Although most investors express a strong distaste for market fluctuations, volatility must be accepted to reap the superior returns offered by stocks. Risk and volatility are the essense of above-average returns: Investors cannot make any more than the risk-free rate of return unless there is some possibility that they can make less.
While the volatility of the stock market deters many investors, it fascinates others. The ability to monitor a position on a minute-by-minute basis fulfills the need of many people to know quickly whether their judgement, which affects not only money but also ego, has been validated. For many people, the stock market is truly the world's greatest gambling casino.
Yet this ability to know exactly how much one is worth at any given moment also can provoke anxiety. Many investors do not like the instantaneous verdict of the financial market. Some retreat into investments such as real estate, for which daily quotations are not available. They believe that not knowing the current price makes an investment somehow less risky.!
As Keynes stated over 50 years ago about the investing attitudes of the endowment committee at Cambridge University:
"Some Bursars will buy without a tremor unquoted and unmarketable investment in real estate which, if they had a selling quotation for immediate cash available at each audit, would turn their hair gray. The fact that you do not know how much its ready money quotation fluctuates does not, as is commonly supposed, make an investment a safe one."
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