How To Make Sense Of Value When Prices Fall

Whenever share prices fall, there is a feeling of despondency.

- RAJAS KELKAR

You want to know if you are on the right track with your investment choices. Fund managers, who manage your money at mutual funds insurance companies, often air their views on the market. Much discussion over the selloff in small and mid-cap companies occupied mind space recently. The brisk sell-off in these stocks is a fact. It is also a fact that the prevailing market prices were way higher than the fundamental value these companies bring. An ‘irrational exuberance’ is now on a course correction.

Many mutual fund and equity investors are selling equity holdings as prices fall. If you are invested in borrowed money, you must sell every time share prices fall. Typically, traders will have to adjust their positions based on the market's direction. While in a rising market, you buy low and sell at a higher price, in a falling market, you sell at a higher price and buy at a lower price.

This column is about personal finance and long-term investing. As a result, any fall in the share prices should not cause panic if your investment philosophy is to hold for the long-term.