The Daily Buffett

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The True Measure

October 28th

It is a terrible mistake for investors with long-term horizons -- among them pension funds, college endowments, and savings-minded individuals -- to measure their investment' risk' by their portfolio's ratio of bonds to stocks.

Warren Buffett

Many investors cling to the belief that a balanced portfolio of stocks and bonds is the key to managing risk. Yet, for long-term investors, other factors may be more significant determinants of risk.

Often, we've been conditioned to see the ratio of bonds to stocks as our safety mode. But a question arises - is this the true measure of risk? Or should we consider the depth of our understanding of these investments and our capacity to endure market volatility?

This perspective shifts our focus from simply diversifying to learning. It encourages us to gain a deeper knowledge of our investments, to comprehend the intrinsic value of the businesses we put our money into, and to develop patience to hold onto sound investments, even when the market conditions seem unfavorable.

In the realm of investing, it's not always about the quantity of stocks or bonds you own, but rather, the quality of your knowledge and your endurance to stay the course. It is these elements that truly fortify your portfolio against risk.

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