Volatility (Beta)

What it is\nThe standard measure is beta — a stock's correlation with the S&P 500. Beta of 1.0 means the stock moves in lockstep with the index. Beta of 1.5 means it amplifies index moves 50%. Beta of 0.5 means it dampens them.\n\n## Why Buffett dismisses it\nBuffett: "Beta-based risk measures…are widely accepted, but they are nonsense. The true investment risk is not the volatility of a stock, but the probability of permanent capital loss."\n\nThe critique: a stock that drops 50% on no news of business deterioration is less risky to a value investor (cheaper) than a stock that's been calmly rising at 5%/year while the underlying business is rotting. Volatility metrics flag the first as risky and the second as safe — exactly backward from a Buffett perspective.\n\n## When volatility actually matters\n- Leveraged positions (margin, options) — volatility can force you to sell at the worst time\n- Short time horizons — if you need the money in 12 months, drawdown risk is real risk\n- Behavioural risk — high-volatility stocks tempt investors to sell at the bottom and buy at the top\n\nFor anyone holding 5+ years on cash they don't need, beta is mostly noise. Real risk = probability of permanent capital loss = quality of the business + price paid.