When markets swing sharply, most investors instinctively seek stability. Berkshire Hathaway (BRK.A) (BRK.B) Chairman and CEO Warren Buffett, however, has frequently argued that price turbulence is not something to be feared but managed. In one of his shareholder communications dating back to 1992, Buffett encapsulated this philosophy by writing that, “We not only accept this volatility but welcome it: A tolerance for short-term swings improves our long-term prospects.”
The remark reflects the investment approach that has defined Buffett’s career at Berkshire Hathaway. Under his leadership, the company has grown from a struggling textile manufacturer into a diversified conglomerate with significant holdings in insurance, consumer brands, infrastructure, and financial services. That transformation was achieved in markets that experienced multiple recessions, crashes, and asset bubbles. Rather than avoiding volatility, Buffett has historically used it to buy assets he believes are mispriced relative to their underlying business value.
The immediate context of the statement centers on Berkshire’s results, which are heavily influenced by equity holdings and insurance operations. Because accounting rules require market values of stocks to flow through reported results, year-to-year earnings can move sharply, even when the underlying businesses remain stable or improving. Buffett’s comment is intended to remind shareholders that these swings say more about market mood than about long-term economics.
His view distinguishes between volatility and risk. In modern finance, volatility is often used as a proxy for risk in models and portfolio construction. Buffett has consistently rejected that idea in practice, focusing instead on the durability of cash flows, competitive advantages, and balance-sheet strength. For a company with a permanent capital base and no obligation to sell in stressed markets, price fluctuations can create opportunities to allocate capital at more favorable terms.
Buffett’s authority on the subject stems from his long record of compounding shareholder value through varied market conditions. Berkshire’s portfolio includes businesses and securities purchased during periods of pessimism, when volatility was elevated and sentiment poor. Over time, many of these investments have delivered substantial gains as conditions normalized and fundamentals reasserted themselves. His willingness to endure mark-to-market declines has been central to this strategy.
The quote also speaks to a broader tension that affects investors of all sizes: the pressure for smooth, predictable results versus the realities of markets. Public companies are often judged quarter by quarter, and professional managers may be evaluated on short time horizons. Buffett’s message runs counter to that pressure. He implies that insisting on low short-term variability can push investors toward safer-looking assets or strategies that ultimately yield lower long-term returns.
From a big-picture standpoint, this perspective remains relevant regardless of the specific cycle. Periods of low volatility can encourage complacency and excessive risk-taking, while sharp corrections can trigger forced selling and loss of discipline. Buffett’s stance suggests that sustainable success depends less on avoiding turbulence and more on having a sound framework for evaluating businesses, a strong financial foundation, and the temperament to stay the course when prices move sharply.
For investors and corporate leaders alike, the statement serves as both reassurance and challenge: volatility is inherent to markets, but how it affects long-term prospects depends largely on how it is handled.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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