My First Blog - Investment "risk"

I use this blog as a collection of my short notes about life, investment, business and travels. This includes extracts from my reading which I think is useful to point out.

Warren Buffet’s view on the investment risk:

“The risk that an investor must assess is whether his after-tax return will give him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake. The primary factors bearing this evaluation are:

1. The certainty with which the long-term economic characteristics of the business can be evaluated;
2. The certainty with which management can be evaluated, both as to its ability to realise the full potential of the business and to wisely employ its cash flows;
3. The certainty with which management can be counted on to channel the reward from the business to the shareholders rather than to itself;
4. The purchase price of the business
5. The levels of taxation and inflation that will be experienced and that will determine his purchasing-power return.”

Equating the investment risk with beta (i.e. relative volatility) of a stock or portfolio of stocks is absurd.