In their hunger for a single statistic to measure risk, however, they forget a fundamental principle: It is better to be approximately right than precisely wrong.
Warren Buffett and Charlie Munger have built a literal fortune on the premise of investing only in things they understand well and with a healthy margin of safety. They stay away from what they don’t understand and situations where they need to be exactly right.
I believe that is good life advice in gneral – to beware things you can’t reason about and to avoid situations with no room for error.
Being able to reason about something means you can predict its behaviour and, importantly, that you know the limits of what you can predict. Without that ability, your choices are less likely to lead to what you want. But you can’t make exact predictions in a noisy world, so you need a margin of safety.
Corollary: work hard to improve your ability to reason clearly about things you care about.
Warren E. Buffett, Letter to the Shareholders of Berkshire Hathaway Inc., http://www.berkshirehathaway.com/letters/1993.html ()