The market just went down (or up) X points and here’s why … blah, blah, blah. If this sounds like something you heard today or yesterday, it will also sound like something you’ll hear tomorrow.
The financial media pays a great deal of attention to prices – what sector or index was up or down and by how much. All sorts of reasons are posed and most of them are valid, although there is still a certain amount of emotion in the market that reacts with no predictable pattern to breaking news.
Price news is of the utmost importance to traders and investors with a short-term window.
Value and Price
Most investors, however, are more interested in value and value and price are not the same thing. A company’s value for many investors is its ability to generate a satisfactory return over a long holding period. A number of things including financial strength, market dominance, growth potential, and so on, determines that value.
The day-to-day price fluctuation of the stock is usually more about volatility than value. Most investors are not overly concerned with stock price fluctuations that are driven by market conditions (inflation reports, oil prices, and so on).
No Affect
While these events may move the stock’s price up or down, they usually do not affect the underlying value of the company and its ability to deliver the returns you desire.
Clearly, there are market conditions that may change the value of the company and you must stay on top of those changes to re-evaluate your holdings.
Conclusion
However, listening to the daily din of market chatter can divert your attention from the important goals of investing: focusing on quality companies and not worrying about daily volatility.
CAclubindia
