Stock market sell-off: The most important question to ask yourself today

It's a reasonable question, especially as the market shows signs of weakness, despite domestic funds stepping in to absorb much of what foreign institutional investors (FIIs) are selling.

But is this really the most important question to be asking right now?

Probably not.

Focusing solely on questions that mirror short-term market movements can lead to missing out on the long-term gains the market has to offer. Think back to just a few weeks ago, when the markets were climbing. Wasn’t the question then, Should I add to my stock holdings?

Now, consider this rationally—can you ever make money by buying high and selling low?

It's a basic principle, yet one that is often overlooked in the heat of the moment. Allowing market sentiment to dictate decisions can cloud judgment and lead to costly mistakes.

This brings into focus a more important question for today: What was the investment rationale behind the stocks you currently hold?

In other words, what was the original thesis that guided your investment choices?

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If this question makes you feel like a deer caught in the headlights, that’s not the intention. But it’s better to confront this now than to hold onto poor investments, hoping the greater fool theory will somehow rescue them.

Sensible investing, as Warren Buffett has demonstrated, revolves around three core principles:

Buying a share in a business, not just a stock ticker.

Purchasing with a margin of safety—for example, buying a stock at ₹70 when you believe its intrinsic value is ₹100. This helps mitigate unforeseen risks.

Holding for the long term—allowing time for the business to grow and for the investment to appreciate in value.

In today’s momentum-driven market, these principles often get turned upside down.

Instead of focusing on the business, attention shifts to price movements. Instead of buying undervalued stocks, investors often chase trends. And rather than holding for the long term, there's an inclination to flip stocks for short-term gains.

This approach stands in contrast to Buffett’s value strategy. 

For followers of the Buffett strategy, the answer to the most important question may lie in the strategy itself.

First, if you’ve invested in a solid business, nothing has fundamentally changed. The business remains the same. What has shifted is market sentiment, not the underlying fundamentals. So, why alter your view on the company?

Second, if you purchased with a margin of safety, you might still be in a good position, even after the sell-off. And if you aren’t, strong businesses tend to perform well over the long term. Only weak businesses lead to permanent losses. If that’s the case, why take action now?

Finally, if your investment was for the long term, why suddenly adopt a short-term mindset?

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In essence, if you're playing the long-term value game, then nothing significant has changed—and there may be no reason to act.

That said, there is one exception to the “do nothing" approach.

Sometimes, great businesses—perhaps even ones in your portfolio—experience sell-offs purely due to market sentiment. This often makes their future return potential even more attractive.

Also read | Dear value investor, welcome to perplexing times

So, it might be worth considering going against the crowd and investing a bit more.

Rahul Goel is a finance and publishing professional with over 25 years of experience in the industry. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.