Letters to the Editor's Note

Dhirendra Kumar's Editor's Note on how the difference between wealth creation and wealth destruction lies in the way you react received significant feedback from readers. The thoughtful responses underscored the importance and relevance of the topic. As a gesture of appreciation, we dedicate this section to our valued readers, whose insights help enrich these discussions.

Summary

Market cycles of euphoria and panic are a natural part of investing. Recently, the Sensex dropped 7.5 per cent over five weeks, prompting widespread speculation about whether this signals the start of a bear market or a mere correction in a long-term upward trend. The truth? Nobody knows—and that very uncertainty is intrinsic to how markets function.

For the patient investor, however, these short-term fluctuations are just noise. Over the last five years, the Sensex has nearly doubled, delivering a 98 per cent return to those who stayed invested. Market declines are essential for sustainable growth, but they affect indices and individual stocks very differently. While indices like the Sensex reliably recover and grow with the economy, many once-popular stocks from past market cycles never regain their former glory.

This divergence creates two paths for investors. Business-focused investors see corrections as opportunities, akin to sales where quality stocks are temporarily available at a discount. These investors base their decisions on solid business fundamentals, not market sentiment. In contrast, momentum-driven speculators often chase fleeting trends. When the tide turns, they are left holding stocks that were propelled by hype rather than substance, many of which may never recover.

For true investors, the recent market correction is an exciting time. High-quality businesses with robust fundamentals, strong market positions, and promising growth prospects are now available at more reasonable valuations. The fundamentals haven't changed, only the market's temporary pricing has. This is where disciplined investors shine, using market dips to build wealth while others panic.

Such periods test an investor's conviction. It's easy to talk about buying the dips when markets rise, but acting decisively during declines requires deep understanding and confidence in your holdings. Those who follow the crowd often lose their nerve when it matters most. For serious wealth creation, investing based on fundamentals—not fleeting trends—remains the key.

What our readers say

Imtiyaz Hirani: I have been with Value Research only for a few months now but I have already benefitted from the recommendations your researchers have put together. Plus investor meet (Investors' Hangout) every week along with these emails have given very meaningful insights into market dynamics. Thank you for your support and advice.

Deepa Singh: Well said! The drops in the market do lead to some stomach-churning moments, but your note puts things in perspective, thank you!

Sarvesh Koppalkar: Your article today was bang on when it spoke about euphoria when the market goes up, and panic when the markets go down. When markets are going up and have reached "all-time highs", there are retail investors who still want to invest due to fear of missing out (''FOMO"). However when the same market corrects by say 7-10 per cent, the same investors are fearful of entering the markets.

Shibu: Your note in the above-mentioned context is not only interesting to read but also lends a valuable piece of knowledge for serious long-term investors. Please keep sharing such chapters of knowledge as they throw open new horizons in the investment journey for investors like us. I, myself, firmly believe that entry and long-term play in the stock markets is not only about making money alone but also for profiteering by way of gaining some new and extra knowledge in the relevant areas.

Virendra Gupta: You are very true in this matter, but no one can be true in this market. No predictions work, and no analysis can prove correct in this market, particularly in a bear market. No one dares to enter the market when it's falling, because even the shares of companies with good fundamentals "correct," not "fall" and that's the opportunity to grasp for long-term "investment," not for "trades." We, as common investors, compare past performance with the present price and enter the market. It's the nature of the market and it's the nature of investors.

Hariom Chauhan: Congratulations on writing such a wonderful piece. I not only enjoyed reading it but it also instilled a sense of confidence in me regarding scrips in my portfolio. Thank you for shedding light that was missing in talks of other editorials and analysts.

Valarmathi Senthilnathan: Equity investing has become different after reading your column continuously over the years. You keep educating investors on the correct and boring method of equity investing and reminding them that there's no shortcut. No matter what is told, time and again we forget the key fundamentals due to bias. Your continuous columns on investment are helping us to overcome these challenges.

Shailendra Kumar: I always read your article and find it informative and get hooked on it till last line. It is well narrated. I appreciate your hard work behind this.

Also read: Your response to the November 16 editorial 'Ignore it all...'

This article was originally published on January 01, 2025.