MONEY THOUGHTS: High volatility: Friend or foe?

New Straits Times

18-05-2025

THE world's greatest investor is Warren Edward Buffett, currently (still) chief executive officer of New York Stock Exchange-listed Berkshire Hathaway. Buffett will turn 95 on Aug 30 this year, and recently announced that at the end of 2025 he will step down as CEO, yet thankfully retain his chairmanship of Berkshire, which he's controlled for 60 years.
The reason many also consider Buffett the greatest living teacher of investing is his staggering capacity to adroitly share his thoughts and guidance on both business and investing.
You will undoubtedly benefit from listening to Buffett speak on different facets of lifelong investing. So, here's a brief video clip of him speaking about recent market volatility: https://youtu.be/gyxu-gan3O8?si=ZgTT5BVSP-StlIM9.
www.berkshirehathaway.com/letters/letters.html).
Note: Earth's capital market comprises two parts: the ownership-focused equity market, and the loanership-based fixed income market. Both are subject to price and thus valuation volatility.
This means we might, understandably, lose sleep when our capital market investments fall in value. Frankly, it takes time (and many psychic bruises) to learn how to look at oscillating markets and rollercoaster valuations in an appropriate (translation: profitable) manner.
Ideally, each of us should aspire to become incrementally better at stomaching unavoidable market volatility over the course of a typical two- to seven-decade investment time horizon spanning one lifetime.
CRUX OF INVESTING
In last week's Money Thoughts column, I referenced a foundational sentence written by Buffett's mentor Benjamin Graham, who is known as the Father of Security Analysis.
In his important 1949 book, The Intelligent Investor, Graham stated: "Investment is most intelligent when it is most businesslike."
Understand that Buffett was just 19 years old when he first read that seminal book. It triggered in him a trajectory-changing epiphany about the best way to invest.
Later, Buffett studied under Graham at New York City's Columbia University, and several years later worked in Graham's investment firm Graham-Newman Corporation before branching out on his own when Graham retired.
I'd now like you to think about what you do to earn a living…
It probably involves providing goods or services, or both, in some way, shape or form. Am I right? For any such economic entity to succeed long-term, it must generate a surplus or profit. How is that done?
By buying low and selling high, or by producing or manufacturing "stuff" at a cost that's lower than its selling price.
That's the crux of any business. Therefore, if we take Graham's dictum to heart -- "investment is most intelligent when it is most businesslike" -- we understand it is also the crux of investing.
HANDLING MARKET VOLATILITY
Since volatile zigzagging investment asset prices give us numerous seasons to "buy low and sell high", it should be logical for us to welcome capital market volatility. However, we aren't always logical.
Frankly, more often than not, we're nervous, anxious and afraid.
Nonetheless, while there has only ever been one Warren Buffett, all of us can set the stage for greater economic success for our families and ourselves in the coming years and decades by taking three steps to better handle intermittent market volatility:
1. Save first, invest second;
2. Diversify across several asset classes and geographic regions, as well as over a very long timeline; and
3. Dynamically rebalance our portfolios when volatility creates opportunities and reasons to do so.
To elaborate:
Although successful investments yield far better returns than boring savings, having fat layers of cash savings help us all to stabilise our finances and thus steady our emotions during terrifying periods of market dislocations.
(Interestingly, Buffett raised Berkshire's typical stabilising cash pile of US$100+ billion to more than US$300 billion prior to the steep capital market plummets triggered by Donald Trump's selfish, unwise, tariff-weaponised egregious assault on global free trade. Throughout his life, Buffett's been a genius-level observer.)
In our own lives, within our undoubtedly smaller portfolios, similarly thickening our cash layers can and will stabilise our thoughts and thus our aggregate asset piles.
INTELLIGENT DIVERSIFICATION
The old saying, "Don't put all your eggs in one basket," encapsulates in just eight words the real reason intelligent diversification works so well in the rough and tumble world of global investing.
Next week I'll elaborate on the powerful wealth-building strategy called Dollar-Cost Averaging or DCA. It is the best way I know of implementing the powerful principle of buying low and selling high. (If you aren't currently using it for your own investments, be sure to head back here for next week's DCA-focused Money Thoughts column.)
Finally, for now take heed of the extreme valuation swings which sometimes materialise when high investment market volatility provides us with intermittently high and low portfolio values.
As long as we stay focused on the wisdom of buying low and selling high, intense market volatility can — at different times — grant us high price levels to sell assets and thus raise our cash levels, and low-price levels to buy assets with our saved or stockpiled cash.
Repeated cycles of buying low and selling high can help us build up liberating levels of wealth.
© 2025 Rajen Devadason