STREET DOGS

VOLATILITY in the up direction is not a problem — it’s only downward volatility that offers discourse. — Coreen T Sol

A lot of value investors shun concepts such as volatility, or standard deviation, as a measure of risk — and I’m sympathetic to that point of view. That said, the notion of risk is very time-dependent. For very short periods of time, volatility is a pretty good way to think about risk. I have kids in college and I have to write a check for their tuition, so volatility is a very important concept for me. I want to minimize my volatility so I can make sure I can write that cheque. Or if you go out to an options desk and say, “Options traders, we’re taking away your measure of implied volatility,” they would actually be very much hamstrung. But if you take a long-term point of view, which most value investors do, then that idea of volatility melts away and, in fact, volatility becomes your friend. Risk then becomes the loss of permanent capital. — Michael Mauboussin

The true investor welcomes volatility … a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses. — Warren Buffett

Outperforming the market with low volatility on a consistent basis is an impossibility. I outperformed the market for 30-odd years, but not with low volatility. — George Soros

If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility. — Niall Ferguson

Michel Pireu — e-mail: pireum@streetdogs.co.za