Stock volatility is once again in the news and there are plenty of people who are saying that you, the investor, should not own stocks. We respectfully disagree.
So What is A Stock?
A stock is in simple terms, a piece of paper stating that you own a share of a company. But what do you really own? Let’s take the company Apple (AAPL) as an example. If you buy AAPL stock, this does not mean that you own anything Apple related. Instead, a stock states that you own a piece of a company’s profit.
Now, What is Volatility?
Volatility is simply the fluctuation of the share price of a stock. In the Bench Talk, Greg gives a great example using AAPL stock to demonstrate how volatility can be influenced by investors competing for profit. But the truth is, stock volatility is no simple matter. In fact, investors aren’t just buying today’s profits. People want to buy today’s profits, tomorrow’s profits, next year’s profits etc. Figuring out what the future profits will be, takes a lot more skill and analysis, but the concept is still the same; today’s stock price is influenced by the perceived profits the company will hopefully make in the future. Company updates, market news, or even articles written about the company or the market can influence the volatility of a company’s stock.
It’s important to keep in mind that volatility is inevitable. People are emotional, which can and will lead to downturns in the market. However, when the market dips it’s important to remember that it’s only temporary. If we look at the long-term average of stocks, they’re still up. If you truly want to accomplish your financial goals and make a profit it is crucial that you invest in stocks over the long run.