When Warren Buffett purchases a stock or an entire business, he doesn’t just consider its positive attributes. Instead, one of the most important mental exercises he undertakes is to identify potential threats that could harm or even destroy the business.
“When we look at businesses, we try to think of what can go wrong with them. We try to look [for] businesses that are good businesses now, and we think about what can go wrong with them,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “If we can think of very much that can go wrong with them, we just forget it. We are not in the business of assuming a lot of risk in businesses. That doesn’t mean we don’t do it inadvertently and make mistakes, because we do. But we don’t intentionally, or willingly, voluntarily, go into situations where we perceive really significant risk that the business is going to change in a major way.”
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© 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.