Market share price volatility and relationship to your buying price. How long after holding can you expect the market share price to be ALWAYS ABOVE your buying price, using various assumptions.

 

It is not uncommon to see a share price of a stock rises 50% and falls its equivalent 1/3rd in a year (52 weeks period).   

Assuming, you are a long term investor who has a time horizon of 5 years to 10 years and you have the ability to pick a stock that grows its intrinsic value consistently and predictably at 10% a year for 10 years.

You bought this stock at $1.00.   Based on the above statement, you can expect the share price to rise to $1.50 or drop to RM 0.70, due to various factors, many are unrelated to the fundamentals of the company.  

We assume, the market share price always reflects this intrinsic value in the long run, but with the above volatility.

The question asked:  How many years after holding this stock that is growing at 10% per year consistently, can the investor expect the market share price to be ALWAYS ABOVE the buying price?

Answer is:  4.3 years (or 5 years)

If the intrinsic value (which is reflected in the market share price )of the business grows at:

15% per year

20% per year

30% per year,

the number of years invested when the market share price is ALWAYS ABOVE the buying price are as follows:

2.9 years (or 3 years)

2.22 years (or 3 years)

1.55 years (or 2 years)

Stock Price Fluctuation and Intrinsic Growth Analysis

An investor should respond to short-term stock market price fluctuations and quotational losses by focusing on the underlying business fundamentals rather than market sentiment. Since the market is a voting machine in the short term, prices can swing irrationally. Quotational losses (paper losses) are temporary and often reverse over time if the intrinsic value of the business grows. The key is to maintain a long-term perspective, avoid emotional decisions, and only sell if the original investment thesis is broken.

The margin of safety principle is powerful because it provides a buffer against errors, volatility, and unforeseen adversities. By purchasing a stock at a significant discount to its intrinsic value, an investor reduces downside risk and enhances potential returns. Even if the market price falls further, the margin of safety helps ensure that the investment remains sound. Over time, as intrinsic value grows, the market price tends to reflect it, leading to satisfactory results with minimized permanent loss of capital.