Volatility equals opportunity.
It is perhaps THE fundamental investing lesson; it's what Ben Graham was talking about when he referred to the vagaries of Mr. Market, and it's what people really mean when they repeat the silly phrase "buy low, sell high."
Maybe you already get it, but most investors will never learn that lesson. I know I struggle with it.
Why? Because no matter how many bubbles and bursts we live through, we all get juiced on the way up and terrified on the way down. We confuse our buy opportunities with our sell opportunities.
But if we can keep our heads when all about us ...
Numbers are clearer than words. An easy way to gauge volatility is to compare 52-week highs and lows. The bigger the spread -- i.e., the percentage difference from the low to the high -- the greater the volatility.
Let's start with the most benign example. Here are three blue chips with no bankruptcy concerns, no subprime drama, and no bailout misery:
Stock
52-week low
52-week high
Spread
Procter & Gamble (NYSE: PG)
$43.93
$73.57
67%
Wal-Mart (NYSE: WMT)
$46.25
$63.85
38%
PepsiCo
$43.78
$75.25
72%
These spreads are all lower than the S&P 500's 97% 52-week spread, but it's amazing that a company like Pepsi, whose business model is so steady, has a high that is priced 72% higher than its low.
A greater opportunity
There's certainly been opportunities in the blue chip space, but let's take it up a notch or three. Check out the spreads on these companies that all faced speculation about possible bankruptcy or nationalization:
Stock
52-week low
52-week high
Spread
Bank of America (NYSE: BAC)
$2.53
$39.50
1,461%
Citigroup (NYSE: C)
$0.97
$23.50 Continued... |