In a recent post, Down Markets: A Prudent Approach and Survival Guide for Non-Retirees, we explored why staying the course during market downturns is essential for long-term investors. That article touched on a key concept worth digging into further: volatility isn’t the enemy of the value investor—it’s often an ally. In this follow-up, we take a closer look at why turbulent markets can create compelling opportunities for those focused on fundamentals and willing to maintain perspective when others panic.
Value Investing
Market volatility is rarely welcome in the moment. Stock prices swing, headlines scream, and emotions often run high. But for long-term value investors, these turbulent periods are less a curse and more a recurring gift—if you have the right mindset.
While many view market declines as a signal to retreat, we see them as opportunities to buy competitively advantaged companies at discounted prices. Value investing, at its core, is about buying businesses for less than their intrinsic worth. And bouts of prolonged volatility can exaggerate price movements far more than the changes in a company’s actual value.
This is one of the great paradoxes of investing: lower prices make goods more appealing in nearly every area of life—except in equities. In the stock market, falling prices often drive investors away. But for those who follow a value-oriented philosophy, selloffs create fertile ground for long-term gains.
Market Volatility
As detailed in the following table, there is always something to worry about when it comes to investing in stocks. Despite the severity of events like those in the table—including the COVID-19 crash, Brexit, U.S. credit downgrades, and wars—stocks have historically rebounded with remarkable resilience. On average, the S&P 500 rose 8% one year after such events, 37% after three years, and 75% after five years.
Even routine corrections offer opportunity. The average intra-year pullback in the S&P 500 is roughly 14%, yet most calendar years end in the black. Volatility, in other words, is not an anomaly—it’s a normal part of the market’s upward journey.
Of course, volatility can’t be timed. But it can be prepared for. That’s why we build diversified portfolios undervalued stocks and maintain a long-term horizon.
Takeaway
Takeaway: Market volatility may rattle nerves, but for disciplined value investors, it’s an invitation to own tomorrow’s winners at today’s prices.
Kovitz Investment Group Partners, LLC (“Kovitz”) is an investment adviser registered with the Securities and Exchange Commission. This report should only be considered as a tool in any investment decision and should not be used by itself to make investment decisions. Opinions expressed are only our current opinions or our opinions on the posting date. Any graphs, data, or information in this publication are considered reliably sourced, but no representation is made that it is accurate or complete and should not be relied upon as such. This information is subject to change without notice at any time, based on market and other conditions. Past performance is not indicative of future results, which may vary.
