Volatility equals opportunity.
It is perhaps
THEfundamental 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 opportunitieswith 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 four
blue chips with no bankruptcy concerns, no subprime drama,
and no bailout misery:
Stock
52-week low
52-week high
Spread
Disney (NYSE: DIS)
$15.10
$34.85
130%
United Parcel Service (NYSE: UPS)
$38.00
$70.00
84%
Microsoft (Nasdaq: MSFT)
$14.90
$27.66
86%
PepsiCo (NYSE: PEP)
$43.80
$75.25
72%
As a whole, the S&P 500 had a 90% 52-week spread, but
individual companies are where the volatility story is best
seen. 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
. Ditto Disney's 130% difference.
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
Goldman Sach (NYSE: GS)
$47.41
$183.95
288%
US Bancorp (NYSE: USB)
$8.06 Continued... |