Warren Buffett Volatility Quotes

In modern portfolio theory, beta is used as a measure of the volatility and, thus, the risk of an investment. However, Buffett sees the use of beta as nonsense, emphatically stating, “Volatility is no measure of risk to us.

The key is to remember that the market exists to serve you, not instruct you. Volatility is a huge plus to real investors.

Successful long-term investors like Warren Buffett know that bear markets are buying opportunities.

For railroads, ownership of coal lands was a way to stabilize an industry levered to economic volatility and weather, with warmer winters depressing demand. The vertical integration of railroads and miners also helped the players control production and shipments. The industry became highly concentrated, with seven railroad companies controlling over 90% of the coal production in the region. This oligopoly occasionally entered into collusive arrangements and tried to manipulate the price of this critical energy source. Despite these advantages, the Reading Railroad’s spending spree eventually led to trouble, as the combination of leverage, competition, and economic volatility caused the company to declare bankruptcy three times between 1880 and 1896.143 The Reading finally experienced financial success in the early 1900s, only to confront a new problem: The federal government was now determined to curb the power of the railroad and its peers. Congress began to enact legislation designed to split anthracite coal producers from railroads. These early attempts were easily circumvented by the anthracite giants. In 1915, however, the Supreme Court started ruling that the railroad companies violated anti-trust law. In 1920, the Court banned the stock control of coal companies outright, which finally forced some of the largest anthracite operators, including the Reading Railroad, to separate their coal and railroad operations.144

Curbing the financial sector. Since so much of the increase in inequality is associated with the excesses of the financial sector, it is a natural place to begin a reform program. Dodd-Frank is a start, but only a start. Here are six further reforms that are urgent: (a) Curb excessive risk taking and the too-big-to-fail and too-interconnected-to-fail financial institutions; they’re a lethal combination that has led to the repeated bailouts that have marked the last thirty years. Restrictions on leverage and liquidity are key, for the banks somehow believe that they can create resources out of thin air by the magic of leverage. It can’t be done. What they create is risk and volatility.2 (b) Make banks more transparent, especially in their treatment of over-the-counter derivatives, which should be much more tightly restricted and should not be underwritten by government-insured financial institutions. Taxpayers should not be backing up these risky products, no matter whether we think of them as insurance, gambling instruments, or, as Warren Buffett put it, financial weapons of mass destruction.3 (c) Make the banks and credit card companies more competitive and ensure that they act competitively. We have the technology to create an efficient electronics payment mechanism for the twenty-first century, but we have a banking system that is determined to maintain a credit and debit card system that not only exploits consumers but imposes large fees on merchants for every transaction. (d) Make it more difficult for banks to engage in predatory lending and abusive credit card practices, including by putting stricter limits on usury (excessively high interest rates). (e) Curb the bonuses that encourage excessive risk taking and shortsighted behavior. (f) Close down the offshore banking centers (and their onshore counterparts) that have been so successful both at circumventing regulations and at promoting tax evasion and avoidance. There is no good reason that so much finance goes on in the Cayman Islands; there is nothing about it or its climate that makes it so conducive to banking. It exists for one reason only: circumvention. Many