How to Stay Calm When Markets Drop: The Psychology of Passive Investing

You’ve read the theory. You know that the stock market will definitely drop sometimes. You understand the concepts of dollar cost averaging and diversification. You’ve even created an Investment Policy Statement.

But when IHSG (Indonesia’s stock index) drops 5% in a day, and your portfolio shows millions of rupiah in red…

Your heart races. Cold sweat breaks out. Your finger itches to press the “Sell” button.

Welcome to the hardest battle in investing: fighting yourself.

1. Why Our Brains Aren’t Designed for Investing

Loss Aversion: Losses Hurt More

Behavioral economics research from Kahneman and Tversky shows that humans feel losses 2 to 2.5 times more intensely than gains of the same amount.

Illustration:

• Finding Rp 100,000 on the street = happiness level 4/10
• Losing Rp 100,000 = sadness level 8-10/10

This isn’t a flaw — it’s an evolutionary feature. Our ancestors who were too relaxed about risks (losing food, predators) didn’t survive to pass on their genes.

But in the investment world, loss aversion becomes the enemy:

• We sell too quickly when losing (to stop the pain)
• We hold too long when winning (afraid to lose gains)
• We avoid risk excessively (not investing at all)

Recency Bias: What’s Recent Feels Most Important

Our brains give more weight to recent information. If the market dropped yesterday, we tend to think it’ll drop tomorrow. If it rose yesterday, we’re optimistic.

Reality:

• IHSG dropped 30% in March 2020 (COVID crash)
• IHSG returned to pre-COVID levels within 1 year
• Those who panic sold in March 2020 permanently lost money
• Those who held (or averaged in) made big gains

But in the moment of a crash, it’s very hard to remember that recovery will come.

Herd Mentality: Following the Crowd

When everyone’s panicking, panic feels “reasonable.” When everyone’s buying, buying feels “safe.”

In family WhatsApp groups, on Twitter/X, in the news — collective sentiment influences individual decisions.

The problem: The crowd is usually wrong at extreme points. They’re most bullish at peaks (when they should be cautious) and most bearish at bottoms (when they should buy).

Read also: Why Retail Traders Often Lose

Illusion of Control: Feeling Like You Can “Control” the Market

As humans, we’re uncomfortable with uncertainty. We want to do something — anything — to feel in control.

This manifests as:

• Checking prices every 5 minutes (as if it changes anything)
• Excessive trading (activity = control)
• Looking for “signals” and “predictions” (illusion of certainty)

The bitter truth: You can’t control the market. What you can control: asset allocation, investment timing, and emotions.

2. Social Pressures Unique to Indonesia

Investors in Indonesia face additional challenges that investors in other countries might not experience:

“Hot Tips” from Uncle on WhatsApp

We all have an uncle, aunt, or cousin who’s an “investment expert” and regularly shares “great opportunities” in family groups.

Reality:

• If the tips were really good, they wouldn’t share them for free
• They probably bought first and need others to buy too (pump)
• Or they heard it from someone else (who already bought even earlier)
• Or worse: it’s a scam disguised as an “opportunity”

How to respond:

• “Thanks for the info, I’ll do my research first”
• Then actually research — or ignore it

Don’t reject too forcefully (could offend), but don’t follow along either.

Pressure to Follow “Profit” Trends

Social media is full of people showing off “200% profit from stock XYZ” or “minimum wage salary but billion-rupiah portfolio.”

What you don’t see:

• People who lost (don’t show off)
• People who gained a little (not spectacular)
• People whose portfolios were destroyed by trading (too embarrassed to share)

Survivorship bias on social media: You only see those who survived and succeeded.

Embarrassment If Your Investments Are “Ordinary”

In competitive environments, having index funds or SBN (government bonds) feels “boring” compared to trading stocks or crypto.

In reality:

• 80-90% of retail traders lose money in the long run
• Index funds beat most active mutual funds
• Boring is good — investing shouldn’t be exciting

Read: Active vs Passive Mutual Funds

Family Expectations About Money

“When are you buying a house?” “When are you getting married?” “Have 2 kids so they have a playmate”

Financial pressure from family can make you take excessive risks — wanting to get rich quick to meet expectations.

