CommSec
8 Apr 2026
Author: James Gruber is Equity Market Strategist at CommSec
It’s been a dizzying ride for investors since US-Israeli airstrikes on Iran set in motion an escalating Middle East conflict that’s now into its second month. A Presidential social media post can send markets soaring, while an Iran counterstrike can see them plummeting again, sometimes within the same market session.
In volatile times like this, markets may seem to become less about knowledge or expertise, and more about psychology, and being able to ride through the rocky environment.
To that end, here are five psychological tools investors could consider during bumpy times:
Hitting pause
First is the Zen, or do nothing, approach.
Often, investors feel like they must do something. They read the latest news headlines and feel like they must react to them.
The problem is that abrupt, emotional decisions often lead to poor outcomes. Decisions that you can regret later.
Instead of reacting in the heat of the moment in volatile markets, it may be best to take a deep breath and do nothing. It could be for a day, a week, or a month.
Take the time to make a rational, informed decision. This way, you can decide at a time of your choosing and with a full array of facts and information in front of you.
Using this tool can put you ahead of a lot of investors.
Keep perspective
It is great to be informed about markets. To keep up with the latest news, CommSec has morning and afternoon updates to do just this.
LISTEN: Podcast | CommSec Market Update
But it is also important to put the daily news in perspective.
WATCH: Don’t panic during volatility!
One strategy to help zoom out from the news headlines is to think about the current events through the lens of goals and incentives. What are the ultimate goals of the main actors, such as politicians, journalists, and investors? What are their incentives?
It can help you filter the news and decide what is important and what is not.
In his book, One Up on Wall StreetPeter Lynch warned against stubbornly holding onto poor-performing stocks:
“Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”
A crisis like the current one is a great time to take stock of the ‘strong’ and ‘weak’ shares in your portfolio. Strong and weak being less about prices and more about fundamentals.
Is there a stock that you own that carries too much debt, making it more vulnerable if there is a slowdown in economic growth? Is there a stock that does not have a sufficient competitive edge to raise prices in line with inflation – an important characteristic if inflation spikes? Is there a company whose business has changed, offering few chances for growth going forward?
Volatile markets like today can help you zero in on the ‘weaker’ businesses that may be worth trimming or eliminating from your portfolio.
Sleep comfortably
If your current stock holdings are keeping you awake at night, then it might be worth listening to the late J.P. Morgan.
A friend once told Mr Morgan that he was so worried about his portfolio that he could not sleep, to which he replied:
“Sell down to the sleeping point.”
By this, he meant that you should only hold as much risk as that which allows you to sleep comfortably at night.
There’s another benefit to a good night’s sleep – people tend to make calmer and more rational decisions after a proper rest.
Say you have spare cash that you would like to put to work during a market dip – what are the best ways to do this? There are two primary methods – lump sum investing versus dollar cost averaging.
Lump sum investing involves putting a set amount of cash immediately into an investment or investments. Dollar cost averaging in contrast, spreads your investment over time i.e. monthly, quarterly etc.
Research shows that lump sum investing offers superior returns over time.* However, it is psychologically harder to do, especially during large market pullbacks.
As always, investors should get informed, and choose what works best for them.
*See G Constantinides, ‘A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy,’ 1979, and MJ Brennan, ‘Dollar Cost Averaging,’ 2005.
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