Volatility is the most misunderstood concept in investing. Most investors treat volatility as a synonym for risk, and they fear it for the same reasons they fear risk. But volatility and risk are not the same thing, and confusing them leads to some of the most expensive mistakes in investing. Volatility is a measure of how much prices move. Risk is a measure of the probability and magnitude of permanent loss. An asset can be highly volatile and low risk over long horizons, as the stock market has historically been. An asset can be low volatility and high risk, as…
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