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Warren Buffett on what to do during price swings — ‘Volatility is a huge plus to the real investor’


Volatility is back, and investment icon Warren Buffett thinks you shouldn’t be scared. A blowout September jobs report , surging bond yields and expectations for higher interest rates that last a while stoked big price swings in the stock market lately, leaving investors on edge. The Berkshire Hathaway CEO believes volatility shouldn’t matter to those who view their stock holdings as small pieces of businesses. “If you own stocks like you’d own a farm or apartment house, you don’t get a quote on those every day or every week,” Buffett said in a 2018 CNBC interview . “The value of American business depends on how much it delivers in cash to its shareholders between now and judgment day. I don’t think it changes 10% in a two-month period.” Whether it’s buying a company’s stock or an entire company, the 93-year-old “Oracle of Omaha” tends to pull the trigger when he can grasp the intrinsic value of an asset, which is the discounted value today of the cash that a business generates in the future. Moreover, Buffett, who at Columbia University studied under Benjamin Graham , the fabled father of value investing, only buys something when he understands the competition in the industry and decides he grasps how the space might evolve in the future. “I look at the business to determine whether I made a good investment and I’m concerned about whether we have no competition or we do over the year, but it’s the business I look at. When you’re just looking at the price of something, you’re not investing,” Buffett said. Volatility is your friend When there’s emotional selling in the market, it offers an opportunity for investors like Buffett to hunt for bargains. Buffett once referenced the concept of “Mr. Market” that Graham introduced in his 1949 book, The Intelligent Investor . “Mr. Market” is an imaginary investor driven by panic and euphoria, who comes around every day and offers you a price at which you would either buy or sell. A savvy investor can buy the dip when Mr. Market is too pessimistic, and exit a stock when he’s overly bullish. “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,” Buffett said at Berkshire’s shareholder meeting in 1997 . “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,” he added. “If you’re an investor, you love the idea of wild swings because it means more things are going to get mispriced…Volatility is a huge plus to the real investor.” ‘Gambling mentality’ Buffett’s recent purchase of a big chunk of Occidental Petroleum is an example of taking advantage of market volatility. Last year, he pointed out that he was able to scoop up 14% of the energy firm, worth more than $7 billion, in just two weeks. OXY mountain 2021-12-31 Occidental Petroleum since the start of 2021. “I find it just incredible. You couldn’t do that with Berkshire. … Overwhelmingly, large companies in America, they became poker chips,” Buffett said in 2022. “Imagine trying to [buy] 14% of the farms in this country; 14% of the apartment houses; 14% of the auto dealerships, or just anything, when already 40% were locked up some other place. It defies anything Charlie and I have seen, and we’ve seen a lot.” The legendary investor said that the short-term volatility in the market in early 2022 fueled by a “gambling mentality” allowed him to find good long-term opportunities. “We’d make a lot more money if volatility was higher, because it would create more mistakes in the market,” Buffett once said.

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