Warren Buffett at the 2004 Berkshire Hathaway Annual Meeting:

People tend to underestimate low-probability events when they haven’t happened recently and overestimate them when they have happened recently. That is the nature of the human animal. You know, Noah ran into that some years back. But he looked pretty good after 40 days…. We believe almost anything can happen in financial markets. And the only way smart people can get clobbered, really, is through leverage…. So we have a great aversion to leverage and we would predict that a very high percentage of the smart people operating in Wall Street, at one time or another, are likely to get clobbered through the use of leverage. It’s the one thing that can prevent you from playing out your hand. And all of the hands we enter into look pretty good to us. But you do have to be able to play them out…. It’s just astounding what can happen in the marketable securities department. And the big thing you want to do is, at a minimum, you want to protect yourself against that sort of insanity wiping you out. And better yet, you want to be prepared to take advantage of it when it happens.

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