“Risk comes from not knowing what you’re doing.”
When Buffett was young, he took the time to evaluate what his strengths and weaknesses were. He also went about creating a business plan based upon the result of his self-searching.
As he said: "Risk comes from not knowing what you're doing." One of the underlying reasons for failure in business is not knowing who we are and understanding what we're good at and what our limitations are.
Not knowing what you're doing comes from not knowing our selves realistically.
Even if we have technical knowledge doesn't guarantee we know what to do with it. If we believe we're good as something we're not, we will take information and knowledge and wrongly use it.
Not knowing what you're doing also relates to not knowing what you stand for and what your core values are.
Those that don't know what they're doing, have no moral compass or business direction whatsoever. That is what real risk is. Risk is being in the dark when you don't know you're in the dark. Risk is taking actions without regard to what you or your company or division stand for.
Risk is entering into deals that your counterpart knows far more about than you do. If we don't have the knowledge and information to make decisions, we simply need to pass on them. If we don't have the ability to measure something, we shouldn't enter into it either.
What is the greatest protector against risk? Reality, and accepting that reality. Reality about our mission, our purpose, our character, our strengths and our weaknesses. A healthy dose of reality will do more to combat moves and decisions made without understanding what's going on than anything else.
Reality is seeing things as they are, not as we hope they will be.
Risk will always be part of doing business, and even living everyday life. The idea is to have an accurate and understandable assessment of what we're basing our decisions on. If we do, then risk is understandable and the odds understood. That way we make decisions based on understanding those odds, not by throwing a dart and hoping we hit something.
Warren Buffett has had Berkshire Hathaway (BRK-A) perform so steadily because he's always had a reality check he includes in the decision making process.
Other Buffett Resources:
MSU students have special visit with billionaire Warren Buffett
Sticking to what you know Core businesses
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