It's common knowledge in value investing circles that volatility isn't risk. While I think this is true when viewing risk from a comprehensive perspective, many falsely believe this means you can ignore volatility entirely. The truth is, there is a known and tangible drag on portfolio performance known as the volatility tax.
Volatility tax is, formally, the difference between the arithmetic and geometric mean of returns. It is also roughly estimated by subtracting variance over 2 from the arithmetic mean. In any case, the more volatile the asset is, the lower the geometric mean is compared to the arithmetic mean.
Why does this matter? Because compound returns are based on the geometric mean of returns, not the arithmetic mean. Here's a simple example. Assume you have an asset that loses 50% of its value in one year, and then gains 100% the next. Its 'average' return is 25% per year, even though you ended up right where you started. The volatility tax, then, is 25%.
Geometric mean = (0.5 x 2)\^(1/2) = 1. No return.
Arithmetic mean = (0.5 + 2) / 2 = 1.25. "25%" return.
Let me be clear: this is important because the arithmetic mean is usually what people mean when saying "expected returns". The intelligent investor must understand that volatility eats into compound returns, the REAL returns you expect to make from a portfolio. Therefore, one shouldn't ignore volatility entirely; even if it isn't risk per se, it IS a cost one should keep in mind when making investment decisions.
As a side note, having a low cost basis helps you not worry about volatility eating into your principal investments, but volatility still detracts from future returns. Cheers!