There are a lot of risks that businesses list in their prospectuses and annual reports, but Warren Buffett points out that the number one risk factor to a business is the one that they never list. And that risk is bad management.
“The number one risk factor, you never see it, the number one risk factor is that this business gets the wrong management. And you get a guy or a woman in charge of it that are — they’re personable, the directors like them. They don’t know what they’re doing, but they know how to put on an appearance,” Warren Buffett said at the 2021 Berkshire Hathaway Annual Meeting. “That’s the biggest single danger that a business — and that that person stays and runs it for ten or fifteen years, and either stays in the textile business or department store business and expands. And, you know, I’ve looked at a lot of businesses. And that’s what’s caused the number one problem. And it isn’t the kind of thing where they list them all because the lawyers tell them to list them.”
Hear Buffett’s full explanation
See the complete Lessons From Warren Buffett series
© 2023 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.