Volatility: The Price You Must Pay To Earn Big Long-Term Returns

As of the time of writing (1:41 pm), nitrile gloves maker Riverstone Holdings Limited (SGX: AP4) is down by 4.5% to S$2.35. For today at least – with the Straits Times Index (SGX: ^STI), Singapore’s stock market benchmark, gaining 0.26% – Riverstone Holdings looks like a big loser.

But, over the longer lens of history, Riverstone has been anything but a loser – since the close of its first day of trading on 20 November 2006, the glove maker’s stock has jumped by some 769% to S$2.46 as of yesterday (23 November 2015). Over the same time frame, the Straits Times Index is up by a paltry 4.8% in total.

Riverstone’s decline today is a good reminder that long-term winners in the stock market can be very volatile over the short-term too. Take a look at the table below (click for larger image), which shows you how often Riverstone and the Straits Times Index have made a daily loss of 2% or more since 20 November 2006.

Riverstone and Straits Times Index table

Source: S&P Capital IQ; author’s calculations

Over the timeframe under study, Riverstone’s stock has dropped by 2% or more in 199 days over 2,283 trading sessions. That works out to be 8.7% of the time. When it comes to the Straits Times Index however, two-percent-days had occurred just 4.2% of the time.

To achieve big long-term returns, above-average short-term volatility would at times be a price we’d have to pay. But, it’s something I’m more than happy to accept. What about you?

To learn more about investing and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It can teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any companies mentioned.