What to do if your ASX investments just crashed

It never feels good to open your portfolio and see red everywhere.

This month, a number of ASX shares, particularly in the tech sector, have pulled back sharply. Some have fallen on the back of weaker-than-expected results. Others have simply been caught up in broader tech weakness and shifting sentiment.

When that happens, the instinct to react is strong. But in my opinion, this is exactly when discipline matters most.

Here’s how I think about it.

First, separate price from business performance

A falling share price does not automatically mean a broken business.

Sometimes results genuinely disappoint. Growth slows. Margins compress. Guidance is cut. In those cases, I think it’s important to revisit the original investment thesis and ask an honest question: has something structural changed?

But often, the move is more about expectations resetting than about long-term fundamentals deteriorating.

If revenue is still growing, customers are sticking around, balance sheets remain strong, and competitive advantages are intact, then a sharp pullback can be more about sentiment than substance.

I always go back to the basics. What did I believe about this business when I bought it? Is that still true?

If the answer is yes, then volatility alone is not a reason to sell.

Second, stay calm and avoid forced decisions

Big drawdowns create emotional pressure.

When you see a stock down 20%, 30%, or even more in a short period, it can feel like you need to do something. But acting purely to relieve discomfort is rarely a good strategy.

I try to avoid making portfolio decisions on my worst days emotionally. Instead, I give myself space to think clearly. Sometimes that means doing nothing for a few days while I reassess.

Markets move in cycles. Tech stocks, in particular, tend to overshoot in both directions. They can become overly loved during rallies and overly punished during sell-offs.

If your time horizon is measured in years rather than weeks, short-term volatility should be viewed in that context.

Third, consider buying more (carefully)

If the investment thesis remains intact and your position size is reasonable, a sharp sell-off can be an opportunity rather than a disaster.

I’m not suggesting doubling down recklessly. But if a high-quality business is now trading at a significantly lower valuation, and you were comfortable owning it before, I think it’s logical to at least consider adding more.

That said, position sizing matters. If a single stock has already grown to dominate your portfolio, averaging down may increase risk rather than reduce it. In that case, diversification or rebalancing might be more appropriate.

For me, the key question is whether the risk-reward has improved. Lower prices can mean higher future returns, but only if the underlying business still deserves your capital.

When selling ASX investments might make sense

There are times when selling is the right move.

If the competitive position has eroded, management credibility is damaged, or the business model no longer makes sense in the current environment, then holding purely out of hope can be costly.

Patience should not become stubbornness in my opinion.

But it’s important to distinguish between a broken narrative and a broken business. They are not the same thing.

Foolish takeaway

Market pullbacks, especially in the tech sector, are uncomfortable. I’ve felt it too, including with DroneShield Ltd (ASX: DRO).

But I try to remind myself that volatility is the price we pay for long-term returns.

If the fundamentals are intact, I believe patience is usually the right response. In some cases, buying more can make sense. In others, simply holding steady is enough.

The worst response, in my view, is panic. As long as the original investment thesis hasn’t been broken, staying calm and thinking long term is often the smartest move of all.

The post What to do if your ASX investments just crashed appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• ASX recap: 5 most traded shares last week
• Are Austal shares a buy, hold or sell after soaring 20% on Monday?
• Should you buy BHP, CSL, and DroneShield shares? Here’s my take
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Grace Alvino has positions in DroneShield. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield. 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 Scott Phillips.