< FAQ Home

Now some in the industry may think volatility is the end all to be all.  But then why did Post-Modern Portfolio Theory move away from that and into the Sortino ratio which only measures downside volatiity?  Any service that bills itself as relying heavily on volatility is short-changing you to the results it can produce.  If you don’t believe us, just compare our results to others as we will show the actual results for two symbols for free.  Volatility is just how rapidly or significantly an investment will change in price over a period of time.   Now while it is true that a lower volatility means less of a price swing in the stock – that doesn’t correlate to “stability” or a even a strong “risk/reward” opportunity.   In fact, why would you want to be penalized for potentially large price changes to the upside?  The answer is you don’t.    And that’s why measuring the actual “risk” factors of an equity should take into account much more then volatility.  Volatility doesn’t address how “safe” an investment’s price is.

Volatility can be something you gain from vs. be penalized for.   Here’s a great article showing that High Volatility can be managed properly to generate High Reward.

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/

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)!