Looking at the S&P 500, 2026 may seem fairly undramatic so far. The US index is down just 2% since the start of the year. But some individual shares are showing far more volatility than that index performance suggests. When it comes to trying to profit from such volatility, I think it can pay to learn from billionaire investor Warren Buffett.
Being well-prepared, always
For starters, Buffett has tended to enter market volatility well-prepared.
As he once explained, “when forced to choose, I will not trade even a night’s sleep for the chance of extra profits”.
Many investors lose sleep when markets tumble, for example because they have bought stocks with money they cannot afford to lose (or, worse, have borrowed).
I think Buffett’s focus on not losing a night of sleep is far wiser.
Staying the course
At some points in his career, Warren Buffett has seemed to dump shares in a way that is hard to understand at the time. Early in the pandemic, for example, he dumped airline stocks.
From a long-term investor, that move was a bit hard to fathom (though Buffett had previously talked down the profit prospects of investing in airlines, so I was surprised he had even bought more before the pandemic).
Looking at the big picture, though, Warren Buffett hangs onto shares through the market cycle if he continues to believe in the underlying investment case.
For example, Berkshire Hathaway still owns stakes in American Express and Coca-Cola bought decades ago on Buffett’s watch.
Doing so while the wider market panics requires a cool hand. Warren Buffett demonstrates well why letting emotions trump rationality can be a costly move when markets go topsy turvy.
Hunting for great opportunities
One popular Warren Buffett quotation talks of being fearful when others are greedy and greedy when they are fearful.
The market overall right now still does not seem that fearful. The key US VIX volatility index is rising but has not yet reached what I regard as panic stations (though it is getting closer).
However, with geopolitical uncertainty growing and the tragic war in the Middle East rattling investors, there is already fear in some parts of the market – and I reckon that could spread fast.
So, following Warren Buffett’s advice, could now be the time to be greedy?
One opportunity I’m considering
I think it might be – and one share I have been weighing up is PayPal Holdings (NASDAQ: PYPL).
At first glance, this already looks cheap after an 82% price decline over the past five years.
Still, a large company with a customer franchise like PayPal’s does not fall that much for no reason.
For starters, there is the rise of fintech competitors that threaten to eat into PayPal’s business, from Wise to Stripe.
There are other risks here too, including an increasingly complex regulatory environment for international money transfers and last month’s shock announcement that the firm expects this year’s adjusted profit to fall, not grow.
Paypal’s stock slump means it is trading for just eight times earnings. But with earnings set to fall, I think that may not offer me enough margin of safety.
For now, I am on the sidelines. But if fear sweeps the market and makes PayPal stock even cheaper, it is on my watch list!
