When stocks experience sharp declines, news outlets often criticize the resulting market volatility. However, Warren Buffett views volatility as a significant advantage for investors.
“Volatility is a huge plus to the real investor,” Buffett remarked at the 1997 Berkshire Hathaway Annual Meeting. He referenced Ben Graham’s concept of “Mr. Market,” where the stock market is likened to an obliging partner who daily offers to buy or sell shares at a fluctuating price. In a private business, such daily buy-sell offers are unheard of, but the stock market provides this unique opportunity.
Buffett explained that this partner, “Mr. Market,” is akin to a “heavy-drinking manic depressive.” The more unpredictable and erratic the market behaves, the greater the chances for investors to profit from mispriced stocks. For those not on margin, volatility is a welcome phenomenon, presenting numerous opportunities for smart investments.
Buffett’s full explanation on volatility
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© 2024 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.