High volatility can be an investor’s best friend… if you know how to make it work for your portfolio.
In late 2008, Warren Buffett wrote an op-ed piece in the New York Times in which he introduced one of his most famous quotes:
“Be fearful when others are greedy, and be greedy when others are fearful.”
In the broadest sense, he was trying to calm a nation entering one of the worst recessions in modern times. More narrowly, he was speaking of an investment truism—healthy companies will have good and bad times; stock prices will rise and fall.
Smart investors will either wait out the storm, or use a drop in value to pick up bargains. Not-so-smart investors will panic—and lose money.
In other words, buy low and sell high.
Sounds simple, right? But most investors fail to follow the Oracle’s advice. In fact, research shows that most investors do exactly the opposite, which explains why so many fail to beat the market.
How can you make volatility work in your investments? You just have to understand how it works and avoid mistakes like emotional investing.
So, set your emotions aside, and let’s look at how picking volatile stocks can help your portfolio beat the market…