We highly recommend viewing the following video of a speech given by Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life, at the Value Investing Conference hosted by the Darden School of Business in 2008.
Schroeder has spent "thousands" of hours with Buffett and here gives some terrific insights into the workings of his mind. Of particular interest is the case study discussed (Mid-Continent Tab Card Company).
Schroeder's insights are golden and perhaps viewers will agree that it is difficult not to be amazed by the capabilities of this truly extraordinary investor. Yet again, Buffett's approach can appear incredibly simple and easy to replicate. However most simply do not have the stamina to even come close to duplicating his work rate. As for handicapping catastrophe risk, in my view, this is vastly more difficult than it may appear at first. Investors can fall into one of two camps (often moving between the two): one group is so concerned with catastrophe that it shuns any perceived form of risk and in the process suffers opportunity cost and from the debilitating effects of inflation over long periods. The other is greedy but prone to under-estimating risks to one degree or another and suffers severe losses when the errors in judgement are ultimately exposed. Buffett, with his obsessive nature, encyclopaedic knowledge, photographic memory, super-human work-rate, rare temperament, amongst other elements of his "mystery", has proven able to consistently operate in the sweetest of sweet spots between these two extremes. In my view, most of us are incapable of operating in this particular zone but can console ourselves with the aspiration to get as close to it as possible.