“I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean foregoing large, and apparently easy, profits to embrace an approach which I don't fully understand, have not practiced successfully, and which possibly could lead to substantial permanent loss of capital.”
One of the hardest things for anybody to be, is to be honest with ourselves. One of Warren Buffett's greatest strengths has been to be brutally honest with himself for the sake of Berkshire Hathaway (BRK-A) and its shareholders.
It's this frank honesty which has helped him lead Berkshire Hathaway to be one of the great business stories in history.
Buffett believes you must absolutely know your real strengths and weaknesses, what you truly like and dislike and your real level of knowledge in your given field, or those being offered to you as opportunities.
When you're really honest with yourself, you've created one of the most important safety valves for you and the business you own or manage that can be built.
Buffett, throughout the years has been pressured over and over again on getting into things beyond his competence. He's refused to cross that line in spite of the well-intentioned advice of others.
Potential profits can never be a reason to enter into something we have no way of measuring. Potential profits are meaningless when you have no way of understanding the risks.
When you enter into something like that, as Buffett says, it "could lead to substantial permanent loss of capital.” Throughout Buffett's years at Berkshire, the one thing he hasn't done is put shareholders' money at risk of permanent loss. The discipline that ensures this is the honest understanding of who you are and what you know within your chosen field, and never crossing beyond your expertise or purpose. Buffett hasn't, and the results speak for themselves.
Other Buffett Resources:
MSU students have special visit with billionaire Warren Buffett
Sticking to what you know Core businesses
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