The Rational Investor #020: Buffett on Why Stocks Are Not Risky
Happy Saturday to you,
Welcome to the 20th edition of The Rational Investor Newsletter.
Today’s quote comes from the book “All I Want to Know Is Where I’m Going to Die So I’ll Never Go There” by Peter Bevelin. This book is written as a conversation between Warren Buffett, Charlie Munger, and two people in search of wisdom known as the Seeker and the Librarian. It’s a fantastic book filled with tons of investing and life wisdom.
I don’t know too many people who have read it (even Amazon reviews are sparse), but I loved it and highly recommend it.
Onto the main event…
Here’s Buffett on Why Stocks are Not Risky [Bold emphasis is mine]:
“Stocks are riskless if held over a long time frame as you are simply giving up purchasing power now for later. Cash is the risky asset. Risk in stocks is not what the companies will do. Traditional finance teaches that Beta is a measure of risk but volatility isn’t risk. Risk is loss of purchasing power. Volatility declines over a long enough timeframe. It is individuals that make investments risky…People think stocks are riskier than bonds, which is not true for a long time horizon.
Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to ‘time’ market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy.”
Bear in mind, this is the greatest investor of all time saying these things which should hold quite a bit of weight.
And yet, the myth remains that stocks are risky which is one reason that most investors are failed investors.
Thanks for reading. I’ll be back again next week with more timeless wisdom from great investors.
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