{"id":13561,"date":"2023-01-10T23:56:00","date_gmt":"2023-01-10T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=13561"},"modified":"2025-03-23T20:20:15","modified_gmt":"2025-03-23T12:20:15","slug":"volatility-is-friend","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/","title":{"rendered":"Market volatility is investors&#8217; friend"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#The_only_certainty_in_the_stock_market_is_uncertainty\" >The only certainty in the stock market is uncertainty<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#Mr_Market\" >Mr. Market<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#The_assumptions_of_financial_theory_are_unreasonable\" >The assumptions of financial theory are unreasonable<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#Look_for_opportunities_in_bad_times\" >Look for opportunities in bad times<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#Long-term_investment_to_win\" >Long-term investment to win<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#Recession_will_end_eventually\" >Recession will end eventually<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#You_should_be_happy_when_market_crashes\" >You should be happy when market crashes<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_only_certainty_in_the_stock_market_is_uncertainty\"><\/span>The only certainty in the stock market is uncertainty<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For the market volatility, I believe most of you have heard a story. A young man stopped the founder of the famous Wall Street financial giant J. P. Morgan Bank, John Morgan, asked Morgan: &#8220;What do you think the stock market will change next.&#8221; Morgan replied, &#8220;The market will fluctuate.&#8221;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Mr_Market\"><\/span>Mr. Market<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In his famous book, &#8220;<a href=\"https:\/\/www.amazon.com\/Intelligent-Investor-Definitive-Investing-Essentials\/dp\/0060555661\" target=\"_blank\" rel=\"noreferrer noopener\">The Intelligent Stock Investor<\/a>&#8220;, Graham made a point: For smart investors, the randomness of stock prices is a good thing, not a bad thing. Best known for his use of the metaphor of a &#8220;Mr. Market&#8221; who randomly buys and sells every day.<\/p>\n\n\n\n<p>Buffett&#8217;s baseball analogy is more apt: &#8220;I call investing the greatest business in the world,&#8221; he says, &#8220;because you never have to swing.&#8221; You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There&#8217;s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.&#8221;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_assumptions_of_financial_theory_are_unreasonable\"><\/span>The assumptions of financial theory are unreasonable<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Both Buffett and Simmons disdain systems based on &#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/10\/07\/efficient-market\/\" target=\"_blank\" rel=\"noreferrer noopener\">Efficient Market Hypothesis<\/a>&#8221; or &#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/10\/13\/why-modern-portfolio-theory-unreasonable\/\" target=\"_blank\" rel=\"noreferrer noopener\">Why Modern Portfolio Theory<\/a>&#8220;, capital asset pricing models (CAPM), or even major financial theories. But most importantly, they proved that they succeeded, and long-term success.<\/p>\n\n\n\n<p>If &#8220;Efficient Markets&#8221; or &#8220;Modern Portfolio Theory&#8221;, the Capital Asset Pricing Model really works, it means that the investment success of Buffett and Simmons is impossible.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Look_for_opportunities_in_bad_times\"><\/span>Look for opportunities in bad times<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Because Buffett believes in &#8220;volatility is the investor&#8217;s friend&#8221;, rather than blindly avoiding risk as these financial theories advocate, this is the biggest difference between theory and practice. In his famous book &#8220;<a href=\"https:\/\/www.amazon.com\/Risk-Uncertainty-Profit-Frank-Knight\/dp\/1614276390\" target=\"_blank\" rel=\"noopener\">Risk, Uncertainty, and Profit<\/a>&#8221; Frank Knight once said that &#8220;extreme uncertainty, not just risk, creates opportunities for profit because it allows entrepreneurs to make decisions that are not based on predictable outcomes, thereby potentially leading to higher rewards.&#8221; and the enormous wealth these people have amassed proves him right.<\/p>\n\n\n\n<p><a href=\"https:\/\/berkshirehathaway.com\/letters\/1997.html\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett also mentioned in his 1997 shareholder letter<\/a>: &#8220;In the summer of 1979, when equities looked cheap to me, I wrote <a href=\"https:\/\/www.forbes.com\/2008\/11\/08\/buffett-forbes-article-markets-cx_pm-1107stocks.html?sh=755a2ef0765d\" target=\"_blank\" rel=\"noreferrer noopener\">a&nbsp;<em>Forbes&nbsp;<\/em>article entitled &#8220;You pay a very high price in the stock market for a cheery consensus.&#8221;<\/a> At that time skepticism and disappointment prevailed, and my point was that investors should be glad of the fact, since pessimism drives down prices to truly attractive levels.&#8221;<\/p>\n\n\n\n<p>Buffett himself said something similar: &#8220;Market volatility provides investors with buying opportunities.&#8221; As Buffett wrote in the New York Times in 2008, \u201cBad news is an investor&#8217;s best friend.&nbsp;It lets you buy a slice of America&#8217;s future at a marked-down price.&#8221;<\/p>\n\n\n\n<p>This is why in Buffett&#8217;s 2016 annual letter to shareholders. He said &#8220;Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it&#8217;simperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.