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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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It’s very normal

Posted by Muthu on January 6, 2016

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%.

I checked for last 10 years, the difference between highest close and lowest close for Sensex.

The data is given below:

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.

Whenever I get opportunity, I keep reemphasising this point.

If only we can get comfortable with volatility, equity investment is a cake walk.

Be comfortable.

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