Bottom Line Up Front: Warren Buffett warns investors that keeping it simple is a critical part of seeing success when investing. Buffett says that even if he spent years studying some of the most critical technology sectors on the planet, he still wouldn’t be able to tell which are winners and losers. Rather, he says he sticks to what he knows, and that has helped him consistently produce astronomical returns over decades.
The Details: Legendary investor Warren Buffett has long challenged the idea that risk can be reduced to neat equations. In Berkshire Hathaway’s (BRK.B) (BRK.A) 1993 shareholder letter, the then-CEO offered a clear critique of finance theory that relies heavily on volatility-based measures such as beta. Buffett wrote, “The theoretician bred on beta has no mechanism for differentiating the risk inherent in, say, a single-product toy company selling pet rocks or hula hoops from that of another toy company whose sole product is Monopoly or Barbie.”
