The NASDAQ Composite Index (INDEXNASDAQ: .IXIC) slipped into correction territory last Thursday, marking a 10% decline from its recent peak.

In theory, this is good news for investors.

After all, a market correction allows you to buy stocks at a discount.    

But in reality, many will shy away, fearful that share prices will continue to fall. 

This raises a key question: why is there a disconnect between what’s rational and the actual investor behaviour? 

Here’s a hint: when you are under pressure, even the most familiar tasks can suddenly feel monumental.

Take football penalties.

When a penalty is awarded during a match, players score approximately 85% of the time. 

But if the match goes to a penalty shootout and the pressure is heightened, the conversion rate drops to 76%. 

Here’s the most revealing statistic: if a player must score to prevent his team from losing, the success rate dips dramatically to under 60%. 

The same phenomenon applies to investing. 

When under pressure, simple beats complex 

Market declines can exert stress on unprepared investors.

When the pressure is on, your head will be swirling with emotions and competing thoughts.

In my view, the last thing you need in this situation is complex formulas or mathematical equations. 

You’ll be better off with simple rules which you can follow and put into action.  

But what are the rules to follow? 

Let me suggest a few.

1. Staying calm: The best strategy in the stock market is a calm mind. 

You can buy a great stock at a favourable price during a market correction. 

But if you lack the mental fortitude to hold those shares, you may end up selling at the first sign of trouble. 

The good news is, a few basic steps before you invest can make a world of difference.

For instance, consider setting up an emergency fund. 

The key here is to park your funds in a place you can access at a moment’s notice. 

The emergency fund acts as a safe harbour, a source of cash you can access when you need it most.  

Alternatively, if the steady flow of income soothes your mind, consider investing in dividend stocks which can provide regular income. 

Either way, prioritise your mental well-being. 

It’s the key foundation to all the investing decisions you make.   

2. Tune out the distractions: If day-to-day stock price movements keep you up at night, consider removing the daily stock price movement column altogether. 

How much a stock price changes in a day should play no part in how you pick stocks anyway. 

Financial headlines can sometimes be a distraction too. 

Take Meta Platforms (NASDAQ: META). 

Three years ago, in 2022, the Financial Times highlighted the social network’s woes, calling them a perfect storm. 

In addition, the article went into great detail about the problems Meta was facing, from the rise of TikTok as a competitor, to Apple’s (NASDAQ: AAPL) privacy policy which effectively kneecapped its targeted ads, costing Meta US$10 billion in lost revenue. 

Here’s the thing: delving into the negatives can often blind you to the positives. 

While TikTok’s short-form videos were indeed a threat, what was not mentioned was the many other formats where Meta dominates in user engagement across WhatsApp, Instagram, Facebook and Messenger. 

That’s not all. 

Amid the challenges, Meta had already been working on an Advantage+ Shopping solution for advertisers three years ago. 

Today, Advantage+ Shopping campaigns have become a key growth driver, exceeding a US$20 billion revenue run rate in its latest quarter.

In the process, the new revenue source has put concerns over Meta’s lost revenue to rest. 

Clearly, if you had listened to the naysayers, you would have missed out on the positives.

3. The stock price obsession: Another unfortunate trait among investors is their focus on timing their entry into the stock market. 

This practice is prevalent especially during market corrections. 

The hope is to catch stock prices as close to the bottom as possible.  

But here’s the truth: the lowest stock price can only be known in hindsight.  

Short-term stock price movements are unpredictable.

In the near term, be prepared for the possibility that the stock price may fall below your purchase price.

Going back to Meta as an example, if you bought shares three years ago, on 7 March 2022, you would have paid roughly US$187 per share. 

The next eight months saw a dramatic drop, with the price plummeting to nearly US$88 in November 2022. 

Here’s the kicker: Today, with Meta’s stock price trading above US$625, you would have made substantial gains whether you bought in March 2022, November 2022, or any point in between. 

Sure, it would be great to get shares at their absolute low.

But have you ever seen a sad investor who made over 230% in returns (excluding dividends) by buying at US$187 per share? 

I haven’t.   

The point is, you don’t have to be perfect with your entry price. 

As long as the business does well, the stock will eventually follow. 

4. Discipline in investing: Some investors believe in exercising restraint by avoiding stocks when they are overvalued. 

I would argue that you also need to do the same when a market correction hits. 

When stocks go on sale, it’s easy to lose your bearings and buy the wrong stocks. 

As investors, we should exercise restraint in how quickly we buy, so that our cash does not run out before the big opportunities turn up. 

How do we moderate ourselves? 

Morgan Housel, a best-selling author and partner at the Collaborative Fund, once provided a simple blueprint based on the size of the market decline. 

We have adapted his idea into the enclosed table, based on putting US$1,000 of cash to work.  

More importantly, these percentages are easy to understand and follow. 

The decline intervals provide you with a yardstick to moderate how you deploy your funds. 

Get Smart: Buy to own for the long run

Market corrections are filled with noise and distractions. 

Simple rules can help you cut through the din and focus on buying the right stocks. 

Bear in mind that what a market correction throws out may not always be what you need for your investment portfolio.

As always, you should invest in businesses which you want to own for the long term and not necessarily select what’s on sale during the downturn. 

That’s the final principle to commit to your memory.

You have to accept that your entry point will be imperfect. 

But as Meta has shown, being imperfect is perfectly fine.

Discover how to turn market volatility into potential gains with smart, adaptable strategies. Join us at our webinar, “How to Invest US$20,000 Amid the Great Uncertainty” and unlock the path to a more secure financial future, even in the face of the Great Uncertainty. Sign up here. Click here to claim your free access!

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Disclosure: Chin Hui Leong owns shares of Apple and Meta Platforms.