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<ul class="summary-list"><li>Investors are being tested by the current stock-market volatility, <keyword id="13098099" type="UNKNOWN" weightage="60" keywordseo="tom-russo" source="Orion">Tom Russo</keyword> said.</li><li>They need to hold their nerve, sell bad <keyword id="11893878" type="UNKNOWN" weightage="60" keywordseo="stocks" source="Orion">stocks</keyword>, and find long-term winners, the fund manager said.</li></ul>The stock market's recent volatility has rattled many investors, but it may have allowed <keyword id="11915967" type="UNKNOWN" weightage="60" keywordseo="warren-buffett" source="Orion">Warren Buffett</keyword> to buy the dip, Tom Russo told Insider in a <a href="https://www.businessinsider.com/warren-buffett-berkshire-hathaway-stock-tom-russo-inflation-interest-rates-2022-2?r=US&amp;IR=T">recent interview</a>.Russo is the managing member of Gardner Russo &amp; Quinn, an investment manager with about $15 billion of assets. He told Insider the swings in share prices over the past few weeks were as violent as any he's seen in three decades of investing. Microsoft stock, which fell as much as 5.5% on January 24 before ending the day up 2.4%, was "bouncing like a cork on a rough sea," he said.Resisting the urge to panic sell when stocks are whipsawing is no easy feat. "It requires a staggering discipline and steadiness under fire," Russo said.However, stubbornly holding a stock and watching its value evaporate can be dangerous too. "Staying the course for the wrong company can be the absolutely wrong advice for an investor," Russo said.As the <keyword id="11895523" type="UNKNOWN" weightage="60" keywordseo="federal-reserve" source="Orion">Federal Reserve</keyword> prepares to taper its economic support and hike <keyword id="6371181" type="UNKNOWN" weightage="60" keywordseo="interest-rates" source="Orion">interest rates</keyword>, investors will have to distinguish the winning stocks from the losers after years of enjoying a rising tide, Russo said. "Some businesses were paddling underwater, while others weren't," he noted.While a volatile stock market presents fresh challenges, it also throws up bargains for brave investors who have done their research and don't mind holding a stock for the long term. Russo described the opportunity as "plucking a gem out of a tumultuous environment."The S&amp;P 500 briefly <a href="https://markets.businessinsider.com/stock-market-today-sp500-rally-correction-federal-reserve-fomc-rates-2022-1?utm_medium=ingest&amp;utm_source=markets">tumbled</a> into correction territory on January 24, then staged a powerful comeback, ending the day in the green. Buffett, who has been <a href="https://www.businessinsider.com/warren-buffett-80-billion-headache-dilemma-expensive-stocks-businesses-deals-2021-5?r=US&amp;IR=T">itching to deploy about $80 billion</a> of his <keyword id="11915968" type="UNKNOWN" weightage="60" keywordseo="berkshire-hathaway" source="Orion">Berkshire Hathaway</keyword> conglomerate's cash reserves, may have snapped up a bargain or two and contributed to the turnaround, Russo said.Another opportunistic investor may have been responsible of course. For example, Bill Ackman began buying Netflix stock when it tanked that day, and <a href="https://markets.businessinsider.com/news/stocks/bill-ackman-pershing-square-netflix-stock-video-streaming-tech-shares-2022-1">built a $1.1 billion stake</a> over the next few days. Read more: <a href="https://www.businessinsider.com/warren-buffett-berkshire-hathaway-stock-tom-russo-inflation-interest-rates-2022-2?r=US&amp;IR=T" target="_blank" rel="noopener noreferrer">Warren Buffett is facing the twin challenges of inflation and rate hikes this year. Veteran investor Tom Russo lays out 8 reasons why he expects the billionaire to triumph</a>.