Reality check: There are no shortcuts. The quick path is usually the path to bankruptcy.

3. Practical Techniques for Managing Emotions

Now for the actionable part. Here are techniques you can practice:

Technique 1: The 24-Hour Rule

Rule: Don’t make major investment decisions within 24 hours of emotion-triggering news.

Market crashed? Wait 24 hours before selling. Stock skyrocketing? Wait 24 hours before FOMO buying. Got a “hot stock” tip? Wait 24 hours before researching.

Why this works:

• Emotions are most intense at first, then subside
• More complete information available after 24 hours
• Gives time for rational thinking

Technique 2: Pre-Commitment Device

Create rules before emotional situations occur. Write them in your Investment Policy Statement:

Example rules:

• “I only rebalance once per year in January”
• “I don’t sell stocks because of price drops, only if fundamentals change”
• “If my portfolio drops 20%, I will increase stock allocation by 10%”
• “I don’t read financial news for more than 15 minutes per day”

When emotions come, you already have rules made when you were calm.

Technique 3: Limit Information Consumption

The more often you look at your portfolio, the more often you see fluctuations. The more fluctuations you see, the more opportunities for panic.

Statistics:

• Daily price check: 46% chance of seeing red (markets fluctuate)
• Monthly price check: 38% chance of seeing red
• Annual price check: 25% chance of seeing red
• 5-year price check: 10% chance of seeing red

Less frequent checking means higher probability of only seeing green.

Practical steps:

• Turn off investment app notifications
• Check portfolio at most once per month
• Unfollow accounts that cause anxiety
• Limit financial news

Technique 4: Reframe “Losses”

Paper losses (unrealized loss) are not real losses until you sell.

Reframe:

• “My portfolio is down 10%” → “Prices are 10% discounted”
• “I lost Rp 5 million” → “I haven’t realized anything”
• “Market crash” → “Opportunity to buy cheap for the long term”

This isn’t self-delusion — it’s the appropriate perspective for long-term investors.

Technique 5: Investment Journal

Write down decisions and your reasoning. After a few months, review:

• Which emotional decisions turned out to be wrong?
• Which rational decisions turned out to be right?
• What patterns emerge?

Simple format:

The journal helps you learn from your own emotional patterns.

Technique 6: Worst-Case Scenario Visualization

Before investing, imagine the realistic worst-case scenario:

• What if the portfolio drops 30%?
• What if it drops 50%?
• Can you still sleep soundly?
• Is your daily life affected?

If the answer is “can’t sleep” or “life is affected,” your risk allocation is too high.

Better to have lower returns but sleep well, than high returns but heart attacks every time the market gets volatile.

Technique 7: Buddy/Accountability System

Find a friend or partner who can be a “check” before big decisions:

• “I want to sell all my stocks because the market dropped. What do you think?”
• “I want to go all-in on crypto. Any thoughts?”

Outside people are more objective because they’re not feeling the same emotions.

Important rule: Choose a buddy who:

• Is also an investor (understands context)
• Is calmer than you (complementary)
• Is willing to be honest (not a yes-man)

4. Framework for Facing Various Scenarios

Scenario: Market Down 10-20%

What’s happening: Normal correction. Occurs on average once per year.

What to do:

• Stay calm — this is normal
• Review IPS, has anything fundamental changed?
• If not: hold or average in
• If yes (recession, systemic crisis): consider limited de-risking

What NOT to do:

• Panic sell
• Check prices every hour
• Listen to “predictions” from media/influencers

Scenario: Market Crash 30%+ (like COVID 2020)

What’s happening: Major crash. Occurs on average once per decade.

What to do:

• Take a breath. This has happened before.
• Remember: all crashes eventually recover
• If you have cash: great averaging opportunity
• If not: keep holding, don’t sell at a loss

What NOT to do:

• Sell at the panic point (usually near the bottom)
• Make decisions in the first 24 hours
• Believe predictions that “this is just the beginning, it’ll drop further”

Read also: What to Do When IHSG Drops

Scenario: Single Stock Drops Dramatically (but market is fine)

This is different. If a single stock or sector drops while the overall market is fine, there might be fundamental problems with that stock/sector.

