Mercurial can also describe markets, whether stocks, interest rates, currencies or commodities, which can switch from nice to nasty, pleasant to petrified, in a very short time.  We call this effect volatility.  Up and down.  We don't mind the up volatility.  But the down part grabs our attention every time.

Volatility is an inevitable part of most long-term investing.  Of course, volatility is avoidable.  Just park your assets in a mattress or savings account.  Guaranteed no volatility.  But of course, no earnings either.  Darn, always a tradeoff in life.

We're no great fans of volatility, except we believe increased volatility generally creates more opportunity for higher long-term returns.  It's sort of like going to the gym to exercise.  I don't always look forward to going, but once I get there and am exercising I feel great.  So it is with volatility.  When volatility arrives, the feeling isn't great.  But when the opportunities are seized and you look back months later, the satisfaction from taking action amid market turmoil can be quite fulfilling.

We believe that the long-term results of many patient investors have been enhanced by the periodic market turmoil we've witnessed over our careers. Volatility tends to create occasional but meaningful disparities between stock market price quotes and business values.  

But, the critical behavioral trait is this: YOU MUST ACT when others won't.  Market turmoil tends to cause investors to sit on their hands, doing nothing while waiting for volatility to subside.  Sitting on the sidelines, or maintaining the status quo feels more comfortable.

Eventually, markets recover, and the sidelined investor is sitting there, sucking his or her thumb, having missed an opportunity.  So the ability to act when others won't is critical, but is psychologically difficult when turmoil and uncertainty abound.

We prepare for these conditions by acknowledging the psychological stress that can occur when some investors are hitting the panic button.  We remind ourselves that our actions MUST be independent of what others are doing, for the "crowd" is often wrong during these periods.  It can be lonely, but we think what matters is getting the investment right, not running with the herd.

We believe that successful investing requires a mindset that accepts, if not embraces, volatility.  As Warren Buffett has remarked, "I'd rather have a bumpy 15% than a smooth 12% return."  We agree.