Volatility in Perspective
This is the third essay in our Insights series. The first explored capital in two states — waiting and working. The second set risk in perspective for entrepreneurs in our region. This essay continues that foundation, reflecting on volatility as the universal rhythm that touches all capital, and the different ways it is absorbed.
Volatility is universal. It is the daily index of sentiment — the moving sum of our hopes, fears, and opinions. No one escapes it. What differs is how assets, businesses, and people absorb it.
Scale gives inertia. Large companies do not change course overnight; it takes a real shock to alter their trajectory. Smaller firms live closer to the edge. For them, what looks like a minor shift in demand, credit, or regulation can be decisive. The volatility is the same; the reaction is not.
Private businesses often appear calm because there is no screen marking them to market. That calm can be misleading. Volatility that is not quoted still exists. It accumulates in operations, contracts, and financing — and then arrives all at once. For many CEE entrepreneurs, this is the lived reality: concentrated exposure in one industry and one geography, where size is limited and shocks are not averaged away. A typical CEE company is much smaller than a developed-market high-yield issuer, and far smaller than the constituents of the S&P 500 or STOXX 600. Their exposure to volatility is greater — even if less visible.
Fixed income offers a different kind of resilience. Bonds are protected twice. First, by the equity cushion beneath them: fluctuations must first erode shareholder value before they reach the bondholder. Second, by scale: larger issuers carry broader cash flows, deeper reserves, and stronger access to financing. Together, these dampen how much volatility reaches the creditor. The protection is strongest against small and medium swings; the very large shocks still touch high yield. The volatility itself has not changed — only how it is absorbed and who bears it.
This perspective matters when choosing benchmarks. Developed-market high yield has yielded in the range of five to six percent in recent years. Large-cap equities, by contrast, have historically earned two to three percentage points more. That difference compounds into years. At five percent, wealth doubles in about fourteen years. At eight percent, it doubles in nine. Three points translate into five years of holding period.
Such premiums require discipline. Allocation between high yield and large-cap equities must be considered with horizon in mind. The longer the expected holding period, the more should be directed toward equities — avoiding the cost of paying for protection that time itself makes unnecessary. History suggests it can take fifteen years or more for equities to reliably overcome their volatility. But for those who can hold, the premium is real: an extra doubling within a holding period.
The lesson is clear. Volatility belongs to all. Scale provides inertia. Equity cushions absorb the smaller swings. Equities, standing last in line, pay the premium for carrying what bonds avoid. Public markets make these differences visible; private businesses live them silently until shocks arrive.
At Kadoria, we do not seek to escape volatility. We seek to place capital where it can be absorbed, endured, and transformed into long-term value.
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