Silver’s Beta is Irrelevant - SilverSeek.com: Why Beta Shouldn’t Concern Investors
Warren Buffett puts together one of the most persuasive arguments against using volatility as a measurement of risk. In a famous quote, he notes that a particular stock would be riskier if it were priced at $40 than it was at $50 if one were to use a beta score. That is, a drop to $40 would imply the company’s valuation is more volatile, and thus, a riskier investment.
Buffett’s central point is that the only applicable risk measurement is that of total loss. If total loss is the only potential negative outcome, then obviously investors would much prefer pay $40 than $50 for the same investment. The risk to reward is far better.
His other point is equally important: what matters most with companies or commodities is not the price that the market assigns to a particular investment, but the real, intrinsic value of an investment. Silver has intrinsic value because it is a commodity; it’s rare, and it exists regardless of the world around it. In this regard, silver is a safer investment than the S&P500 because it has real intrinsic value. An ounce of silver will exist regardless of the life of the S&P500 components.
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