What to do:

• Research: what news is there? Fraud? Regulation? Competition?
• If fundamentals changed: consider cutting losses
• If just sentiment: hold or average in

Why different from market-wide crash:

• Market crash: systemic, almost certainly will recover
• Single stock crash: could be company problems, might not recover

Scenario: FOMO Because Other Stocks Are Skyrocketing

What’s happening: Stocks you don’t own are up 100%, WhatsApp groups full of profit screenshots.

What to do:

• Remember: you haven’t lost anything (opportunity cost isn’t real loss)
• Ask: does that stock fit your IPS?
• If not: it’s not for you, move on
• If yes: research first, then consider

What NOT to do:

• Buy because it already went up (usually too late)
• Completely change your strategy because of one “opportunity”
• Compare yourself to other people’s screenshots

5. Building Long-Term Mental Strength

Mindset #1: Investing is a Marathon, Not a Sprint

Long-term returns matter more than daily fluctuations. What’s important:

• Consistent investing (regular DCA)
• Appropriate asset allocation
• Low costs (expense ratio, trading fees)
• Long-term discipline

Not:

• Guessing the bottom
• Timing the market
• Getting “hot” stocks

Mindset #2: Volatility is the Price You Pay for Returns

If you want higher returns than deposits, you must accept volatility. This isn’t a bug — it’s a feature.

Stocks can deliver 10-15% annual returns long-term precisely because there’s risk of dropping 30% in a year. If there were no risk, everyone would buy, and returns would drop to deposit levels.

Mindset #3: You’re Not Smarter Than the Market

The majority of professional fund managers with research teams, data, and experience lose to indices.

You with information from WhatsApp groups and 30 minutes of research will not consistently beat the market.

Implication: Stop trying to time the market or pick stocks. Passive investing is acknowledging that you’re not Warren Buffett — and that’s okay.

Mindset #4: What Matters is Process, Not Short-Term Results

A good process:

• Regular monthly investing
• Allocation matching risk profile
• Periodic rebalancing
• Not panic selling

Might produce bad results in 1 year (because the market dropped). But over 10-20 years, a good process almost certainly produces good results.

Conversely, a bad process (random trading, panic selling, FOMO) might produce good results in 1 year (lucky), but almost certainly bad over the long term.

Focus on process, not short-term outcomes.

6. Checklist: When Emotions Start Taking Over

Print and post near your computer:

• STOP. Don’t click anything yet.
• Take 5 deep breaths.
• Is this decision already in my IPS?
• Has 24 hours passed since the news/event?
• Have I discussed with my buddy/partner?
• Have fundamentals changed, or just prices?
• If I do nothing, what will happen in 5 years?
• Will I regret this decision in 1 year?

When in doubt, do nothing. In investing, not acting is often the best decision.

7. Conclusion

The biggest enemy of investors isn’t volatile markets, inflation, or recession.

The biggest enemy is yourself — loss aversion, FOMO, herd mentality, and the illusion of control.

The good news: emotions can be managed. With:

• Understanding of psychological biases
• Written rules (IPS) made when calm
• Practical techniques (24-hour rule, limit info, buddy system)
• Long-term mindset

You can become an investor who stays calm when others panic — and that’s exactly where long-term profits are made.

Remember Warren Buffett’s words: “Be fearful when others are greedy, and greedy when others are fearful.”

Or the practical version: When the WhatsApp group is panic selling, maybe it’s time to average in. When everyone’s FOMOing, maybe it’s time to be cautious.

Read also:

• What to Do When IHSG Drops
• Why Retail Traders Often Lose
• Investment Policy Statement
• Dollar Cost Averaging: Myths and Reality

Disclaimer: This article is not investment or psychological advice. If you’re experiencing severe anxiety or stress related to finances, consider consulting a professional (financial planner or psychologist). Do your own research before making investment decisions.

Related Articles

• Fear of Investing — It’s Normal, But Don’t Let It Stop You
• IHSG Down: Should I Sell My Mutual Funds?
• Trading vs Passive Investing: The Data Speaks
• Dollar Cost Averaging (DCA): Myths and Reality for Investors
• How to Evaluate Portfolio Performance: Look Beyond Returns