Now some in the industry may think volatility is the end all to be all. Like Dr. Richard Smith , founder of Tradestops.com. His platform touts its”revolutionary” VQ or Volatility Quotient. But there’s nothing revolutionary about it. In fact, there’s been alot published by experts that volatility is not inherently a bad thing. But don’t take our word for it. In fact, there are many industry experts out there who agree with us on that point. Just read on and educate yourself. Even Warren Buffett, Howard Marks, Seth Klarman and more have much to say on the subject. We share some of their thoughts highlighted in this article and others across the web:
“There are many kinds of risks .. But volatility may be the least relevant of them all” Howard Marks (recently published – Mastering the Market Cycles – Getting the Odds on Your Side)
“How can professors spread this nonsense that a stock’s volatility is a measure or risk? I’ve been waiting for this craziness to end for decades. It’s been dented, but it’s still out there” Charlie Munger
“I think volatility is so widely used as a risk-metric simply because it is easy to measure, not because it is a good gauge of risk of permanent loss of capital. Downside volatility is merely one aspect of risk, not necessarily the most important, while upside volatility isn’t much of a risk at all – unless you are short” Joel Greenblatt
“The true investor welcomes volatility” Warren Buffett
See entire article here: https://www.valuewalk.com/2016/11/volatility-quotes-from-greenblatt-klarman-pabrai-singer-more/
Dr. Smith of Tradestops claims his volatility quotient measurement “tells you how much uncertainty or noise there is in your stocks.” With the lower VQs being a more conservative stock. While it is true that a lower volatility means less of a price swing in the stock – that doesn’t correlate to “stability”. Stocks that are priced much higher will also have a larger price swing in their daily action. And that’s all that volatility measures.
The bottom-line is that though volatility can be one factor, it should not be the only approach to build a system off of. That’s much to basic. And worse, not as effective. Time to get Smart(R)!