10 Best Stocks to Buy for a Quick Return

Ramish Cheema
8 min read

In This Article:

In this piece, we will take a look at the ten best stocks to buy for a quick return. For more stocks, head on over to 5 Best Stocks to Buy for a Quick Return.

The stock market is made up of thousands of stocks, belonging to a wide variety of industries and sectors. These are tracked by numerous variables that describe a stock's performance over a period of time, its valuation, future prospect, and market sentiment. One such variable that describes performance is stock price volatility. Simply put, the volatility of a stock price measures the change in a stock's price over its average over a certain time period. It allows investors to prepare their portfolios and take stock of potential upward or downward future movements and their magnitude.

However, volatility is not only used to determine market returns. It is also a very useful indicator when measuring the market's overall health to determine if a crash is in the making. On this front, research covering the stock market crash of 1987 suggests that just before and after the crash, volatility jumped rapidly before returning to normal soon after. The crash of 1987 is commonly known as Black Monday, when all major stock markets in the world dropped from 11% to a massive 45% in just a day. This was precipitated by the events of the previous week, where changes to tax law and weak economic data created massive selling pressure that was left without a release valve over the weekend and culminated in significant share selling on Monday.

As for what causes volatility, research from the University of Rochester makes an attempt to explain this as well. It points out that the firm's sector, namely technology, is perhaps the best predictor of its share price volatility as opposed to other factors such as firm size or a recent initial public offering (IPO). The research paper also corroborates the belief that stock market volatility can be analyzed as a leading recession indicator.

At this point, it's time to consider whether investing in volatile stocks can also generate stronger returns. Intuition would suggest this to be the case since high volatility comes through strong price movements that are larger than average. On the flip side, the chance for losses is great as well, as share price swings move both ways. Tons of research exists on whether the returns of volatile stocks are negative, or if these returns improve if small cap stocks are removed from the sample. Research from Robeco Asset Management takes all of this into account. It studies stock price volatility across the 1,000 largest U.S. stocks between 1963 and 2009 to check if volatility does indeed lead to more returns or if the returns due to volatility in research papers are because of methodology.  The paper reveals that as a whole, returns increase when small caps are removed, but drop when they are studied over a larger time period. It also wagers that perhaps some of the returns in research are due to the look ahead bias.

Recommended Stories