Risk Comes from Not Knowing What You’re Doing

Warren Buffett? Jim Rasmussen? Apocryphal?

Dear Quote Investigator: The investment record of Warren Buffett has been astonishingly successful. His reputation for sagacity means that his tongue can transform a prosaic remark into an adage of wry plainspoken wisdom such as the following:

Risk comes from not knowing what you’re going.

I have seen low quality citations in secondary sources from the 2010s. Can you help me to find a good citation for this comment?

Quote Investigator: In 1993 Warren Buffett spoke to graduate students at Columbia University’s Business School in New York City. Reporter Jim Rasmussen wrote about the event in January 1994 in the “Omaha World-Herald” of Nebraska.

A student asked Buffett how he evaluated investments and risk, and Buffett used the Washington Post Company as an example of a safe investment circa 1973. He stated that the company’s market value at that time was underestimated because it was substantially lower than the value of the properties it owned. Emphasis added to excerpts by QI:[ref] 1994 January 2, Omaha World-Herald, Section: Business, Billionaire Talks Strategy With Students Columbia University Group Hears From Famous Alumnus Berkshire Hathaway by Jim Rasmussen (Herald Staff Writer), Quote Page 17S, Omaha, Nebraska. (The article text in the database misspelled “knowing” as “knowning”) (NewsBank Access World News)[/ref]

And it was being run by honest and able people who all had a significant part of their net worth in the business. It was ungodly safe. It wouldn’t have bothered me to put my whole net worth in it. Not in the least.

Risk comes from not knowing what you’re doing.

Interestingly, “The Washington Post” and other newspaper and media organizations have become riskier assets in modern times because of internet induced turmoil. Amazon leader Jeff Bezos purchased the paper in 2013.

Here are additional selected citations in chronological order.

In 1994 Robert G. Hagstrom Jr. published “The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor” which included the following passage:[ref] 1994, The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor by Robert G. Hagstrom Jr., Chapter 4: Buying a Business, Quote Page 94 and 95, John Wiley & Sons, New York. (Verified with scans)[/ref]

First, Buffett eliminates the financial risk associated with debt financing by excluding from purchase those companies with high debt levels. Second, business risk is reduced, if not eliminated, by focusing on companies with consistent and predictable earnings. “I put a heavy weight on certainty,” he says. “If you do that, the whole idea of a risk factor doesn’t make any sense to me. Risk comes from not knowing what you’re doing.

The accompanying footnote pointed to the “Omaha World-Herald” article. The text between quotation marks was taken from the newspaper piece although it was compressed; some of the phrases were not originally adjacent.

In 1998 the Reuters news service published an article containing a few sayings from Buffett:[ref] 1998 February 8, Des Moines Sunday Register (The Des Moines Register), Heralded investor Buffett turns eye toward silver (Continuation title: Buffett Investing in Silver) by Reuters News Service, Start Page 1G, Quote Page 25, Column 6, Des Moines, Iowa. (Newspapers_com)[/ref]

“Price is what you pay. Value is what you get,” Buffett would say. Among the many other adages his adherents love to quote:

“Risk comes from not knowing what you’re doing.”

“My idea of a group decision is to look in the mirror.”

“We like to buy businesses. We don’t like to sell, and we expect the relationships to last a lifetime.”

In 2016 the “Forbes” website published a piece mentioning the adage:[ref] Date: March 28, 2016, Website: Forbes, Article: Heed The Words Of Warren Buffett When Shopping For Smart Beta Solutions, Author: Corey Hoffstein (Contributor), Company: Forbes Media, Jersey City, New Jersey. (Accessed on March 18, 2018 at forbes.com) link [/ref]

His annual letters have long been scrutinized and combed over for pearls of wisdom. While Warren Buffett has not said much on smart beta specifically, an investor evaluating smart beta approaches can still find wisdom and lessons in his words.

“Risk comes from not knowing what you are doing.”

In conclusion, Warren Buffett should receive credit for this statement based on the January 1994 citation.

(Great thanks to ISHAN whose inquiry led QI to formulate this question and perform this exploration.)

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