Daniel Crowley, CFA | PM, Nightview Capital

Volatility has always been a fascinating concept to me as an investor. On the one hand, it captures the chaotic beauty of the market. On the other, it often leads to one of the most persistent misinterpretations in finance: equating volatility with risk.

This misunderstanding creates challenges, but for long-term investors, it also opens up significant opportunities.

The ability to measure risk in a portfolio has long been a puzzle for the financial world. When Harry Markowitz introduced Modern Portfolio Theory in 1952, he revolutionized how institutions approached risk and return. His use of standard deviation as a proxy for volatility offered a clean, mathematical way to quantify the unpredictability of markets. It gave investors a seemingly precise tool to compare assets and assess portfolio risk. Over time, this approach became gospel, with concepts like beta and the Sharpe ratio reinforcing volatility as the core measure of risk.

But here’s the problem: volatility tells only part of the story. Financial markets don’t follow the neat patterns of a normal distribution, which is what these models assume. Extreme events occur far more often than traditional models predict. We’ve seen this play out time and again—from the collapse of Long-Term Capital Management to the Great Financial Crisis. The models couldn’t account for the market’s tendency to behave irrationally and with far greater extremes than the math suggested. That’s why I’ve come to view volatility not as risk itself but as a signal, an invitation to investigate further.

Equity markets offer incredible advantages, unmatched by any other asset class. The near-continuous liquidity during trading hours is nothing short of miraculous. The ability to buy and sell fractional ownership in world-class businesses with almost no friction is one of the greatest innovations of modern economies. No contingencies. No negotiations. Just pure, instantaneous exchange.

 But, as the truest of economic maxims goes, “there’s no such thing as a free lunch.” That liquidity comes with a cost: emotionally-driven volatility.

This volatility often has little to do with the fundamentals of the businesses being traded. Short-term sentiment, news cycles, and macroeconomic noise can cause prices to swing wildly, creating dislocations between a stock’s price and its intrinsic value. For the long-term investor, however, this is an incredible feature, not a bug.

It’s precisely these moments of irrationality that create opportunity.

Volatility is often misunderstood because it treats upward and downward price movements as equal. A stock with erratic upward swings may have high volatility but poses little risk if the business fundamentals are sound. Conversely, a stock that steadily declines might appear “safe” on paper but can quietly destroy wealth.

The market’s reliance on volatility as a measure of risk often misses these nuances.

This misunderstanding creates a divide among investors. On one side are those who cling to volatility as the ultimate arbiter of risk, building models that rely on neat equations and assumptions about market behavior. On the other are those who dismiss it entirely, treating volatility as irrelevant noise.

My view lies somewhere in the middle. Volatility is neither good nor bad—it’s just a clue. It’s a signal to dig deeper and assess whether the market’s movements are justified by changes in a business’s intrinsic value.

What I’ve come to appreciate about volatility is its ability to surface opportunity. Markets are emotional, driven by fear, greed, and short-term thinking. Prices frequently diverge from reality, creating moments where high-quality businesses are available at steep discounts. When markets panic, as they did during the COVID-19 pandemic or the Great Financial Crisis, those who can stay calm and look beyond the noise can identify extraordinary opportunities.

Volatility, far from being a risk, is often the price of admission for outsized returns.

Investing in equities is fundamentally about owning pieces of businesses. Over time, the returns on those investments are driven by the fundamentals of the companies—revenue growth, margin expansion, and efficient capital allocation. Yet, in the short term, stock prices can be wildly disconnected from these fundamentals. The beauty of equity markets is that they allow you to act on these disconnects with speed and precision.

When emotionally driven volatility pushes prices far below intrinsic value, you can step in and buy. When prices overshoot, you can sell. This frictionless ability to act is a marvel of modern financial systems.

Of course, this requires discipline and a long-term perspective. It’s not easy to go against the crowd. When prices are plunging and fear dominates, it feels unnatural to buy. When markets are euphoric, it’s hard to sell. But successful investing often means doing what feels uncomfortable. It means rejecting the conventional wisdom that equates volatility with risk and instead viewing it as a tool for identifying opportunity.

The misalignment between price and value is where the real magic happens in investing. The equity market’s liquidity, while sometimes a source of short-term irrationality, is ultimately its greatest gift. It allows investors to act decisively when others are paralyzed by fear or blinded by euphoria. This ability to move quickly and without contingencies is unparalleled in other asset classes. It’s what makes equities so compelling for those willing to adopt a long-term mindset.

I’ve learned to embrace the market’s volatility. It’s not a threat to be avoided but a feature to be harnessed. The ability to remain calm while others panic, to separate noise from signal, and to take advantage of the mispricing created by emotionally driven markets is one of the few true edges an investor can have.

Volatility isn’t risk. It’s opportunity.

And in the hands of a disciplined investor, it’s the key to unlocking exceptional returns.

Disclosures:

This has been prepared for information purposes only. This information is confidential and for the use of the intended recipients only. It may not be reproduced, redistributed, or copied in whole or in part for any purpose without the prior written consent of Nightview Capital.

The opinions expressed herein are those of Nightview Capital and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. This is not an offer to sell, or a solicitation of an offer to purchase any fund managed by Nightview Capital. This is not a recommendation to buy, sell, or hold any particular security. 

Nightview Capital, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.