Low stock price is no guarantee of better investment: Here’s why stock price shouldn't be your north star while investing

economictimes.indiatimes.com:

investment decisions. This obsession with price movements reveals a fundamental misunderstanding about what stock prices mean and how they should influence investment decisions. The problem isn’t just the unhealthy fixation with short-term fluctuations; it’s the flawed mental model many investors have about stock prices.

Many investors believe that a stock with a low price is somehow ‘cheaper’ and, therefore, a better buy than the one with a high price.

This misconception has a fascinating parallel with the way investors view mutual fund NAVs, where many think funds with similar NAVs must be comparable investments. Both beliefs are misguided. The mutual fund industry has long battled this misconception, where investors mistakenly believe that a fund with an NAV of Rs.15 is somehow ‘cheaper’ or has ‘more room to grow’ than the one with an NAV of Rs.50.

Fund managers and advisers must constantly explain that NAV is merely an accounting measure, not a measure of value or future potential. Yet, remarkably, even sophisticated investors who understand this concept in mutual funds often fall into the same trap with stock prices.

Let’s consider the concept carefully. Yes, the price of a stock legitimately plays a central role in investing.

Low price is a valid reason for buying, and high price can be a good reason for selling or avoiding a stock. This concept is fundamental to almost all equity investing. However, ‘high’ or ‘low’ is not an absolute level in a vacuum.