Warren Buffett: “Risk comes from not understanding what you are investing in”

Finance people always come up with the most obscure measures of risk. Starting from using the beta of a stock to using the VIX index to measure overall risk and sentiment of the market, risk is defined to be something that is somehow quantitative and measurable.

But as one of the greatest, if not the greatest, investor of all time Warren Buffett says: “risk comes from not knowing what you are investing in”. Why? Because you are much more likely to make quick off handed decisions when you don’t fully understand ur investments.

When you are comfortable with your portfolio and understand the businesses you are invested in, a downturn shouldn’t scare you. Of course you are free to go and underwrite these investments based on the new information, but most of the time it is probably right to continue buying and average down.

Hope this helps. – BDover


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