Lessons From Warren Buffett: Volatility is a Huge Plus for the Real Investor

When stocks make sharp moves downward, the news is often full of commentaries decrying volatility. However, for Warren Buffett, volatility is just what he is hoping for.

“Volatility is a huge plus to the real investor,” Warren Buffett said at the 1997 Berkshire Hathaway Annual Meeting. “Ben Graham used the example of ‘Mr. Market’…And Ben said, ‘You know, just imagine that when you buy a stock, that you in effect, you’ve bought into a business where you have this obliging partner who comes around every day and offers you a price at which you’ll either buy or sell. And the price is identical.’ And 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. So you, as an investor, you love volatility. Not if you’re on margin, but if you’re an investor you aren’t on margin. And if you’re an investor, you love the idea of wild swings because it means more things are going to get mispriced.”

Buffett’s full explanation on volatility

See the complete Lessons From Warren Buffett series

© 2021 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.

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