In his 2001 Shareholder Letter, Michael Burry discussed why volatility is the investors friend. Here’s an excerpt from the letter:
I have previously written that I strive to discover the proverbial dollar bill selling for 50 cents, preferably with enough volatility such that I have the opportunity to buy at 40 cents or less. I certainly view volatility as my friend — and hence your friend.
This works out well because most in the market treasure the dollar bill that consistently sells for $1.10 or more — as long as it consistently does so. In short, volatility is on sale because 99+% of the institutions out there are doing their best to avoid it — under the mistaken but Nobel Prize-winning impression that volatility and risk have some relation.
Those of us that feel affection for volatility therefore hold title to the most disabused yet undervalued quality that the markets have to offer.
As much as the Fund is a value fund, it is an opportunistic fund. And as much as I enthusiastically explore the value of each business behind every stock, I seek the pockets of the market that are the most inefficient, the most temporarily imbalanced in terms of price.
Whatever extra return this Fund will earn will be borne of buying absurdly cheap rather than selling dearly smitten. I certainly have proven no ability to pick tops, and I do not anticipate attempting such a feat in the future. Rather, fully aware that wonderful businesses make wonderful investments only at wonderful prices, I will continue to seek out the bargains amid the refuse.
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