The Lousy Investor Episode 9: Warren Buffet’s Circle of Competence
To watch the podcast, please click here.
We have all heard the saying that you should “invest in what you know”, but unfortunately many investors do not heed that advice. We see people making investments based upon a “tip” that they have received from a random stranger. Others have been known to put half of their net worth into a digital asset that they know nothing about.
These decisions lead to bad outcomes for two primary reasons. The most obvious is that when you put your money into an investment that you don’t understand, you are gambling. There is nothing wrong with gambling, but it does not give you a great chance for success. You might have noticed that the hotels in Vegas are pretty spectacular, these beautiful and sometime gawdy hotels were paid for by those looking to have a good time while participating in the activity of gambling.
The second is that even if you are given a great “tip” on an investment, there is a very low likelihood that you will be able to see the investment through if there is a dip in the stock price as it is almost impossible to stick with something when you are not familiar or knowledgeable about it! Think about dating. If you have a bad first date, you are not likely to want to go on a second date because there is no history there to hang onto.
In this video I will discuss the simple yet EXTREMELY important idea of Circle of Competence that the great investor Warren Buffett speaks about regularly. Mr. Buffett has said time and time again that it isn’t important how many industries or investments you understand, it is only important that you make investments into opportunities that are in your wheelhouse. I hope you enjoy and please “Like” and “Subscribe”!!!