REUTERS/James Lawler Duggan
Warren Buffett enjoys volatile markets as they result in more buying opportunities.
The Berkshire Hathaway CEO dismisses the idea that volatility represents risk.
Stocks are more volatile than cash or bonds, but they’re safer to own in the long run, Buffett says.
Warren Buffett welcomes volatile markets as they serve up bargains, and near-term price moves don’t affect his long-term returns.
The billionaire investor and Berkshire Hathaway CEO has argued that owning stocks is safer than holding cash or bonds in the long run, even though share prices move a lot more. He’s also ridiculed the use of volatility as a measure of risk.
Here are 8 of Buffett’s best quotes about volatility, lightly edited for length and clarity:
1. “As an investor, you love volatility. You love the idea of wild swings because it means more things are going to get mispriced.” (1997)
2. “The true investor welcomes volatility. A wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly.” (1993)
3. “It doesn’t make any difference to us whether the volatility of the stock market averages 0.5% a day or 0.25% a day or 5% a day. In fact, we’d make a lot more money if volatility was higher, because it would create more mistakes in the market. So volatility is a huge plus to the real investor.” (1997)
4. “Erratic markets are ideal for any investor — small or large — so long as he sticks to his investment knitting. Volatility caused by money managers who speculate irrationally with huge sums will offer the true investor more chances to make intelligent investment moves. He can be hurt by such volatility only if he is forced, by either financial or psychological pressures, to sell at untoward times.” (1987)
5. “If the investor fears price volatility, erroneously viewing it as a measure of risk, he may, ironically, end up doing some very risky things.” (Buffett argued that holding currency-denominated assets such as cash or Treasury bonds, which have their value eroded by inflation over time, is riskier than owning stocks for the long term.) (2014)
6. “No one ever gets that in a private business, where daily you get a buy-sell offer by a party. But in the stock market you get it. That’s a huge advantage. And it’s a bigger advantage if this partner of yours is a heavy-drinking manic depressive. The crazier he is, the more money you’re going to make.” (Buffett was referring to his mentor Benjamin Graham’s allegory of Mr. Market, a character offering to buy from or sell to investors at a different price each day.) (1997)
7. “We regard volatility as a measure of risk to be nuts.” (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 ways to damage future returns). (2001)
8. “The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period.” (2011)
Markets, MI Exclusive, Markets, Stocks, Warren Buffett, Berkshire Hathaway, Stock market bubble, Stock Market Crash, Volatility, Inflation, Purchasing Power, Benjamin Graham, Mr. Market, Risk
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