You may be familiar with the term 52 week high and low.
I’ll give you an example. Take State Bank of India (SBI). As on date, the 52 week high is 335.90 and 52 week low is 220.60.
The difference between SBI’s highest price and lowest price in the last one year is 35%.
If you take Sensex, as on date, the 52 week high is 30,024 and 52 week low is 24,833.
The difference between Sensex highest point and lowest point in the last one year is 17%.
In a year, a stock price varies as much even a third of its value. Even the difference between highest and lowest point of index varies as much as 17%.
You take index for any year; this is how the variation would be. Many stocks’ 52 week high and low varies as much as even 50%.
Morgan Housel says, since 1900, U.S. S&P 500 index has provided an annualised return of 6.5%. During the same period, the average difference between any year’s highest close and lowest close is 23%.
If this is how it is, year after year, decade after decade, century after century; why even listen to some explanation on why market went down or up. This is how it works. It’s as simple as this. Listening to media and analysts explaining volatility is sheer waste of time.
Volatility is very normal. If you can understand and get used to volatility, no one can stop you from creating wealth through equities. It’s volatility which scares most of the investors and they make crazy decisions due to the same.
The above pointers shows volatility is the way of the life in equity markets. It is normal to be volatile. It’s abnormal to be otherwise.
But for volatility, everyone would get rich from equity. Life cannot be that easy. Volatility ensures that only few who can be friendly with it, makes huge wealth from markets.
Whenever I get opportunity, I keep reemphasising this point.
If only we can get comfortable with volatility, equity investment is a cake walk.