The renowned investor Howard Marks once said, “When the knife stops falling, when the dust settles and there is absolute clarity on the horizon, there won’t be any bargains left.” This simple yet profound statement holds immense relevance for all market participants, especially during times of heightened volatility and uncertainty. Markets, by their very nature, move in cycles — periods of euphoria are followed by phases of pessimism, and the cycle repeats. However, human psychology often works against investors during these swings. Fear and greed dominate decision-making, leading to actions that are counterproductive to long-term wealth creation.
One of the most common and costly mistakes investors make is panicking and selling during downturns, precisely when they should be considering buying. This tendency to flee the markets during corrections, crashes, or even mild pullbacks, stems from a lack of conviction in the businesses they own and an over-reliance on short-term price movements. True investing success lies in understanding that price and value are two very different things. Prices fluctuate wildly. However, the intrinsic value of a good business does not change overnight.
To better illustrate this, consider a simple example. Imagine you are buying a tangible commodity, such as an apple, for ₹100. Over time, its price appreciates to ₹200. Subsequently, the price corrects to ₹80. Despite these price swings, the apple’s intrinsic value — its taste, nutrition, and desirability — remains unchanged. If you had previously determined that the fair value of the apple is ₹150, would you hesitate to buy it at ₹80? Most likely not. In fact, you would see ₹80 as a bargain and a wonderful buying opportunity.
However, this clear logic seems to disappear when it comes to stocks. There are several psychological and structural reasons for this disconnect. First, valuing a stock — an intangible asset is far more complex than valuing a simple commodity. Unlike an apple, a stock’s true worth is influenced by countless variables.
Second, humans are heavily influenced by herd mentality and the prevailing market trend. When prices are rising, optimism is contagious, and everyone wants to participate in the rally, often ignoring the fundamental strengths or weaknesses of the underlying business. Conversely, during corrections or bear markets, panic spreads like wildfire, and investors rush for the exits, even if the business fundamentals remain sound. Many investors end up selling quality businesses at depressed prices, locking in losses that could have been avoided with patience.
This irrational behavior has been particularly evident in the Indian equity markets recently. As indices corrected and volatility increased, a large section of retail investors pulled money out, fearing further losses. These very investors were the ones buying at much higher levels when the markets were euphoric. This behavioral pattern — buying high in excitement and selling low in fear — is the exact opposite of what successful investing requires.
Even the best businesses and the strongest stocks undergo rough patches. It is an inevitable part of their journey. However, very few investors possess the temperament to sit through the painful phases. Long-term wealth creation requires conviction and patience — the ability to hold quality companies through temporary storms and resist the temptation to react impulsively. It is during these corrections, when the market is gripped by fear, that some of the best long-term buying opportunities emerge. However, these opportunities are often missed because fear clouds rational judgment.
The reality is that it’s nearly impossible to perfectly time market tops and bottoms. In hindsight, identifying these points seems obvious, but in real-time, they are not easy. What investors can do, however, is develop a keen understanding of market psychology — recognizing when fear has driven prices far below intrinsic value or when euphoria has pushed valuations to unsustainable levels. This understanding, combined with a firm grasp of a company’s fundamentals, can help investors act counter-cyclically: buying when the majority is fearful and selling when the majority is euphoric.
There is a reason why the majority of participants in the market do not generate substantial long-term returns. The market acts as a wealth transfer mechanism — moving money from the impatient to the patient. Those who have the discipline to hold onto fundamentally strong businesses, even when the market sentiment is negative, are often rewarded handsomely over time. The key lies in seeing every correction, not as a signal to panic, but as an opportunity to accumulate quality businesses at reasonable valuations.
Once investors internalize this perspective, their entire relationship with the market changes. They begin to focus less on short-term price movements and more on the underlying business performance. They stop fearing corrections and start welcoming them as opportunities to buy great companies at discounted prices. This mindset shift — from trading price movements to owning businesses — is what separates successful long-term investors from the rest.
In conclusion, patience, conviction, and a focus on business fundamentals are the cornerstones of wealth creation in the stock market. Markets will always be volatile, and cycles of fear and greed will continue to repeat. But for those who learn to harness these cycles — by buying fear and selling greed — the rewards can be extraordinary.
Equitygram 
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