Saturday, 25 February 2012
STICKING TO WHAT YOU KNOW
Warren Buffett likes to invest in companies where management focuses on activities that are within the expertise of the company and not wander off and spend shareholders’ money in going into areas that they know little about.
Keeping a company on track is obviously an attribute of sound company management and is a sound investment principle.
This is really just an extension of Warren Buffett’s investment principle that one should not invest in a company whose business one does not understand. If it applies to direct investment, it also applies to indirect investment and an investor is better off investing in a company that uses its capital in areas of its own expertise.