Monday, December 26, 2005

Circle of Competence

"I don't want to play in a game where the other guy has an advantage. I could spend all my time thinking about technology for the next year and still not be the 100th, 1,000th or even the 10,000th smartest guy in the country in analyzing those businesses. In effect, that's a 7- or 8-foot bar that I can't clear. There are people who can, but I can't.

"The fact that there'll be a lot of money made by somebody doesn't bother me really. There's going to be a lot of money made by somebody in cocoa beans. But I don't know anything about 'em. There are a whole lot of areas I don't know anything about. So more power to 'em.

"I think it would be a very valid criticism if it were possible that Charlie and I, by spending a year working on it, could become well enough informed so that our judgment would be better than other people's. But that wouldn't happen. And no matter how hard I might train, I still couldn't. Therefore, it's better for us to swing at pitches [that are easy for us].

"Different people understand different businesses. The important thing is to know which ones you do understand and when you're operating within your circle of competence."


Excerpt from Berkshire Hathaway's 1998 annual meeting

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