Equity markets are known for their volatility, meaning that stock prices can be influenced by both positive and negative news. This can lead to periods of excitement or disappointment, which can result in boom-and-bust cycles. However, in the long term, stock prices depend on a company’s earnings and profitability. In short, equity markets act as a voting machine in the short run, but a weighing machine in the long run.
Investors should focus on their reaction to market reactions rather than how the markets behave. In other words, an investor’s behavior or psychology plays a critical role in their investment outcomes. Consistency in decision-making is more important than sophisticated analysis and research. Consistency can lead to exceptional results, as demonstrated by Edgerton “Ketchie” Welch, who followed a simple method using stock reports and broker ratings.
Investors should remain steady and unemotional during extreme events like war and pandemics. Cutting out distractions and keeping a long-term perspective are crucial. In the last few years, investors faced challenges such as the pandemic, supply chain disruptions, and inflation. However, by acting rationally, displaying consistency in approach, and having a long-term perspective, investors can succeed in equity market investing.