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Even the best returns come with volatility

Sadly, for most people the perception of shares is what they read in the media. “ASX loses $20 billion in a day” or “$50 billion wiped off the stock market in a week”. Catchy headlines, right?

If the only thing I saw in the news was how much shares had gone down then I’d be scared off too.

Newspapers probably wouldn’t sell so well if the headlines actually said: “Shares continue multi-decade growth and this hasn’t changed for the last century”.

The share market is a crazy beast. You wouldn’t buy a farm thinking about how much it’s going to rain over the next week or month.

It’s great that we can buy or sell shares at a moment’s notice when the market is open. But, this also seems to put people off because they can see price changes. If there was someone outside your house yelling how much they’d be willing to pay to buy your home every minute between 10am to 4pm five days a week I’m sure you would get swings of a few percentage points each day. It’s up to you to ignore him or accept your offer.

Perhaps you’re going to ignore the crazy street-shouter for a decade or two. That would give you the best bet of your house price going up. Maybe he’s also yelling the price of how much he’d sell next door’s house too. Perhaps you’d take his offer occasionally – that’s up to you.

The share market is very volatile. That’s the ‘price’ of investing in the share market.

Consider Altium Limited (ASX: ALU), one of the best performing shares over the past five years, it’s gone up by over 1,400%. Yet over that time it has dropped by more than 20% on several occasions. If you weren’t brave through volatility you may have sold out and missed significant gains.

Another example could be MNF Group Ltd (ASX: MNF), it’s up almost 300% over the past five years and has dropped by 30% on at least two occasions, including the current decline.

Foolish takeaway

Of course, occasionally it is worth selling if a business is actually in terminal decline. But volatility of the share price alone is a terrible reason to sell. In-fact, a price decline could be the best time to buy!

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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of and has recommended MNF Group 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 Scott Phillips.

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