If Buffett cannot understand a company's business, then it lies beyond his circle of competence and he won't attempt to value it.
He famously avoided technology stocks in the late 1990s in part because he had no expertise in technology.
On the other hand, Buffett continued to buy and hold what he knew.
Although it might seem obvious that investors should stick to what they know, the temptation to step outside one's circle of competence can be strong.
Buffett has written that he isn't bothered when he misses out on big returns in areas he doesn't understand, because investors can do very well (as he has) buy simply avoiding big mistakes.
He believes that what counts most for investors is not so much what they know but how realistically they can define what they don't know.
He famously avoided technology stocks in the late 1990s in part because he had no expertise in technology.
On the other hand, Buffett continued to buy and hold what he knew.
Although it might seem obvious that investors should stick to what they know, the temptation to step outside one's circle of competence can be strong.
Buffett has written that he isn't bothered when he misses out on big returns in areas he doesn't understand, because investors can do very well (as he has) buy simply avoiding big mistakes.
He believes that what counts most for investors is not so much what they know but how realistically they can define what they don't know.
No comments:
Post a Comment