Warren Buffett loves volatility, sees stocks as safer than cash and bonds
- Warren Buffett likes volatile markets because they translate into more buying opportunities.
- Berkshire Hathaway’s CEO dismisses the idea that volatility is a risk.
- Stocks are more volatile than cash or bonds, but they’re safer over the long term, says Buffett.
Warren Buffett welcomes volatile markets because they do good business, and short-term price movements don’t affect his long-term returns.
The billionaire investor and CEO of Berkshire Hathaway argued that it is safer to hold stocks than to hold cash or long-term bonds, even if stock prices move much more. He also ridiculed the use of
as a measure of risk.
Here are 8 of Buffett’s best quotes on volatility, slightly edited for length and clarity:
1. “As an investor, you like volatility. You like the idea of wild swings because it means more things are going to be mispriced.” (1997)
2. “The true investor welcomes volatility. An extremely fluctuating market means that irrationally low prices will periodically be attached to strong companies. It is impossible to see how the availability of such prices can be seen as increasing risk for an investor who is completely free to ignore the market or exploit its folly.” (1993)
3. “It makes no difference to us whether stock market volatility averages 0.5% per day or 0.25% per day or 5% per day. money if the volatility was higher, because it would create more errors in the market, so volatility is a huge plus for the true investor.” (1997)
4. “Rotty markets are ideal for any investor – small or large – as long as they stick to their investment. The volatility caused by fund managers speculating irrationally with huge sums will offer the true investor more chances of making smart investments. He can only be affected by such volatility if he is forced, by financial or psychological pressures, to sell at inopportune times.” (1987)
5. “If the investor fears price volatility, mistakenly viewing it as a measure of risk, he may, ironically, end up doing very risky things.” (Buffett argued that holding currency-denominated assets such as cash or treasury bills, whose value is eroded by inflation over time, is riskier than holding stocks for the long term.) ( 2014)
6. “No one ever gets that in a private company, where you get a buy-sell offer from some party on a daily basis. But in the stock market, you get it. That’s a huge plus. a greater advantage if your partner is a manic-depressive who drinks heavily. The crazier he is, the more money you will make. (Buffett was referring to his mentor Benjamin Graham’s allegory of Mr. Market, a character offering d buy or sell to investors at a different price every day.) (1997)
7. “We consider volatility as a measure of risk crazy.” (Buffett said short-term price movements are meaningless and pose no threat to a long-term investor, whereas active trading, paying excessive fees, and borrowing money are real means of harming future returns). (2001)
8. “The risk of an investment is not measured by beta (a Wall Street term encompassing volatility and often used to measure risk) but rather by the probability that this investment will cause its owner a loss of power purchase during its intended holding period. Assets may fluctuate widely in price and not be risky as long as they are reasonably certain to provide increased purchasing power during their holding period.” (2011 )
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