We Don't Fear Market Corrections. Nor Should You.

In January 2022, Team Rule Breakers recommended Spotify(NYSE:SPOT) to Stock Advisor members at about $209 a share. By November, with the S&P 500 deep in a bear market, it had fallen to about $69, a drop of roughly two-thirds.

Drops like that are hard to sit through, and with economic headwinds possibly ahead, plenty of investors are wondering how to prepare for the next one. Our answer comes from the philosophy by which every analyst on Team Rule Breakers invests. It starts with accepting that bad years will come, and it ends with a portfolio built to hold through them.

Spotify's story didn't end in November 2022, of course, and we'll come back to it.

Bad Years Are Part of the Deal

Down years are common. Depending on how you count, the market has fallen in somewhere between one year in four and one year in three. Some of those stretches have been brutal, from the dot-com bust to the financial crisis and the COVID-19 crash. Each one also turned out to be a stop on the way to the stock market's long-run gains.

So, at The Motley Fool, we don't try to call the next downturn. Nobody knows whether it will arrive next year or a decade from now, but history suggests it will show up regardless. We spend that energy studying businesses instead. A falling market sometimes offers great companies at better prices, and that's where our attention goes.

Built for the Drops

The Rule Breakers' habits and principles are built with these stretches in mind. The third habit of a Rule Breaker investor -- Invest. For At Least Three Years. -- sets three years as the bare minimum for holding a stock, and we'd happily hold our best companies for decades.

The fifth habit -- 5% Max Initial Position -- helps keep a single stock's fall from doing lasting damage to a portfolio. The sixth principle of a Rule Breakers portfolio -- Review Quarterly, Manage Accordingly -- has us checking in on each business when it reports results so that a rough week in the market doesn't drive our decisions.

Members who held Spotify through 2022 have since watched it recover. As of Friday's close, it's up around 156% since the recommendation, about 71 percentage points ahead of the S&P 500.

Know Your Own Timeline

Not every dollar necessarily belongs in stocks. The Motley Fool has said from the start that money in the market should be money you'd be comfortable leaving there for at least five years. That's the thinking behind the second portfolio principle -- Know and Name Its Purpose. A portfolio meant to fund a house deposit next spring has a different job from one meant to compound for 20 years.

The fourth principle -- Establish Your Sleep Number -- adds a personal limit: how large a single holding can grow before it keeps you up at night. Investors nearer to retirement have fewer years to recover from a bad stretch, so it may make sense for that number to come down over time.

Staying Invested

Chief Rule Breaker David Gardner likes to say the market always goes down faster "than it goes up, but it always goes up more than it goes down, and you have to hold both of those thoughts in your mind."

Both Team Rule Breakers and Team Hidden Gems hold both. We invest with a long horizon, and we plan to stay invested through the bad years because, historically, the good ones have more than made up for them, much as Spotify's recovery has more than made up for its 2022 slide. Fool on!

The Rule Breakers Team has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.