Since 1900, U.S. S&P 500 index has provided an annualised return of 6.5%. However, during the same period, the average difference between any year’s highest close and lowest close is 23%.
For last 10 years, the difference between highest close and lowest close for Sensex.
Year High Low Difference
2006 14035 8799 37.30%
2007 20498 12316 39.91%
2008 21206 7697 63.70%
2009 17530 8047 54.09%
2010 21108 15651 25.85%
2011 20664 15135 26.75%
2012 19612 15358 21.69%
2013 21483 17448 18.78%
2014 28822 19963 30.73%
2015 30024 24833 17.28%
During last 10 years, Sensex has provided an annualised return of around 11%. During the same period, the average difference between any year’s highest close and lowest close is around 33%.
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. If only we can get comfortable with volatility, equity investment is a cake walk. So be comfortable with volatility – the earlier the better !!!