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hi youtube my name is jake and welcome to my channel in this video i want to share my thoughts on market volatility by sharing video clips of legendary investors peter lynch and warren buffett speaking about their opinions on volatility and the lessons we can learn the recent trends in the financial market has been highly volatile due to uncertainties in the us presidential outcome dual political relationship with the us and china the economic impact from the coronavirus pandemic since the stock market is highly liquid meaning you can buy and sell within second volatility in the stock market is inevitable legendary investors peter lynch and warren buffett both are well known for beating the market consistently by 30 annual return explains why the volatility is actually good rather than posing a risk for investors i i love volatility i i think i remember when uh 1972 the market went down dramatically and taco bell went from 14 to one they had no debt they never had a restaurant closed and i started buying at seven but i kept on to it and it went to one it was the largest position of magellan in 1978 one was bought out from by 42 dollars by pepsicola i think would have gone to 400 if they didn't buy it out i think volatility is terrific but the market's gonna go up and down over the human nature hasn't changed a lot in 25 000 years the market will go down or the market will go up so volatility will occur and markets will continue to have these ups and downs i think that's a great opportunity if people can understand what they own if they don't understand they own they can own mutual funds try and figure out mutual funds they own and keep adding to it basically corporate profits have grown about eight percent a year historically the corporate profits double about every nine years the stock market ought to double about every nine years what you learn from history is the market goes down it goes down a lot the math is simple there's been 93 years a century this is easy to do the markets had 50 declines of 10 or more so 50 declines in 93 years about once every two years the market falls ten percent we call that a correction that means that's a euphemism for losing a lot of money rapidly we call it a correction and uh uh so 50 declines in 93 years about once every two years the market falls ten percent of those 50 declines 15 have been 25 or more that's known as a bear market we've had 15 declines in 93 years so every six years the market's gonna have a 25 decline that's all you need to know you need to know the market's gonna go down sometime if you're not ready for that you shouldn't own stocks and it's good when it happens if you like a stock at 14 it goes to six that's great you understand the company you look at the balance sheet they're doing fine and you're hoping to get to 22 with it 14 to 22 is terrific 6 to 22 is exceptional so you take advantage of these declines they're going to happen no one knows when they're going to happen it would be very people tell you about it after the fact that they predicted it but they predicted it 53 times and uh so you can take advantage of the volatility market if you understand what your own volatility does not measure risk and the problem is that the people who have written and taught about volatility do not know how to measure or taught about risk do not know how to measure risk and the nice thing about beta which is a measure of volatility is that it's nice and mathematical and wrong and in terms of measuring risk it's a it is a it's a measure of volatility but past volatility does not determine the risk of investing i mean actually take it with farmland here in 1980 here in the early 1980s farms that sold for two thousand dollars an acre went to six hundred dollars an acre i bought one of them uh when the the banking and farm crash took place and the beta of farms shot way up and according to standard economic theory market theory i was buying a much more risky asset at six hundred dollars an acre then the same farm was at two thousand an acre now people because farmland doesn't trade often and prices don't get recorded you know they would regard that as nonsense that my purchase of six hundred dollars an acre of the same farm that sold for two thousand an acre a few years ago was riskier but in stocks because the prices jiggle around every minute and because it lets the people who teach finance use the mathematics they've learned they have in effect they would explain this away a little more technically but they have effect in effect translated volatility into all kinds of uh past volatility in terms of all kinds of measures of risk and it's nonsense risk comes from the nature of certain kinds of businesses it can be risky to be in some businesses just by the simple economics of the type of business you're in uh and and it comes from not knowing what you're doing and you know that it it is if you understand the economics of the business in which you are and engaged and you and you know the people with whom you're doing business and you know the price you pay and rather sensible you don't run any real risk and i don't think charlie and i uh certainly berkshire i don't think we've ever had a permanent loss uh in marketable securities that was what one percent maybe half a percent of net worth i made a terrible mistake in buying the extra shoe which cost us a significantly more than one percent of net worth where i bought an entire business then but i was wrong about the business uh had nothing to do with the volatility of shoe prices or leather or anything else just was wrong uh but in terms of marketable series i i i cannot recall a case where we've lost that i mean we've done a lot of things in things in securities that had a very high beta we don't think a lot of things in securities had low beta it just the whole development of the volatility as a measure of risk it's really occurred in my and it it's been very useful for people who wanted a career in teaching but it is not we've never found a way for it to be useful to us the volatility gives the investor an opportunity to buy stocks cheap rather than post risk because the risk of owning stocks actually comes from what the investors don't know when the market dips investors that don't understand the financials or the business will miss out on the opportunity by making investment decisions solely based on their emotions rather than analyzing the situation rationally with logic this is why it is essential for investors to know the company's financials and thoroughly understand the business behind it to minimize the risk and maximize the return also when it comes to investing in the stock market most retail investors behave as if the stock market is a casino or a lottery ticket believe in that somehow if you buy or sell a certain stock at the right time you can make quick and easy big money however this type of behavior is very similar to gambling which is a zero-sum game stock represents the ownership of the company meaning when you buy a share of apple you are buying fractional ownership of apple in addition since the value of the stock is driven by the expectation of the financial performance of the company in the future or the rise in the market cap a company that offers the most competitive and highly innovative products or services will out compete as competitors which will then make more money thus increasing the market cap and make its stocks more valuable on the other hand gambling is a zero-sum game meaning the game itself is designed statistically to favor the house rather than the players therefore as the player continues to play the game player will eventually reach the net benefit of zero losing all of his money whereas investing you have clear control over increasing the odds of winning by thoroughly researching and analyzing the market situations analyze the company's financials and understanding its business by reading the annual report in the midst of chaos and panic i firmly believe that there's always an opportunity and this is why i also believe that the volatility in the market is something to embrace rather than to be fearful of know what you own and know why you own it be fearful when others are greedy and greedy when others are fearful these are my favorite quotes from warren buffett and peter lynch because it provides us insight wisdom and lessons that we can all learn to make better investment decisions i hope that you enjoyed this video and leave a comment below on what you think about the volatility if you like this kind of content please give it a like and consider subscribing thank you for watching
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