&#8221; <\/p>\n\n\n\n<p>&#8220;During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy, it will also be unwarranted.&#8221;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Long-term_investment_to_win\"><\/span>Long-term investment to win<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Buffett also mentioned in his 2016 shareholder letter &#8220;Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.&#8221;<\/p>\n\n\n\n<p>He also wrote in the New York Times in 2008 that&nbsp;&#8220;Fears regarding the long-term prosperity of the nation\u2019s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be&nbsp;setting new profit records&nbsp;five, 10 and 20 years from now.&#8221;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Recession_will_end_eventually\"><\/span>Recession will end eventually<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When the National Institute of Economic Research announced that the recession had ended in June 2009, <a href=\"https:\/\/www.cnbc.com\/id\/39320992\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett said in a interview with CNBC in 2010<\/a>: &#8220;We&#8217;re not out of the recession, we&#8217;re going to be in it for a while, but we&#8217;re going to get out of it.&#8221; Buffett&#8217;s definition of &#8220;recession end&#8221; is a return to pre-recession levels of real gross domestic product (GDP) per capita.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"You_should_be_happy_when_market_crashes\"><\/span>You should be happy when market crashes<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/berkshirehathaway.com\/letters\/1996.html\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett wrote in 1996 shareholder letter<\/a>, &#8220;<em>If you aren&#8217;t willing to own a stock for ten years, don&#8217;t even think about owning it for ten minutes.<\/em>&#8221; and &#8220;<em>I&nbsp;never attempt&nbsp;to&nbsp;make money&nbsp;on the&nbsp;stock market. I&nbsp;buy&nbsp;on the&nbsp;assumption&nbsp;that&nbsp;they could close&nbsp;the&nbsp;market&nbsp;the&nbsp;next day&nbsp;and&nbsp;not reopen&nbsp;it for&nbsp;five years.<\/em>&#8220;<\/p>\n\n\n\n<p><a href=\"https:\/\/berkshirehathaway.com\/letters\/1997.html\" target=\"_blank\" rel=\"noreferrer noopener\">Buffett wrote in 1997 shareholder letter<\/a>, &#8220;<em>They are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the &#8220;hamburgers&#8221; they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.<\/em>&#8220;<\/p>\n\n\n\n<p>Unless you want to sell stocks tomorrow, the stock price doesn&#8217;t mean much to you. why? Because the deeper the decline, the higher the margin of safety of the stock, and the lower the probability of losing a lot of money in investment, which is easy to understand. This is why Buffett wrote in his 2004 shareholder letter: &#8220;<em>Be fearful when others are greedy, and be greedy when others are fearful.<\/em>&#8220;<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"207\" height=\"119\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2022\/09\/images-1600x1200-1.jpg\" alt=\"Market volatility\" class=\"wp-image-13577\"\/><figcaption class=\"wp-element-caption\">Credit: dreamstime.com<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/06\/25\/market-crash-pullback\/\">How to deal with market crash or sharp pullback?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/05\/25\/is-market-fall-enough\/\">Three signals to decide if stock market fall deep enough<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2024\/08\/05\/market-crashes-todolist\/\" target=\"_blank\" rel=\"noreferrer noopener\">Todolist when the stock market crashes<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/10\/12\/happy-market-crash\/\" target=\"_blank\" rel=\"noreferrer noopener\">Investors should be happy when market crash<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/05\/25\/is-market-fall-enough\/\" target=\"_blank\" rel=\"noreferrer noopener\">Does the stock market fall deep enough?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/10\/volatility-is-friend\/\">Market volatility is investors&#8217; friend<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/06\/20\/2020-market-crash\/\" target=\"_blank\" rel=\"noreferrer noopener\">2020 market crash, why more retail investors than Wall Street made money?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/10\/02\/the-uncertainty-in-investment\/\" target=\"_blank\" rel=\"noreferrer noopener\">The uncertainty in Investing<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/09\/10\/wrong-investment-concept\/\" target=\"_blank\" rel=\"noreferrer noopener\">Retail investors&#8217; wrong investment concept not worth trying at all<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Market volatility is investors&#8217; friend, The only certainty in the stock market is uncertainty<\/p>\n","protected":false},"author":1,"featured_media":13577,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[830,50,72,11],"tags":[],"class_list":["post-13561","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-crash","category-benjamin-graham","category-jim-simons","category-buffett"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/13561","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=13561"}],"version-history":[{"count":42,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/13561\/revisions"}],"predecessor-version":[{"id":35606,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/13561\/revisions\/35606"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/13577"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=13561"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=13561"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=13561"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}