Some of the clients have complained that our stocks are volatile. I can only suggest that you tackle this volatility with your emotional stability. If you cannot see your stock prices rise and fall then simply do not see them!!. What else stock prices can do? They will either rise or fall. It’s in their nature. If you are not emotionally stable, then you are not fit to date them. Also, volatility is widely used as a measure of risk. Thanks to academics. Let me tell you it’s no measure of any kind of risk. To prove this let me tell you an interesting story of my life which will help you understand how focus on volatility can lead to faulty decision making.
By the virtue of winning an award for being the worst investor ever for 4th year in a row, the US government gave me an opportunity to travel to planet Mercury in NASA’s Space Shuttle named “Endeavour”. Desperate to lose more money, I started looking at companies listed on Mercury stock exchange immediately after safe but hot landing. I came across a company with a ticker “Mercury X” whose stock price performance for last 20 years was as follows:
| Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| Stock Price Return | -24% | 23% | -50% | 157% | -60% | 80% | -30% | 138% | -20% | 100% | 0% | -25% | -50% | 10% | 10% | 98% | 0% | 10% | -40% | 82% |
Being a highly educated investor who has learned three times (in CA, CFA and then in ISB) that high volatility is equal to high risk, I decided to stay away from Mercury X. Suddenly an alarm bell for a strong solar eruption in the Sun started ringing. NASA called us back on earth immediately and we obeyed the order.
After returning to earth without any marvellous investments on Mercury stock exchange, I started analysing investment opportunities on NSE. I came across a company completely identical in all respects (growth, profitability, valuation, future return expectations etc.) to Mercury X but with a NSE ticker “Earth Y”. The stock price performance of the company for last 5 years was as follows:
| Year | 1 | 2 | 3 | 4 | 5 |
| Stock Price Return | 20% | 20% | 20% | 20% | 20% |
Thrilled by low volatility, I invested. Having made such a rational choice, I immediately wrote to US government with all details asking them not to nominate me for the Worst Investor Award for the 5th year. I received following response (please keep it confidential):
“Dear Mr. Badjatya,
Great to know your irresistible lust to lose money. This is to inform you that Mercury X and Earth Y are no different companies. It’s the same one company with same stock price performance listed on both the stock exchanges with different tickers. You have analysed the same data of stock price performance on different planets. If you group the four mercury years of 88 days each you will get the one earth year. Thus if you combine the four mercury years of stock price performance, it would be same as one year of performance on earth. You have proved your marvellous intellect by rejecting the completely identical investment opportunity while you were on trip to Mercury and accepting it while you were on earth. Which great investor but you will change his investment decision, by change in his own location? By the way, inflation continues to be 25% p.a. since last few years, so it would be big loss to invest in a company generating 20% p.a. Congratulations for winning the worst investor award for 5th year in a row. You now deserve a trip to the hell with no return ticket.
Your well wisher
US government”
🙂
I hope you enjoyed the story. That’s it for my side for the quarter.
Greatness is not in where we stand, but in what direction we are moving. We must sail sometimes with the wind and sometimes against it — but sail we must and not drift, nor lie at anchor. – Oliver Wendell Holmes
