· Let’s suppose a share is currently trading at $20.
Now that share price after some time e.g. 3 months falls to $10. The next day,
a Russian bank, who’s a substantial holder of the company in question goes
bankrupt and has to sell all its shares, pushing the price down to $5. This
means that you can only now lose half as much. Moreover, it means that if the
stock bounces back to $20, you can also gain twice as much. Thus, if the stock
price gyrates for reasons unrelated to a company’s fundamentals, I would argue
that this is an example of less risk and high return.
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