Many investors think that when stock prices fall, then stock markets are destroying wealth. That is not true. Stock markets are actually giving you a signal that there something wrong with the stock. Take the case of Arvind Mills in 1995. Over a period of the next 5 years, the stock lost nearly 95% of its value. Same was the case with other companies like Himachal Futuristic in 2001, Unitech in 2009 or Jaypee Group in 2015. In all these cases, the fall in price was actually an indication of a larger inherent problem in these companies. That actually gave enough time to investors to exit these stocks and protect their wealth. Ironically, even when prices are falling in the market, the stock market is actually helping you create wealth by helping you eliminate the losers from your portfolio.

Between 2018 and 2019 we saw some huge wealth destruction in selected stocks. For example stocks like Vakrangee, PC Jewellers, Dewan Housing, Reliance Infra, and Reliance Capital have all seen wealth destruction to the tune of 80-90%. More of than not, in most of these cases, the wealth destruction happened due to poor corporate governance practices which left little by way of value for the existing shareholders. You need to be extremely cautious about such cases.