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Volatility is an opportunity

The share market has not been volatile for a long time. It is meant to be volatile. Over the long-term shares are meant to grow more than having cash in the bank, but shares don’t just go up in a straight line.

Cash will give you a guaranteed return each year, shares could go down 5% in one year, up 25% in the next year and then up another 10%. It’s an opportunity when shares drop, like the 5% down year in my example. The key part is that you have to jump on that opportunity.

Take natural beauty company BWX Limited (ASX: BWX) as an example. It finished Monday at a price of $7.42, dropped around 8% at one point to $6.83 during Tuesday and then recovered 6.59% from Tuesday’s low to finish yesterday at $7.29. The underlying value of BWX did not change by 6.5% each day.

A lot of people equate volatility to risk. To me, risk is the chance of you permanently losing money. Shares will be and should be volatile because it’s made up of thousands of people trading shares every minute who have different opinions of what a business or share is worth.

Central banks around the world have heavily influenced asset prices and created low volatility. Any volatility this week and in the future is normal. I hope there’s a lot more volatility to come because that will give all of us opportunities to buy shares at discounted prices.

Foolish takeaway

I’ll be keeping my eye on the share price of BWX. I’ll also be looking at other volatile shares like WAM Microcap Limited (ASX: WMI), MFF Capital Investments Ltd (ASX: MFF) and Altium Limited (ASX: ALU).

These top stocks were also volatile and could be worth a buy if they dip again.

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Motley Fool contributor Tristan Harrison owns shares of Altium, BWX Limited, Magellan Flagship Fund Ltd, and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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