We often from financial experts that volatility in our portfolio is bad. Or in other words, not only do we want good return, but we also want the path to that is smooth. I think most people would agree with that. My CFA preparation book also talked about this idea in “Portfolio Management” section. So basically this “less volatility” is preached and accepted in investment community.
But in Poor Charlie’s Almanac, Charlie challenged that less volatility notion and I think I agreed with him. Bascially he was arguing that this is very similar to (in old days) the Chinese women tied their feet, obviously that would not help them walking.
In another instance, volatility is good for the investment banks in this past Q1, as they made a lot of money selling the bonds (wider spead yield). I think they made money from selling stock options too (more volatility, more expensive the options).
For me personally, I am still learning about this volatility thing. Like “buy and hold”, I need to get out of this old habbit of “less volatility bias”. In late March I bought some Patroit Coal (NYSE: PCX), but I sold it after 2 days after it went up then down. Today the stock traded about 80% above what I bought 🙁
Appendix: Think outside the box
George Soros is the total opposite to Buffett and Munger in terms of stock trading style. Nevertheless, we can learn a thing or two from this another greate speculator. Watch Yahoo Tech-ticker