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Happy Monday!

Let’s get ready for a new week of investing. We may have a lot of volatility coming up, following a week of big losses. On top of that, September is historically the worst month in the stock market.

However, these market swings can create opportunities for investors. Do not fear volatility. Today, I’m going to share some valuable lessons from Warren Buffett on how to think about stock market volatility and use it to your advantage. This mindset is crucial to understand.

Let’s do this!

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The Key Story

Why Stock Market Volatility Is The Friend Of Intelligent Investors

What is Stock Market Risk, Actually?

Buffett often credits his lightbulb moment as to when he redefined risk—not as market volatility, but as the possibility of losing money due to real business conditions. When you own a stock, you own a piece of a business, and your success is tied to the success of that business over time. The stock market is merely there to serve you, providing opportunities to buy into good businesses at attractive prices. The real risk lies in paying too much for that piece of the business or investing in a business with poor fundamentals.

Volatility: A Tool, Not a Threat

Buffett’s explains that volatility in the stock market doesn’t impact the intrinsic value of the businesses you own; it simply reflects the market’s changing opinions and emotions. In fact, he sees volatility as a positive for investors because it creates opportunities. When the market swings wildly, it often misprices stocks, allowing savvy investors to buy undervalued businesses or sell overvalued ones at a profit.

He uses the analogy of “Mr. Market,” a concept introduced by Benjamin Graham. Mr. Market is your business partner who shows up every day offering to buy or sell shares of your business at different prices. The beauty of this relationship is that you’re not obligated to accept his offers; you can simply ignore him until he offers a price that suits you. The crazier and more erratic Mr. Market becomes, the better the opportunities for you as an investor. This is why Buffett loves volatility—it’s a chance to capitalize on the irrational behavior of others.

The Importance of a Long-Term Perspective

At the end of the day, it’s important to have a long-term perspective. If you’re an investor who isn’t on margin (meaning you’re not borrowing money to invest), volatility should excite you, not scare you. The market’s wild swings mean that more stocks will be mispriced, giving you the chance to buy great businesses at a discount. However, this approach only works if you remain patient and focus on the long-term potential of the businesses you invest in, rather than getting caught up in the daily price movements.

As long as you let the stock market casino serve you, not instruct you, the market volatility can be your friend.

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Thanks for the read! Let me know what you thought by replying back to this email.

— Zach

Disclaimer: Dividend Dividend (Dividend Data LLC) is not a professional financial service. All materials released from Dividend Data (Dividend Data LLC) are for educational and entertainment purposes. Dividend Data (Dividend Data LLC) is not a replacement for a professional's opinion. Contributors to the Dividend Data (Dividend Data LLC) might have equities mentioned in the newsletter