Since KSE100 has now reached almost 100K points, I feel it is a good time to write on how volatility is your best friend in your investing journey. Unfortunately, our country goes through an economic crisis every five years, which also translates into a stock market crash.
Investors (including big shots) suffer big losses on their capital; however, common people mostly stay away from this kind of adventure. Hence we hear this famous statement ‘Pakistan’s stock market always ends up in losses’ from our acquaintances.
Despite volatility over time (especially past 7 years), the KSE100 index reaching an all-time high of close to 100K level is a testament to the fact that valuations are realized sooner or later and that stocks tend to provide the highest returns of all asset classes in the long run.
Volatility is good because it lets you buy high-quality businesses at discounted prices. UBL stock price fell under PKR 100 last year while interest rates were rising, and the banking was working as usual. Imagine PKR 100 stock price versus an expected dividend of PKR 30/share (actual dividend turned out to be more than PKR 40/share); I can only say WTF. Today, the stock is worth PKR 340 and now people wish that they had bought it earlier. And there are so many other examples.
I see a lot of people posting stuff like ‘who gets rich on salaries?’ on social media. That’s true, not because salaries aren’t enough but because people don’t properly manage their finances. The best part about being a salaried person is monthly inflow, a portion of which can be invested through strict discipline. With SIP, you can keep buying monthly. If a market crashes, you can keep buying and pulling down your average cost, so that when there is a bounce back (there is a bounce back every time) you come out with a much larger gain.
There is one caveat though. You must invest in fundamentally sound businesses with strong moats. Investing for short term gains based on news and rumors isn’t going to help you in the long run. If you do this, we will probably have more people saying, ‘Pakistan’s stock market always ends up in losses’. That’s not the stock market’s problem. That’s your investing problem.