So, how do you reassess your portfolio now? Here are seven key points to consider:
1) The Market Bottom Doesn’t Mean Your Portfolio’s BottomIt’s tempting to believe that the worst is over, but a market rebound doesn’t mean every stock has found its floor. Despite a 20% correction in mid-cap and small-cap indices, valuations are still elevated. Just look at the numbers: Back in September 2024, only 24% of NSE 500 stocks had a P/E ratio below 25x. Today, that figure has risen to 32%, but a whopping 68% still trade above 25x. Stocks with P/E ratios above 50x have shrunk from 48% to 34%—but that’s far from cheap, it’s actually still quite expensive. As a thumb rule, a reasonable valuation is around 15x P/E for businesses with 15% earnings growth and 15% ROE. Many stocks are still far from that comfort zone, meaning further corrections may be on the cards.
2) The Last Rally’s Stars Rarely Lead The Next One
Markets don’t have repeat telecasts. The stocks that led the last bull run aren’t necessarily the ones that will drive the next leg. Even in the post-Covid rally, while the broader themes—PSUs, railways, defense, power, and capital goods—remained dominant, sector rotations were constant. Betting that the same names will shine again could be risky. Instead, refocus on the growth-to-valuation equation. Many stocks that looked undervalued post-pandemic are no longer in bargain territory, despite recent cuts.
3) Don’t Fall For The Sunk Cost Fallacy
One of the worst mistakes in investing? Holding onto a bad stock simply because you paid a high price for it. Investors often cling to the hope that their stock will “come back” to their purchase price. Reality check: Markets don’t care what you paid. If a stock is faltering on growth or is still overvalued, cut your losses and move on. Holding onto underperformers comes with an opportunity cost—you’re missing out on better investments elsewhere.4) A Big Fall Doesn’t Mean a Big Discount
A stock dropping 50% isn’t automatically a “buy.” Many investors pile into falling stocks, thinking they’ve snagged a bargain. But stocks fall for a reason—either weak fundamentals or unsustainable valuations. And remember: A 50% fall means a stock has to climb 100% to get back to the same level. It’s a bad idea to start with a list of stocks that have seen the biggest cuts as the first filter – it’s just the wrong thing to look at and a wrong way to start. Instead of chasing the deepest cuts, evaluate stocks based on their actual earnings growth and valuation metrics.
5) Penny Stocks Make You Pound Foolish—Avoid Them
Retail investors often flock to low-priced stocks, mistaking affordability for value. Some of the most retail-heavy stocks include Vodafone Idea and Suzlon, both of which have struggled with weak fundamentals for years. A cheap stock isn’t necessarily a good stock. In the long run, business competitiveness, profitability, and earnings growth determine returns—not the fact that a stock is trading under ₹10 or ₹20.
6) In the Long Run, We’re All Dead – Make Course Correction
A five-year horizon is a solid starting point for equity investing—volatility smooths out over time, making returns more predictable. But let’s be clear: Time alone doesn’t guarantee good returns. Holding a bad stock (or mutual fund) for years won’t magically make it a winner. Every market excess eventually consumes investors who get caught up in the hype. That said, every mistake is also a chance to course-correct. The worst thing you can do? Go hands-off and hope for a recovery. A managed portfolio isn’t a set-it-and-forget-it deal—you need to actively realign it to ensure it’s working for you. Hope isn’t a strategy.
7) Cash Is a Position—You Don’t Have to Buy Right Away
If you’ve exited overvalued stocks, don’t rush to redeploy the cash. As Benjamin Graham put it, Mr. Market comes knocking with offers every day—you don’t have to take them. Sometimes, the best move is to sit on cash and wait for compelling opportunities. The market will always present better entry points—if you have the patience to wait.
