THE SEVEN FUNDAMENTAL BELIEFS - Belief #7

"Volatility is not risk; it is opportunity. Real risk is an adverse and permanent change in the intrinsic value of the company. There is no relation between stock volatility and risk. The value investor disregards the day-to-day movement of the general market. The fair and intrinsic value of a business does not fluctuate as often as its stock price. Benjamin Graham is noted as saying that the market is there to serve you, not to guide you in making your decisions. Therefore, the market’s fluctuations only give the value investor the opportunity to buy and sell at certain prices. Stock prices fluctuate around value. The focus of the value investor should always be on the direction of the intrinsic value of the company. Real risks are the risks to cash flows and the underlying economics of the business. Actual risk also depends on the price paid for the business—determined by the difference between the price paid and the intrinsic value."

THE SEVEN FUNDAMENTAL BELIEFS - Belief #7