Years ago, Antoine Bechara, an academician and neurologist, ventured the theory that successful investors in the stock market might be called “functional psychopaths”. These individuals are either good at controlling their emotions, or perhaps don’t experience emotions with the same intensity. It may sound frightening, but this is a huge asset for investors.
Humans are wired to respond and react. So when their money rides on the roller coaster of the market, many emotions come to the fore—exuberance, greed, fear, and panic. Emotions are necessary, but they need to be reined in. As I write this, investors are grappling with a lot of uncertainty. As on October 1, 2026, the 52-week high for the Sensex was 86,159, and the low was 71,292. Will it dip more? How much deeper will the correction be? How long will it last?
Let’s examine the situation.
1 October 2026
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A while back, Swarup Mohanty, vice chairman and CEO at Mirae Asset Mutual Fund, made an interesting observation on social media. He took the 1-year return of Nifty 50 (-0.35 per cent) as on August 31, 2026. He then compared it with the Nifty Midcap 150 (14.13 per cent) and Nifty Smallcap 250 (11.95 per cent), to point to the difference in return as far as market cap was concerned. But he did not stop there. He also brought our attention to specific sections of the market; Nifty India Defence (31.84 per cent), Nifty India Manufacturing (17.40 per cent) and Nifty Capital Market (34.97 per cent). Compare these returns with the Nifty 50’s negative 0.35 per cent.
I am not making a suggestion, and neither was he. But there are lessons to be learnt from this.
Lesson I
It is futile to benchmark your portfolio against the 'market': People often talk about the 'market' being up or down. Have you ever stopped to wonder what that really means? Basically, it is simply a reference to a broad index, such as the Sensex or the Nifty 50. But why should that concern you? The idea of the “market” is a tricky one because an index does not tell the full story about the investable universe.
To judge the success of your investment strategy, first be clear about your goal, and then choose a strategy for reaching that goal
The Sensex is a measure of the stock values of 30 large companies, and it increases to 50 for the Nifty 50. From the universe of 30 or 50 stocks, it could be that just a few are pulling the direction of the index. Even if it was the general trend, should that be of concern? What do the values of those specific companies have to do with your portfolio? Your portfolio would have a mix of stocks or funds of various market caps, and would also include cash, fixed income investments, debt funds, exposure to gold and silver, and global equity exposure. You have a portfolio that was constructed keeping your age and goals in mind as well as your needs. The purpose of your multi-asset portfolio is to meet your goals, not beat a single market-cap index.
“Did I beat the index?” has little to do with whether or not you are on track to reach your financial goals. To truly judge the success of your investment strategy, you need to first be clear about your goal, and then choose a measure of success that suits the strategy for reaching that goal. You should be concerned that your investments are on track to allow you to reach those goals.
Lesson II
The market is multi-faceted and does not comprise of a single entity: As I wrote this, large-caps were getting soundly thrashed while small-caps were doing relatively well. Within large-caps though, all the stocks were not moving uniformly. HDFC Bank, Axis Bank, Reliance Industries, Hindustan Unilever, ITC, Bajaj Finserv, Dabur, TCS, Infosys, Tech Mahindra, L&T Technology Services, LTIMindtree and Asian Paints have put up a dismal performance over the last five years. However, Bharti Airtel, Bharat Electronics, M&M, Bajaj Auto, Trent, Sun Pharma and L&T have delivered positive returns over the same period. From a thematic perspective, IT, FMCG, and oil and gas were faring badly, while power, metals, healthcare and capital goods were holding up pretty well.
This implies that just because broad indices are underperforming, it does not mean that there is no opportunity in the market. The market is not a homogenous entity. There are various segments in the market, and all do not move in sync.
Lesson III
Place your attention in the right place: Stocks have a fundamental value distinct from their market price. The market price will move towards its fundamental value over time. The discrepancies between the prevailing stock price and fundamental values are attributed to a variety of factors—current geopolitical events, liquidity, anticipation of the future, rate of interest, political climate, and our position in the economic cycle. Hence, fluctuations in stock prices should not perturb us. Ultimately, they will reflect the performance of a business. That’s where the focus should be. As Warren Buffett said: “Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.”
Optimising returns is when for the lowest amount of risk, we get the most effective returns, and avoid total loss of capital
Obtaining thematic exposure just because that segment is doing well, or just because it is in a slump, is a recipe for disaster. Making an investment decision is like formulating a scientific hypothesis and constantly re-evaluating the assumptions in the light of new information. To make a smart and informed decision, direct your attention to the margin of safety, your outlook as to whether the businesses can sustain earnings growth beyond the current cycle, and whether the theme reflects structural changes within the economy.
If you invest with no hypothesis, expect that a particular stock might outperform the market average, and your attention will solely rest on price movements. When turbulence hits, panic will set in.
Lesson IV
Investing should be about optimising returns instead of maximising them: To maximise returns one needs to take maximum risk. This often has a short-term perspective and if you are not swift, it can be harmful when the tide turns.
Optimising returns is when for the lowest amount of risk, we get the best or most effective returns. This ensures we avoid permanent loss of capital and earn sustainable returns over the long term. To achieve this, you cannot be riding every wave in the market. During this downturn of 2026, small caps were much more resilient. But there have been phases when small caps dropped precipitously. It happened in 2008 and came back to those levels only in 2016. Again, in 2018, 2020, 2022 and 2025, there were substantial falls in the market.
The regularity of market declines and subsequent revivals is a reminder that patience is the key to investing in equity markets. If you don’t have the patience to hang on, you have already lost the game.
The toughest part of investing isn’t finding something that can make you rich. It is finding an investment you can hold long enough to actually become rich.
