In one of Peter Lynch’s old interviews, he remarked that he loved volatility but he estimated that volatile markets were probably a disservice to the average investor. Specifically, he purchased shares of YUM Brands (then just Taco Bell stock) at a price of $7 after it had fallen from $14. The stock then fell to $1 per share before going on a multi-year tear that ultimately resulted in PepsiCo acquiring it for $42 per share.
Lynch remarked that he enjoyed the volatility from $7 to $1 per share because he knew the company was in great shape (no debt, no store closings, and in fact, same-store earnings growth) and he was able to enhance his compounding by purchasing shares as the price declined. In the same breath, he pointed out that the average investor would not be well-served by seeing his investment suffer a similar decline because the possibility of … Read the rest of this article!