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

• Investors are being tested by the current stock-market volatility, Tom Russo said.
• They need to hold their nerve, sell bad stocks, and find long-term winners, the fund manager said.

The stock market's recent volatility has rattled many investors, but it may have allowed Warren Buffett to buy the dip, Tom Russo told Insider in a recent interview.

Russo is the managing member of Gardner Russo & 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 Federal Reserve prepares to taper its economic support and hike interest rates, 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&P 500 briefly tumbled into correction territory on January 24, then staged a powerful comeback, ending the day in the green. Buffett, who has been itching to deploy about $80 billion of his Berkshire Hathaway 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 built a $1.1 billion stake over the next few days.

Read more: 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.