2 Key Lessons to Remember As the Market Falls

Back in early June this year, I had written a three-part series about three timeless investing lessons to remember for an investor who is starting out.

It’s worth repeating two of them today as the stock market has been volatile over the past few months.

For context, the Straits Times Index (SGX: ^STI) had closed at a level of 3,392 points as of end-May 2015. As of its close yesterday, the index sat at 2,878, some 15% lower.

The steep fall may be challenging to swallow for some, but it is at times of duress when basic but important investing principles should be remembered.

Price is what you pay, value is what you get

In the second article of my aforementioned three-part series, I wrote:

“… in reality, stock market participants can get fixated all too often with share prices and forget about the value of the shares that they are paying for.”

This behaviour may be especially true right now. If you take a look at recent stock market news headlines, most of the talk is centred on how much stocks have fallen.

There is nary an article in sight that talks about the recent business performances of companies; what’s ironic is that it’s the business performance of a company over the long-term which ultimately drives its share price.

This brings me to the first article of my three-part series.

Businesses, not tickers

Instead of focusing on share price movements, our Foolish eyes should be trained on the business behind the ticker. To paraphrase a quote from the legendary Warren Buffett, we should be focusing on the playing field and not the scoreboard.

The fall in share prices in recent times suggest that there are many individual investors who may be dumping shares willy-nilly and forgetting that they are selling stakes in living, breathing businesses.

As I had mused in the first piece of my three-part series,  the idea of buying “businesses, not tickers” may resonate with most but can be quickly forgotten in chaotic market conditions:

“The slip of mind becomes more evident when share prices of a company tank and petrified investors scramble to seek the reasons behind the fall. The problem with that action (“find reasons”) is that it is motivated by the movement of the share price and not the business behind the shares.”

A Fool’s take

I hope that by sharing these two key lessons again, I can help investors of all stripes gain better appreciation about their importance. If you can grasp their significance, part of the investing-battle may already be won.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn't own shares in any company mentioned.