This article was originally published in our weekly newsletter.

The market has whipped around a lot lately.

Some of the daily swings in certain positions may have made you uneasy at times.

This is why the term risk is used.

Risk refers to the potential for loss over a specified period of time.

If you can afford to hold a stock or fund longer, the risk associated with that position may go down because it has sufficient time to recover.

Though the recovery is not guaranteed, as long as you are picking good quality companies, the odds should be in your favor.

Today, I want to go through an exercise of “risk” and the volatility we have experienced while using the stock Constellation Energy Group ($CEG) as an example.

Over the past month, you would have seen a couple of 5% or greater shifts in the position.

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If you look back three months, you would have seen a 55% gain.

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The short-term volatility isn’t so bad when you pull back and see a 55% gain, right?

If you look back six months, you would have seen a total gain of around 1.5%.

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Not so good, right?

If you look back since January 1 of this year, you would see a 43% gain.

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That’s better than “the market,” but it was a more volatile ride.

If you were to look back one year, you’d see around a 70% gain.

If you were to look back three years, you’d see around a 500% gain.

See below:

Past performance doesn’t guarantee future performance.

The question today is, “Is this position worth the potential growth based on today’s fundamental analysis?”

The Takeaway

Any stock can move quickly up or down.

If you pay too close attention to short-term volatility (the fluctuations in a stock's price), it may create more stress than is necessary.

Investing is about looking for high-quality companies that may be undervalued and holding them for a longer-term period of time (at least five years or so).

Things can change at any moment, which is why it is important to keep an eye on your companies and any significant disruptions they may be experiencing.

However, in the end, when things move, it is important not to panic.

Look at the fundamentals of the company.

Are they still a good company?

Do they have good financials?

Are they profitable?

If the answer is yes, then it may make sense to wait for the recovery.