Equity returns come in the form of dividends a company pays from its earnings and capital appreciation of the share price. Appreciation in the share price reflects a number of things; reinvestment of earnings, growth in earnings, expectations of future growth in earnings and changes in interest rates which affect the cost of capital.
While the relationship between dividends and earnings is fairly stable (companies relate what they pay in dividends to conservative estimates of what they expect to earn over time), short term movements in share prices may bear little relationship to actual earnings growth. In the long term, though, the movement of share prices has to reflect the actual growth in earnings and the cost of capital. As such, whatever happens to the price of a share in the short term, it is the company's actual earnings that will determine where it goes in the future.
A rising share price means that an investor is paying more for the earnings of a company. This means that the difference between the return you would receive on a lower risk investment and the equity falls as the price rises. As such, the higher the short term price movement, the higher the risk you are taking and a lower level of return you will be receiving. One role of investment discipline, therefore is to determine the value offered by the share price as well as the value relative to other shares and different investments. To be able to assess value, the major factors that determine future earnings need to be assessed. Because a long term investor is buying the future stream of earnings, it should not matter what happens to the share price over the short term. If earnings are increasing then so will dividends and earnings per share and, ultimately so will the price of the share. Therefore if the share price of an investment falls while the assessment of earnings remains the same, the value of the investment has actually gone up. Buying an investment because it is rising and selling an investment because it has not risen without attention to the actual value of the investment could result in an investor buying a higher priced lower return investment and selling a lower priced higher return investment. Investment discipline therefore determines the rationale for the purchase and retention of value. Note that a company can have great growth in earnings but if the price at which you have to pay to buy a share is too high, the value attached to the share may well be insufficient to purchase it. Investment discipline's only concern with share price movement is how this affects the pricing of the value of the investment. This is where the standard cliché, "buy low sell high" comes from. Implementing it requires a strict adherence to the value offered by the underlying earnings and/or earnings potential of a company. But, there are different types of value and different types of companies. Since earnings and earnings growth largely determine the movement of a share prices it is therefore important to understand that each company has different risks to earnings and different levels of earnings growth. While these factors all affect what people are willing to pay, the basic principles of investment discipline, a focus on the underlying earnings and earnings potential of the company and its relationship with the share price, hold. What price people are willing to pay for earnings also depends on economic conditions, the cost of capital and the demand for and the supply of shares available for sale.
Finally, in order to understand the context of investment discipline, it is also important to understand investors natural preferences with regard to risk and return. In general investors prefer more return to less return, greater security to less security and and greater certainty of return or earnings to less. This leads most investors to focus on shares which are rising, which have risen for some time and which appear to exhibit greater certainty of return. In truth the two major investment disciplines, value and growth, invest in stocks that have characteristics that reduce their attractiveness to investors in general; uncertainty over the size and direction of earnings and either greater volatility in price or recent negative or poor relative price performance. The heart of investment discipline lies in understanding the consequences of the interaction of investor preferences, earnings and prices. | 
