Risk is a quiet companion, rarely announcing itself until it’s too late. Markets can climb for years, making investors feel invincible. Companies can expand recklessly, and insurers can write policies with blind confidence. Then, in a moment—a market crash, a corporate collapse, or a disaster triggering massive claims—the true weight of risk is revealed.
Warren Buffett, ever the master of analogy, put it succinctly: “You don’t find out who’s been swimming naked until the tide goes out.” The illusion of safety vanishes when conditions turn.
This principle applies broadly. Bond investors chasing yield in risky debt may look brilliant—until defaults spike. Insurers collecting premiums on underpriced policies seem prudent—until a catastrophe wipes out their reserves. Reinsurers, in particular, can go years writing bad business without realizing it. Then, suddenly, the reckoning comes.
As Buffett observed, “You can be doing dumb things and not know it in reinsurance, and then all of a sudden wake up and find out the money is gone.”
The lesson? True financial mastery lies in foreseeing risks as well as opportunities. The best investors, like the best swimmers, know to check the tide before diving in.
Buffett’s full explanation
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© 2025 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.