To have a pre-disposition to buy and hold stocks for the long-term can be an extremely expensive frame of mind. The long-term market trend is up, but in a volatile stock market, the long-term gain is often laden with risk and not nearly as great as many short-term gains. Risk vs. return has greatly increased for the long-term stock market investor. People argue that tax consequences are their reason for holding. That argument lacks weight. It is very difficult for some people to break away from old habits and patterns of thinking about the stock market. Those who are unwilling to learn from market crashes are doomed to repeat the lesson.

Stock markets can certainly be a risky game sometimes. We definitely know that we should pick up stocks when the price is low but how can we predict a stock’s price?

One good suggestion is to weigh the current price of the stock against its “value in the market at the time”.

What is the difference between the price and the value of a stock?

Basically, during trading the price is determined by the market at that particular moment. The price can change in minutes i.e. it fluctuates. The value of any given stock is the value (worth) of its core business. It is highly stable when compared to the price of the stock, as the worth of companies cannot vary overnight. It is a good choice if you can buy the share at a lower price than the share’s actual value price. For e.g. the share’s value price is 200 and the current price is just 100 you can get the same share at 50% discount. The probability that the shares actual value can drop below 100 is quite rare.

Warren Buffet and Benjamin Graham are known as great legendary investors and the above mentioned theory also known as ‘margin of safety’ is found in their teachings. First and foremost read the all the financial statements that relate to the stock that you want to purchase.