Protecting Your Portfolio During Market Corrections

Market corrections can feel like the end of the world when they’re happening. Looking back, they’re a recurring part of investing, and what investors do during them often matters as much as what the market does.

On the latest episode of Quarter Over Quarter, Don Drury, Tom Moran, and Charlie Chesebrough talk through how they think about corrections: what separates a routine pullback from something more serious, what a well-prepared portfolio looks like, and the role emotions play. Tom makes the case that for investors with a long time horizon, sometimes doing nothing is the best strategy, and he’s equally clear that there are exceptions.

Corrections, Bear Markets, and What to Watch

Don opens with a look at how often corrections have occurred over the decades, and then asks the question every investor eventually asks: where is the line between a normal correction and one that should concern you? Charlie and Tom revisit several well-known market declines and offer their views on what turns a pullback into something longer, including why Charlie says they’re always on recession watch.

The group walks through the warning signs they pay attention to, from valuations to the economy to leverage, and they don’t agree on every point. Don also asks whether any correction has failed to eventually recover, and Charlie has a reply that adds an important caveat about how long recoveries can take.

Liquidity, Diversification, and Downside Protection

A big part of the conversation is what Don calls portfolio hygiene. Tom and Charlie discuss understanding your own risk tolerance, the challenge of staying diversified when one part of the market has been doing especially well, and the role non-correlated assets can play. Don raises the importance of liquidity for anyone living off their portfolio, and Tom explains why time horizon matters when thinking about how much risk to take.

The team also covers the tools professionals use when a client is nervous about a large position but doesn’t want to sell. Tom describes the tradeoff involved, and Charlie explains why he thinks those tools are more accessible to individual investors today than they once were.

Emotions, a Rapid-Fire Round, and the Outlook

Don asks how much of getting through a correction is portfolio construction and how much is managing emotions, and Charlie and Tom each share what they’ve seen over their careers, including a memorable quote Tom borrows. They also discuss why staying the course can look different for investors who are still contributing to their accounts.

Don then runs a rapid-fire round asking whether common moves are smart risk management or emotional timing, covering rebalancing, raising cash, tax-loss harvesting, and protecting a concentrated position, and the answers include some thoughtful “it depends.” The episode closes with each host’s outlook for the rest of the year.