Mohan (an investor): – Hey Mark, I’ve been pretty anxious lately with all the ups and downs in the Indian stock markets. I feel like I need to constantly check the stock prices.
Mark (The Planner): I get that. But this constant watching of prices might not be the best approach for your investment journey. I come across a lot of investors falling for this herd mentality.
Mohan: Why do you say that?
Mark: Well, the real issue is how we interpret stock prices. Many investors mistakenly believe that a lower-priced stock is a better buy than a higher-priced one. It’s similar to how people view mutual funds with different NAVs and incorrectly assume that a lower NAV is a better deal for them.Therefore, many people fall for New Fund Offer (NFOs) as they are issued at the base price of NAV 10.00
Mohan: Isn’t a low price a good reason to buy and a high price a reason to sell?
Mark: Absolutely, but it’s all relative. A stock price being “high” or “low” should be compared to that stock’s actual value, based on its fundamentals and future potential, not just the price tag.
Mohan: That makes sense. But during such volatile times, it gets confusing.
Mark: Exactly, and that’s when most investors can lose sight of the bigger picture. For example, a stock priced at Rs 25 isn’t automatically cheaper than one at Rs 800—it’s all about the company’s value behind those numbers.
Mohan: I’ve noticed a lot of buzz around “cheap” rupee and penny stocks. Do they offer better opportunities?
Mark: Not necessarily. A stock’s appeal shouldn’t be based solely on its price and the recent buzz created through various news channels and other mediums. The learned and sophisticated investors use ratios like price-to-earnings or price-to-book value, which provide context by comparing the price against the company’s business metrics.
Mohan: So, how should I think about prices in these volatile times?
Mark: Think of prices in context. Focus on the company’s fundamentals, its potential for growth, and the broader market conditions. Remember, a 10% daily drop doesn’t mean it’s suddenly a bargain.
Mohan: So, I shouldn’t ignore prices, but I need to understand them better.
Mark: Exactly, Mohan. Prices should guide your investment decisions, but context is key. In this highly volatile market, keeping focus on the bigger picture is more important than ever.
Mohan: Thanks, Mark. This really helps keep the market madness in perspective!
Simplified Money Talks 