Even if you're not a shareholder of Berkshire Hathaway Inc. (NYSE: BRK-B), one looks forward to any dribble or drop of knowledge from the greatest known investor of all time, Warren Buffett.

I'm as excited as anyone when it comes to reading the letter. I love to comb through it for tidbits of wisdom.

In his most recent letter, one section in particular stood out to me. It happens to be more general investment advice that's as sage as ever.

On page 18, Buffett discusses risk and volatility and how someone with a long time horizon should be investing:

Buffett points out that for most people, volatility is often synonymous with risk. I've never viewed it that way. Volatility has never been a proxy for risk, in my view. If anything, I bemoan the lack of volatility. As I've often said, I view volatility as synonymous with opportunity.

Risk can be difficult to quantify. But when looking at stocks, volatility is about the last place I look to in terms of assessing risk. Fundamentals, competitive advantages, market share, debt, size, regulation and competitive environments tell me a lot more about risk than volatility does. That's for certain.

When I think of risk, I think of permanent loss of capital. Risk, to me, is the odds of losing money. That's risk. When I look at an investment's prospects, I immediately think of the odds that I'll somehow permanently lose money (factoring in inflation as well).

And that goes not just for ending with less money than I started with, but also opportunity costs. If I could invest in Opportunity X, but Opportunity Y will provide far more returns over the long haul (even if the ride is bumpier), then Opportunity X is technically more risky because I'll technically be losing money.

Thus, cash is risky to me. Putting cash under the mattress is an incredibly risky way to handle your wealth, because you're absolutely guaranteed to lose money over time due to the ravages of inflation. The opportunity costs of cash in comparison to high-quality stocks are enormous. Complacency is expensive.

However, volatility is often seen as a proxy for risk. Thus, most investors diversify into fixed income to reduce risk, because it tends to be a much less volatile asset class. But the real risk there, as Buffett is pointing out, is lost returns. You're essentially paying for reduced volatility. So while one assumes they might be reducing risk, they're actually increasing it.

I've discussed before that I'm 100% invested in stocks. Other than cash to run my day-to-day life and a little on the side for emergencies, my asset allocation is 100% equities. But that comes with an important caveat: I'm a young, long-term investor.

Furthermore, I look forward to volatility. There's a certain personality that does well with going all-in on stocks. If you don't have it, admit it and spread yourself out. Otherwise, you'll do more harm than good thinking you can be invested heavily in equities only to doubt yourself at the wrong time, which is something Buffett expounds just after the paragraphs cited above.

In addition, be mindful of where you're at. A 70-year-old living off of the income their portfolio provides is a very different life situation than a 32-year-old asset accumulator.

In the end, stocks -- specifically high-quality stocks -- are one of the greatest investment classes you'll find in the entire world. More than 100 years of returns will tell you that.

Every dollar funneled away from excellent stocks is very likely an opportunity cost. If that opportunity cost is worth reducing volatility for you, then by all means proceed. But that opportunity cost is too large for me. Thus, all of my capital is working extremely hard for me in the form of equity in some of the best businesses in the world.

Even better, each one of these businesses is regularly raining cash upon me in the form of dividends. Not only that, but those dividends are growing by virtue of growth in the underlying businesses' profits. So while it all started off as a drizzle, I can now say with some confidence that it's turning into a full-fledged thunderstorm. And guess what? I don't have an umbrella.

Good investing,

Jason Fieber
DividendMantra.com