Little late to post on the CNN article on Warren Buffet and Charlie Munger this past weekend. I was pretty much floored by Buffet’s comment …
Buffett: My job is to think absolutely in terms of the worst
case and to know enough about what’s going on in both [Berkshire’s]
investments and operations that I don’t lose sleep. Everything that can
happen will happen…. It’s Berkshire job to be prepared absolutely for
the very worst. A few years ago we did not have NBCs [nuclear,
biological and chemical attacks] excluded from our exposure, but we do
now….
Financial hedges against terrorism? Now I learned about constructing portfolios of investments in business school, applying betas, buying gold or stock in military companies, etc. That said, stepping back from math and theory for a moment, Buffet’s comment just strikes as one of those impossible things to do like stockpiling sleep.
Buffet and Munger are two *really* smart guys, and I believe them if they say it can be done. In France I was reminded of this by read one of Munger’s talks (given at the business school at UCLA) covering managerial decision making, and the importance of keeping in mind lots of frameworks and models for understanding the health of businesses and sectors. Part of the main message was that one should not rely on single models for understanding complex problems. Need diversity.