a judgment on me
Despite this, I’ve made my own mistakes. And I will make more. Because to err is human.
What matters is reflection...understanding why you bought or sold, and making small improvements over time. Those marginal improvements compound into better decisions.
Because our minds are wired to avoid losses, panic is natural. In those moments, I ask myself:
Is this temporary volatility or a permanent loss of capital?
Is this a high-quality asset now on sale?
Does this price offer a sufficient margin of safety?
Still, the fear of “catching a falling knife” lingers…the idea of buying into a stock that continues to fall, with no clarity on where it might bottom
So instead of asking “When should I buy?”, I focus on “How should I enter?”
That shift changes everything.
Rather than trying to time the bottom, I build positions gradually through dollar-cost averaging...removing emotion from the process.
Let’s take an example: Microsoft (MSFT) with a stellar balance sheet and an A+ financial strength. Currently the stock trades at ~$383...down ~45% from its 52-week high of $555.
An investor now has choices: Do nothing? Sell? Add more? Start a position?
A thoughtful investor asks:
Is the business model broken?
Has management signaled structural or growth concerns?
Has the company lost its competitive moat (its switching costs and network effect)?
Is demand for AI tools like Copilot and cloud services like Azure slowing?
If the answers remain reassuring, then the price decline may represent opportunity...not risk. And with MSFT currently trading at ~23.9x earnings vs ~26.1x for the S&P 500, you’re looking at a high-quality business priced below the market…something worth examining more closely.
Now, how do we deal with the “falling knife” fear?
Shift from a single entry to a staggered approach:
If your goal is to invest say $2,000...you may enter as follows:
25% at $430
25% at $400
25% at $385
25% reserved for future opportunities
This isn’t about perfectly timing the bottom. It’s about participating without overcommitting.
And remember...dollar-cost averaging works both ways. You may average down and up.
Over time, this approach helps remove emotion and lets your process take over.
Because investing isn’t about being right every day... It’s about being disciplined over years.
Your returns don’t come from avoiding red days...they come from surviving them.
As always, I hope you found this Byte helpful and that it brings you one step closer to becoming a better investor 😊
Keep reading, keep learning...and I’ll see you next week.
Ciao
P.S. This isn’t a recommendation to buy or sell...it’s about educating ourselves on how to stay rational when markets aren’t.
