Value appreciation and value depreciation with respect to equity investment market can be explained in simple terms as either increase or decrease in the value of an asset over a period of time. Value appreciation happens when value of the stocks you have invested in increases giving you profit while value depreciation happens when the value of the stocks you have invested in falls down leaving you in loss.
Demand and supply are the two important factors that dictate appreciation and depreciation. When demand is huge, but supply is less, the value of the product/commodity/stock increases. In such cases, people are more prone to buy things which have the potential to grow or which have become a key component in everyday life or used as a raw material in manufacturing various kinds of materials.
Depreciation happens when demand for the product reduces. Since, demand for the product reduces, supply may also get hampered and would be limited. Thus, it is inevitable that the value of the stock falls down.
In short, value appreciation is directly proportional to increase in demand and value depreciation is in linked with a decrease in demand.
How does value appreciation/depreciation affect a long-term investor?
When stock value appreciates-
When stock value appreciates, an investor has the liberty to buy or hold or even sell it as per requirements or needs.
Value appreciation depicts a positive and growing graph which may suggest it can be a good equity/ stock to invest.
When long-term investors see value of the invested stock getting appreciated, they might want to hold on to the stock for some more period of time to gain even better returns.
If the investor is in need of capital, he/she may even think of selling the stock since the profit generated by investing in the stocks would be sufficient to achieve their financial goals.
When stock value depreciates-
If the stock value keeps on depreciating consistently over a long period of time, then the investor needs to assess the stock and come to a decision of holding or selling. A good stock has the potential to bounce back or recover. Hence, it is important that the investor analyzes all the factor before making a decision. There could be several reasons that can contribute towards the downfall in stock price- change in management, less demand, less generation of revenue, competition etc.
A good option is to seek the help of professional equity investment advisor in order to get a crystal clear idea of equity investment. Since, equity investor has to conduct lot of in-depth research and keep continuous track of invested stocks, it would be wise to consider seeking equity investment advice if you lack in-depth equity investment knowledge and fall short on time. Investing in equity market is no gamble. The equity market is ruled by facts and data. There is no room for sentiments.
Purnartha Equity Investment Advisor has been into the field of equity investment advisory services since more than a decade and can be considered as pioneers in providing such kind of advisory service. Our research-backed equity investment advice has helped generate outstanding CAGR while minimizing risk factor.
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