SEC asked: important risks disclosed in financial report

In Buffett’s 2015 shareholder letter (in italics below), Buffett carefully explained the important risks that must be disclosed in the financial report as stipulated by the SEC.

Table of Contents

Important Risks

We, like all public companies, are required by the SEC to annually catalog “risk factors” in our 10-K. I can’t remember, however, an instance when reading a 10-K’s “risk” section has helped me in evaluating a business. That’s not because the identified risks aren’t real. The truly important risks, however, are usually well known.

Beyond that, a 10-K’s catalog of risks is seldom of aid in assessing:

(1) the probability of the threatening event actually occurring;
(2) the range of costs if it does occur; and
(3) the timing of the possible loss. A threat that will only surface 50 years from now may be a problem for society, but it is not a financial problem for today’s investor.

Berkshire operates in more industries than any company I know of. Each of our pursuits has its own array of possible problems and opportunities. Those are easy to list but hard to evaluate: Charlie, I and our various CEOs often differ in a very major way in our calculation of the likelihood, the timing and the cost (or benefit) that may result from these possibilities.

Important Risks — credit: financialcrimeacademy.org

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