Blog Details

“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” — Benjamin Graham

Many investors get confused or anxious when a company with strong fundamentals shows sharp movements in its share price. But volatility in the market is normal — even for excellent businesses. A great company does not guarantee a smooth share price journey.

Why Share Prices Move Even When the Business Is Stable

A company may have strong earnings visibility, capable management, and a solid balance sheet. Yet, the share price may still fluctuate sharply due to several external factors:

1. Overall Market Volatility

When markets correct sharply, even high-quality stocks decline because sentiment affects everything.

2. Sector-specific Volatility

If an entire sector faces headwinds — regulations, demand slowdown, etc. — individual stocks also react.

3. Raw Material Price Changes

If input costs rise (like crude oil, metals, chemicals), margins get temporarily affected, pulling down the stock price.

4. Interest Rate Changes

A rise in interest rates reduces the present value of future earnings, impacting valuations, especially of growth stocks.

5. Currency Movements

Exporters benefit from a weak rupee; import-heavy companies suffer. The reverse is also true.

These factors operate independently of the company’s long-term fundamentals.
That’s why understanding volatility is essential — and why long-term investors must not confuse price movement with business movement.

Why Growth Stocks Are More Volatile

Growth stocks often appear more volatile because of the way the market values future earnings.

When investors expect high growth, the stock price discounts future earnings far into the future. This means:

·  If optimism increases → the discounting period stretches → stock price rises more.

·  If fear increases → the discounting period contracts → stock price falls more.

The fundamentals might be unchanged, but sentiment shifts and valuation math cause large price swings.

A Hypothetical Example That Makes It Clear

Consider a company, FastGrow Ltd, which is expected to grow earnings at 25% per year for many years.

Case 1: Market is optimistic

Investors are willing to discount 10 years of future earnings.
The stock trades at a high P/E of 50.

If EPS is ₹10
Share Price ≈ 10 × 50 = ₹500

Case 2: Market becomes cautious

There is global volatility — interest rates rise.
Investors now discount only 6 years of future earnings.
P/E compresses to 30.

The business is unchanged.
EPS is still ₹10.
But Price becomes: 10 × 30 = ₹300

What changed?

Not the company.
Not the earnings.
Not management.

Only market perception of the time horizon changed.

This is why growth stocks rise faster when times are good and fall faster when sentiment weakens — even without any fundamental change.

The Takeaway for Serious Investors

·  Strong companies can show weak share price performance temporarily.

·  Volatility is a feature of markets, not a flaw of the company.

·  Growth stocks amplify both excitement and fear.

·  What matters is the long-term trajectory of earnings, not short-term noise.

When fundamentals grow steadily, the share price eventually follows — even if the path is not straight.

For your success!

Dr. Anil Kumar Asnani

SEBI Reg. Research Analyst

Whatsapp: 9755920780

Mobile: 9131361959

Website: https://www.smartverc.com

At times, investors ask whether they should buy stocks that have fallen sharply compared to the broader market—especially when such stocks look “cheap” and promise high upside. The temptation becomes even stronger when prices have corrected steeply. However, a sharp price fall combined with regulatory irregularities, governance lapses, or poor product quality is a very different situation from a normal market correction.

In investing, it is important to remember a simple but powerful idea: problems rarely come alone. When a company is flagged for regulatory issues or ethical lapses, what is visible is often just the first cockroach. Experience shows that there are frequently more issues hidden beneath the surface—weak internal controls, compromised culture, aggressive accounting, or management decisions driven by short-term survival rather than long-term value creation.

Many investors assume that once “bad news is out,” the worst is already priced in. Unfortunately, that is often not the case. Regulatory scrutiny can drag on for years, management credibility may erode, customers and partners may lose confidence, and growth can suffer permanently. Even if the company survives, its ability to compound wealth over time is often impaired.

This is why reputation matters far more than short-term valuations.

As Warren Buffett famously said:

“We can afford to lose money, even a lot of money. We can’t afford to lose reputation, even a shred of reputation.”

Money lost can sometimes be recovered. Lost trust rarely is. A company with a damaged reputation faces higher costs of capital, greater regulatory oversight, and long-lasting skepticism from investors. These are not temporary headwinds—they are structural disadvantages.

From an investment philosophy standpoint, we prefer to focus on businesses where integrity, transparency, and governance are beyond doubt. Even if such companies appear expensive at times, they offer a far better chance of sustainable wealth creation. On the other hand, companies surrounded by controversy may look optically cheap but often turn into value traps.

In the long run, successful investing is not about chasing the lowest price—it is about backing businesses you can trust through good times and bad. When credibility is compromised, patience and capital are usually better deployed elsewhere.

Bottom line:

When regulatory or ethical issues surface, assume there may be more beneath the surface. In investing, avoiding permanent damage is far more important than catching a “bargain.”

For your success!

Dr. Anil Kumar Asnani

SEBI Reg. Research Analyst

Whatsapp: 9755920780

Mobile: 9131361959

Website: https://www.smartverc.com

In the world of investing, what you focus on grows.

A portfolio doesn’t just reflect numbers — it often mirrors the mindset of the investor behind it.

If you constantly complain about market volatility, government policy, or short-term underperformance… you’ll likely find more reasons to complain.

If you stay angry about missed opportunities or falling prices… you’ll keep carrying that weight into future decisions.

But if you train yourself to look for long-term potential — if you stay calm, rational, and optimistic — you’ll begin to see more opportunities than problems.

Complaint and Anger Are Emotionally Expensive

Complaining leads to inaction.

Anger leads to hasty action.

Both are driven by emotions, and both are costly for investors. We’ve seen it time and again — investors selling during a correction out of frustration, or jumping from one stock to another looking for instant gratification.

Such moves rarely create wealth. They create fatigue.

Optimism Isn’t Naïve — It’s Strategic

A truly optimistic investor isn’t blindly hopeful.

They’re grounded, patient, and prepared.

They understand that market cycles are natural. That volatility is a feature, not a bug. That every sharp correction brings seeds of future growth — if one is willing to look beyond the noise.

At Smart VERC, we’ve built our philosophy on this kind of disciplined optimism.

Not hope. Not hype. But earned confidence in business fundamentals, valuation, and long-term trends.

The Mindset That Wins

Complaining begets more complaints.

Anger begets more anger.

But optimism — steady, informed, thoughtful optimism — begets wealth.

What you feed, grows.

Feed your optimism. Let it compound.

For your success!

Dr. Anil Kumar Asnani

SEBI Reg. Research Analyst

Whatsapp: 9755920780

Mobile: 9131361959

Website: https://www.smartverc.com