The roller coaster case study on WONDERLA

November 17, 2023 4 min read

Investing in stocks can be a rollercoaster ride, especially when it comes to volatile stocks. One such example is Wonderla Holidays, a company that operates amusement parks as its major business. The stock of Wonderla Holidays has experienced significant ups and downs, making it an interesting case study for investors.

Imagine being an investor in Wonderla Holidays when it went public. The stock was initially listed at Rs160 per share and quickly surged to Rs400 within a year and a half. As an investor, you would have been thrilled to see your Rs150 investment turn into Rs400. However, the stock’s growth trajectory took a turn in December 2015, and it entered a sideways mode for the next two years, with prices fluctuating between Rs400 and Rs320.

During this period, small-cap stocks took a hit, leading mutual funds to sell some of their small-cap holdings. This reshuffling caused a reset in valuations, and Wonderla Holidays’ stock dropped from Rs400 to Rs105, falling even below the IPO listing price. Over the next three years, the stock experienced a total decimation in price action.

As an investor, being exposed to eight years of this stock’s journey could have been frustrating. Especially if you had bought the stock early on and experienced little to no dividends, it would have been tempting to move on from this underperforming investment. Many investors likely sold their shares out of panic when the all-time low was broken, creating a sharp decline in the stock price.

Subsequently, the stock made a significant bounce and quickly jumped back to Rs400, even reaching Rs450 intraday. Those who had been patiently waiting for years could finally exit at breakeven or even make a profit.

However, it’s essential to consider the overall impact of such a rollercoaster journey on investors. Even if an investor managed to break even after seven years, the opportunity cost of their capital has been significant. In terms of inflation, the value of their money has effectively halved. Therefore, exiting the stock at breakeven doesn’t necessarily mean a successful investment since the investor has already lost a substantial portion of their initial capital.

Moreover, the psychological aspect of investing in volatile stocks cannot be ignored. Wonderla Holidays exemplifies this perfectly, as the stock has experienced multiple significant drops during its journey. With each subsequent drop, investors may feel anxious and unsure about the stock’s future performance. This anxiety could lead them to sell off their holdings, even during small corrections in the stock price.

On the other hand, momentum investors who may have only entered the stock near all-time highs, could’ve experienced a relatively stress-free investment journey. For instance, someone who bought the stock at Rs400 and witnessed its rise to Rs900 would have no emotional baggage associated with the stock. Their returns would be significantly higher compared to someone who held the stock from its earlier stages but ultimately achieved only single-digit returns.

On the other hand, momentum investors who may have only entered the stock near all-time highs, could’ve experienced a relatively stress-free investment journey. For instance, someone who bought the stock at Rs400 and witnessed its rise to Rs900 would have no emotional baggage associated with the stock. Their returns would be significantly higher compared to someone who held the stock from its earlier stages but ultimately achieved only single-digit returns.

In conclusion, investing in volatile stocks like Wonderla Holidays requires careful consideration and a solid strategy. The stock’s journey over the years highlights the importance of having a structured rule based approach to navigate the uncertainties of volatility in the markets and in turn increase their chances of achieving successful outcomes.

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    The roller coaster case study on WONDERLA