Charlie Munger on the other hand regularly refers to this method of risk assessment as "twaddle." This is hardly an academic debate, because nothing is more important to the investor than being able to properly understand the risk involved in any kind of potential investment. There is, after all, risk in all investments. Even the supposedly safe stuff like bonds and CDs face interest rate risk and periods where your return is eaten by inflation. A good investment is one that minimizes the risk the investor faces, and that pays you well for taking the risk. All investments decisions should start by measuring risk.
If we are using "Beta" (Volatility) to estimate the risk of an investment, and if it is, as Charlie says, "twaddle" then our chances of making a good investment are slim. Charlie would say that value is a better gauge of risk. An overvalued stock carries more risk than an undervalued one. This is a rather simple concept or as Charlie would say a concept "that is perfectly obvious but very little understood."
Another factor in determining risk is the level of speculative short positions in the stock. Again this factor has nothing to do with the volatility of the stock, and is counter intuitive. Having a lot of speculators with short positions in the stock would, on the surface, seem bearish, but the large short positions are a sign that the stock is oversold. This in turn is an indication that Mr. Market is currently suffering from depression and that his normal optimism is currently in remission. Once the onslaught of bad news has slackened, the large short position will help to fuel a rally in the stock.