Veteran fund manager Tom Russo says volatile stocks are testing investors — and Warren Buffett may have bought the dip

<ul class="summary-list"><li>Tom Russo told Insider he's extremely concerned about the long-term fallout from exploding US debt.</li><li>The fund manager warned stocks could feel the pinch from higher interest rates.</li></ul>Tom Russo has raised the alarm on the national debt, warned stocks may get squeezed, and explained why Warren Buffett's massive investment in <a href="https://markets.businessinsider.com/stocks/oxy-stock#:~:text=According%20to%20the%20current%20price,from%20the%2052%2Dweek%20high.">Occidental Petroleum</a> is a master stroke.Russo — the managing member of Gardner, Russo &amp; Quinn — told Insider in a recent interview that he's deeply worried about the US government's aggressive borrowing, and its long-term consequences for Americans.The US government breached its $31.4 trillion borrowing limit in January, and could <a href="https://www.businessinsider.com/janet-yellen-debt-ceiling-government-run-out-money-june-1-2023-5">run out of cash by June</a> unless lawmakers strike an agreement to lift the debt ceiling. But even if the deadlock is resolved, there will still be a vast amount of debt that "our future generations will have to reckon with," Russo said.<h2>Stocks have a tough road ahead</h2>In response to inflation hitting 40-year highs, the Federal Reserve has hiked interest rates from virtually zero to about 5% within the past 14 months. Russo outlined why that may be bad news for stockholders.For one, a company's stock is typically valued based on the estimated size of its future cash flows. Those potential profits are worth a lot less when prices are surging today, and higher interest rates have boosted the risk-free return from a 1-year Treasury to almost 5%, Russo said.Higher rates also encourage saving over spending, and raise borrowing costs for consumers and businesses, which tends to dampens spending and investing. Reduced demand usually translates into slimmer corporate profits, and increases the risk of a recession, both of which typically weigh on stocks and other assets.Rate hikes also weigh on bond prices — a key driver of the current <a href="https://www.businessinsider.com/silicon-valley-bank-failure-what-happened-bank-run-explained-2023-3">banking turmoil</a>, which is fanning fears that jittery lenders could pull back and cause a <a href="https://markets.businessinsider.com/news/stocks/credit-crunch-us-bank-crisis-stock-corporate-earnings-recession-svb-2023-4">credit crunch</a>.However, Russo argued that worries about the economy tanking and lending drying up may be overblown."It's going to be hard for a credit crunch or a recession given all the money that's still splashing about," he said.Russo noted there's so much cash in the system that stocks are still fairly expensive despite the current headwinds, and asset-price bubbles remain in multiple industries.<h2>Buffett's brilliance</h2>Gardner, Russo &amp; Quinn's oversaw a $9 billion portfolio of US stocks at the end of December, and counted a $1.7 billion stake in Buffett's <a href="https://markets.businessinsider.com/stocks/brk-b-stock">Berkshire Hathaway</a> as its number-one holding, <a href="https://www.sec.gov/edgar/browse/?CIK=860643" target="_blank" rel="noopener">SEC filings show</a>.Russo praised the famed investor's patience and financial discipline, noting Buffett is willing to sit back and let Berkshire's massive cash pile grow for years until the right bargain or deal crops up.He also detailed one reason why Buffett may have poured <a href="https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-inflation-recession-economy-occidental-petroleum-stock-2023-3">more than $11 billion</a> into Occidental Petroleum over the past 15 months.The Berkshire chief may view his company's almost 24% stake in the oil-and-gas company — excluding $10 billion of preferred stock and warrants to buy another $5 billion of Oxy's common stock — as a hedge against higher energy costs, Russo said.For example, a spike in oil prices would raise fuel costs at two of Buffett's biggest businesses, Berkshire Hathaway Energy and the BNSF Railway. However, the increases will now be partially offset by Occidental selling its oil for a higher price and collecting bigger profits — especially as Berkshire owns enough of the fossil-fuel company to account for a proportional share of its earnings as its own.Russo described Berkshire staking a claim to Occidental's "huge pool of oil" as a shrewd and unorthodox move. He compared it to Buffett's investment of "float," or the money left over after premiums are collected and claims are paid out by his insurance companies.The fund manager also issued a caution to Buffett. He urged the billionaire to keep a close eye on technological threats, and pointed to Wayfair's disruption of Berkshire-owned Nebraska Furniture Mart as an example.

Ballooning US debt is a big worry, stocks may get squeezed, and Warren Buffett's Occidental bet is a master stroke, veteran investor Tom Russo says

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Veteran fund manager Tom Russo says volatile stocks are testing investors — and Warren Buffett may have bought the dip

Theron Mohamed

Ballooning US debt is a big worry, stocks may get squeezed, and Warren Buffett's Occidental bet is a master stroke, veteran investor Tom Russo says

Theron Mohamed

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