This is a legitimate question, especially as the market is showing signs of weakness even as domestic funds have stepped in to absorb much of the selling from foreign institutional investors (FIIs).
But is this really the most important question to ask now?
Probably not.
If you only focus on questions that reflect short-term market movements, you may miss out on the long-term benefits the market has to offer. Remember just a few weeks ago when the market was rising? So the question was, should we add stock ownership?
Now, let’s think about this rationally. Can you make a profit by buying high and selling low?
This is a basic principle, but one that is often overlooked in the heat of the moment. Letting market sentiment dictate your decisions can lead to poor judgment and costly mistakes.
This will focus on today’s more important questions. That said, what is the investment rationale behind the stocks you currently own?
In other words, what was the original theory that guided your investment choices?
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If this question makes you feel like a deer caught in the headlights, that’s not what I meant. But it’s better to confront the problem now than to continue making poor investments in the hope that the Great Fool’s theory will somehow save them.
As Warren Buffett has demonstrated, smart investing revolves around three fundamental principles:
Purchasing a company’s stock rather than simply reading its stock price.
Buy with a margin of safety — for example, buy a stock at ₹70 if you believe its intrinsic value is ₹100. This helps reduce unexpected risks.
Long-term holding – Give your business time to grow and your investment increase in value.
In today’s momentum-driven markets, these principles are often turned upside down.
Instead of focusing on the business, attention shifts to price movements. Instead of buying undervalued stocks, investors often follow trends. And they tend to buy stocks for short-term gains rather than holding them for the long term.
This approach is in contrast to Buffett’s value strategy.
For followers of Buffett’s strategy, the answers to the most important questions may lie in the strategy itself.
First, if you’ve been investing in solid businesses, nothing fundamentally has changed. Business remains the same. What has changed is market sentiment, not the underlying fundamentals. So why does your view of the company change?
Second, if you buy with a margin of safety, you may still be in a good position after a decline. Even if this is not the case, strong companies tend to outperform over the long term. Only weak business will lead to permanent losses. If so, why should you take action now?
Finally, if your investments were long-term, why suddenly adopt a short-term mindset?
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Essentially, if you’re playing a long-term value game, nothing much will change and there may be no reason to act.
However, there is one exception to the “do nothing” approach.
In some cases, great companies (perhaps even companies in your portfolio) are sold purely on market sentiment. This often makes future earning potential even more attractive.
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So it might be worth considering going against the crowd and investing a little more.
Rahul Goel is a finance and publishing professional with over 25 years of experience in the industry. Tweet @rahulgoel477.
Always consult your personal investment advisor/wealth manager before making any decisions.
