You're facing a market downturn. How do you recalibrate your risk and return strategies?

If your portfolio is set up with the right risk framework that works for you initially, then market downturns shouldn't be a shock. You should return to your initial goals and assess whether you're pursuing an active or passive strategy. If your strategy is purely passive, then you can react to market downturns by doing nothing. Any exposure to lower-risk investments will benefit you in the short term at these points. On the other hand, if you seek an element of active management market downturns can be seen as opportunities. In a recession for example, equities are essentially "on sale" and an investor can grant additional allocation to value stocks that are falling in value but expected to sustain long term growth in the long term.

Firstly remain invested, DO NOT cash out your investments, they will yield better in the long run. Secondly diversify your investment in different classes of assets, like stocks and bonds ,that should be more risk tolerant.

The first thing to do before investing is to clearly define your time horizon and risk tolerance. This allows us to build a portfolio that is aligned with our objectives. If this step is done correctly, there's nothing left to do! As investors, time is our best ally. The corrections or crashes that can rock the markets are part of the normal cycle of the economy and, therefore, of portfolios. Let's see them as opportunities to strengthen our portfolios, and time will do the work for us. Let's not forget that the best investors are... dead investors! For the simple reason that they never change their positions!

Ensure your portfolio is diversified across different asset classes, sectors, and geographic regions to mitigate risk. Example Action: If you find that a large portion of your investments is concentrated in a single sector that is particularly affected by the downturn, you can rebalance by investing in sectors that are more resilient or even counter-cyclical.

Identify and sell underperforming assets or those with limited recovery potential. Use the proceeds to invest in more stable or promising opportunities. Example Action: Liquidate positions in stocks of companies with weak fundamentals and reinvest in high-quality, financially stable companies or sectors that historically perform well during downturns.

Most opportunities in market are created by desperate people. In past we have seen hype sectors witness nearly 80-90% drawdowns. Deep Cyclicals between 60-80%. Semi-Cyclicals between 40-60% and even growth stocks give up between 20-40%. Idea is to understand underlying industry and look for Top3 companies in the sector for investments. Robust Balance sheet and low leverage can be additional screening matrix. Major market drawdowns create big opportunities for long term investors. Hence, when you are long term investors lookout for desperate sellers, do homework on industries and specific stocks, understand negative spreads between market price and Value. if risk rewards are reasonably high, provide liquidity to desperate sellers.

Conduct a thorough analysis to identify stocks with strong balance sheets and competitive advantages that are trading below their intrinsic value, and consider making strategic purchases.

Reassess your investment time horizon to ensure it aligns with your financial goals and current market conditions. If your time horizon allows, adopt a long-term perspective, focusing on investments that may suffer short-term losses but are likely to recover and grow over the long term.

The first rule of investing is to know what you own and why. It's crucial to thoroughly understand the risks and opportunities of your assets, the rationale behind your choices, and your investment time horizon. A core portfolio should consist of assets you can hold through market turbulence for long-term gains. This requires conviction based on hard facts and an accurate assessment of those assets' fair value. Such knowledge allows for counter-cyclical adjustments when price movements create opportunities. For trading assets, define stop-loss levels in advance and use options strategies to manage them. Portfolio risk is best managed counter-cyclically, buying protection when volatility is low and selling volatility at abnormal peaks.