Risk comes from not knowing what you’re doing – Warren Buffett

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A quote by the oracle of omaha … Warren Buffett, it gives a bit more flavored approach to risk and risk taking.

Risk comes from not knowing what you’re doing

– Warren Buffett

Compared to popular opinions about risk, like:
No Risk, No Reward
The only strategy that is guaranteed to fail is not taking any risks – Mark Zuckerberg
Warren Buffet have a more pragmatic approach … He associate risk to ignorance and not knowing what you’re doing.
This is true to a certain extent, however does it apply to all industries?
When it comes to innovation, i think this quote does not stand the test.
In innovative businesses, even when you know what you are doing, there will be still be a big risk:
– Risk associated with technology.
– Risk associated with adoption.
– Risk associated with regulations.
For a normal business, “that know what they are doing”, such risks should be minimal, because there must be a precedence concerning these risks, but innovation is a brand new territory explored, hence risks are yet to be discovered.

Furthermore, Buffet is an investor who invests mostly in major stocks, hence the risks he is talking about are mostly related to macro and micro economics. Buffet do not need to factor business variables in his analysis, as most of these business variables disappear when you are a big corporation.

To give you an example:
A normal burger joint VS. a McDonald’s restaurant, here’s the different risks associated :

Burger jointMcDonald’s
Risk: Meat quality No risk: Meat processed nationally
Reputation : depends on customer experienceNo risk: Customer experience not a factor in reputation
Risk : Slow BusinessNo risk: McDonald’s attracts business

Thus we can come to the conclusion that Warren Buffett’s statement “Risk comes from not knowing what you’re doing” only applies to certain industries and possibly investing in companies stocks or in commodities.

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Abdallah Alaili

I'm a serial entrepreneur (mostly tech) and micro-investor (tiny), this is a blog to learn from other entrepreneurs and spread the wisdom to many more. You can find me on: Instagram - Twitter - Linkedin - more about me