The market prices reflect the sentiment of the investors. To protect oneself from the volatilities of the market prices, the smart investor needs to understand the value of the business he is investing into.

It is the nature of the market that prices of a stock can be pushed to very low level when the crowd is pessimistic.  On the other hand, the prices of these same stock can be pushed to very high level when the crowd is optimistic.  The reasons maybe fundamental or sentimental.

The market prices reflect thus the sentiment of the investors.  However, the value of a stock is unlikely to change very much during these short periods when the market prices may change drastically.

To protect oneself from the volatilities of the market prices, the smart investor needs to understand the value of the business he is investing into.

More investors lose money when they overpay for the stocks when the crowd is overoptimistic.  Many hold onto losses in unbelievable denial.  This is evident whenever the price of a stock falls.  Why does the price of a stock fall?  Often these investors blame many external factors for the fall, when in fact, the single most important reason is themselves, they overpaid for the stock during period of over-optimism.