{"id":13575,"date":"2023-10-24T09:00:00","date_gmt":"2023-10-24T06:00:00","guid":{"rendered":"https:\/\/sifterfund.com\/?p=13575"},"modified":"2023-10-24T09:07:46","modified_gmt":"2023-10-24T06:07:46","slug":"stock-price-volatility-a-risk-or-not","status":"publish","type":"post","link":"https:\/\/sifterfund.com\/en\/stock-price-volatility-a-risk-or-not\/","title":{"rendered":"Stock price volatility: a risk or not?"},"content":{"rendered":"\n<p class=\"lead-p\">Investment risks often come to mind right after returns. Risks and returns frequently go hand in hand: as returns accumulate, risks might be overlooked, and vice versa.<\/p>\n\n\n\n<p>As investors, we all hope to see positive stock price changes and earn returns over time. But how should we perceive stock price fluctuations, also known as volatility?<\/p>\n\n\n\n<p>In Sifter Fund&#8217;s strategy, we don&#8217;t view stock price volatility as the primary risk.<\/p>\n\n\n\n<p>It&#8217;s true that some stocks are more sensitive to price changes than others. However, rapid price shifts often reflect the current market sentiment more than a company&#8217;s competitive advantages or its long-term financial trajectory.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>If a company&#8217;s stock price drops 10% one week and rises 15% the next, the company&#8217;s actual value and business health probably haven&#8217;t changed that swiftly.<\/p>\n<\/blockquote>\n\n\n\n<p>For instance, in the Sifter Fund&#8217;s portfolio, <strong>Atlas Copco<\/strong> and its air compressor business might not excite investors as much as, say, <strong>Tesla&#8217;<\/strong>s future visions. Hence, Atlas Copco&#8217;s stock price changes are more moderate than Tesla&#8217;s.<\/p>\n\n\n\n<p>Occasionally, news such as new client contracts or product releases can impact stock prices, but these shifts often stem more from future expectations than tangible financial results.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Examining volatility, the Sifter Fund has historically been quite stable, at 16.5% from August 2018 to August 2023. This reflects the stability of quality companies.<\/p>\n<\/blockquote>\n\n\n\n<p>However, it&#8217;s important to understand that even though quality companies are generally less volatile during market fluctuations, they are not immune to significant market shifts.<\/p>\n\n\n\n<p>For Sifter, fluctuations in stock prices aren&#8217;t our primary concern; rather, it&#8217;s the variability in a company&#8217;s results. That&#8217;s why we spend a lot of time assessing the stability of our owned companies&#8217; results and the sustainability of their competitive advantages.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>When a company&#8217;s stock price falls, it&#8217;s crucial to return to the original investment research and evaluate whether there&#8217;s been a permanent decline in the business or if it&#8217;s just market jitters.<\/p>\n<\/blockquote>\n\n\n\n<p>In 2022, we witnessed a similar scenario when artificial intelligence garnered widespread attention, causing <strong>Alphabet<\/strong> (Google&#8217;s) stock price to experience a significant drop. However, by 2023, prevailing market concerns faded, and Alphabet&#8217;s stock and business are once again on the rise.<\/p>\n\n\n\n<p>2023 has been a positive year for global stock markets. However, we don&#8217;t expect this trend to last forever. Instead, we can promise that we aim to assess steady and conservative results for the companies in Sifter&#8217;s portfolio, which are expected to be less volatile than their stock prices.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Overblown promises are a risk<\/h2>\n\n\n\n<p>By law, all fund materials must have clear disclaimers. This ensures that investors are aware of the risks. The most common disclaimer used is: &#8220;Past performance of the fund is not indicative of future results.&#8221;<\/p>\n\n\n\n<p>In their eagerness, an investor might overlook these warnings, even if the risks are highlighted in capital letters in marketing materials. Also, a fund seller might intentionally or due to lack of knowledge fail to mention them.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>Even though the Sifter Fund has performed well recently, it&#8217;s crucial to clarify: we cannot predict the future.<\/p>\n<\/blockquote>\n\n\n\n<p>We don&#8217;t know what will happen in the stock markets or with the returns of the Sifter fund in the future.<\/p>\n\n\n\n<p>Therefore, we don&#8217;t promise any returns, but we can promise one thing: we invest in very high-quality businesses and don&#8217;t panic with stock market fluctuations.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>As an investor, it&#8217;s vital to recognise risks and make informed decisions.<\/p>\n<\/blockquote>\n\n\n\n<h2 class=\"wp-block-heading\">Is there a higher risk associated with the Sifter fund because you are a boutique firm with only one fund?<\/h2>\n\n\n\n<p>This question was posed by a Central European investor of ours.<\/p>\n\n\n\n<p>It&#8217;s true that Sifter offers investors only one fund. We believe that by focusing on one thing, we can be the best at it.<\/p>\n\n\n\n<p>Our investment team consists of eight experts who actively follow the companies in the Sifter fund. Our team is larger than many teams in big funds. We believe in collaboration and the power of a focused approach.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>The risks of a fund don&#8217;t decrease just because a fund company offers hundreds of funds.<\/p>\n<\/blockquote>\n\n\n\n<p>What matters is the investment strategy of a single fund and its implementation. The strategy of the Sifter fund is to search and invest in very high-quality companies worldwide and own them for a long time. We compare the world&#8217;s best earnings models, assess their money-making capabilities&#8217;, and monitor risks. When we find a better company, we study it for a long time and replace the lesser company in our portfolio with a better one.<\/p>\n\n\n\n<p>However, we don&#8217;t recommend that investors put all their assets into just one fund.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Are smaller players at a disadvantage resource-wise against larger ones?<\/h3>\n\n\n\n<p>Partially yes, but not entirely. Access to quality information is no longer the competitive advantage it once was in the 1990s. Today, the amount of information is vast and reasonably affordable.<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>The challenge is to distinguish relevant information and draw the correct conclusions. Here, a clear investment strategy, systematic process, and strict commitment to these are crucial.<\/p>\n<\/blockquote>\n\n\n\n<p>Sifter&#8217;s strength lies in its focus on a single fund and its <a href=\"https:\/\/sifterfund.com\/en\/quality-investing\/\">investment strategy<\/a>, allowing analysts not to shift their focus between different strategies. We believe that quality literacy develops when the focus is right.<\/p>\n\n\n\n<p>The Sifter fund has been on the stock market for over 20 years and 100% invested in stocks. We haven&#8217;t been concerned about market fluctuations or macro-world noise. The fund&#8217;s historical annual return, after all expenses, has averaged 9.6% (19.6.2003\u201317.10.2023).<\/p>\n\n\n\n<p>Past performance is no guarantee of future results.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Investment risks often come to mind right after returns. Risks and returns frequently go hand in hand: as returns accumulate, risks might be overlooked, and vice versa.<\/p>\n","protected":false},"author":6,"featured_media":12449,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-13575","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Stock price volatility: a risk or not? - Sifter Fund<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/sifterfund.com\/en\/stock-price-volatility-a-risk-or-not\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Stock price volatility: a risk or not? - Sifter Fund\" \/>\n<meta property=\"og:description\" content=\"Investment risks often come to mind right after returns. 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