The Ridgewood Group Value Investing Blog

Speaking of headline risk (one of the reasons cited for Berkshire’s current valuation discount), we think that “headline risk” along with other investment-speak terms like “profit taking” or “value trap” either don’t exist or aren’t helpful. Saying it differently using Henry Miller’s words, “Confusion is a word we have invented for an order which is not understood.”

In each of the above cases, nobody (especially the experts) wants to admit that they are confused. This is probably a sincere consequence of self denial - as human beings we have an even greater capacity to delude ourselves than we do others. Consequently, plausible-sounding but meaningless terms like “headline risk” have been resourcefully created to avoid admitting that “I am confused and have little time or inclination to uncover the deeper patterns that may be at work.”

As we have said before, the risk that matters is the risk of losing money in the long-term. The real question that should be asked and answered is not whether surprise headlines may occur, but what impact foreseeable or unforeseeable developments and headlines will have on the long-term health and viability of the underlying business. Indeed, if headlines blow matters out of proportion and scare away other investors, the more proper characterization from a long-term investment perspective is not “headline risk”, but rather “headline opportunity”.