“There are all kinds of businesses that Charlie and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one…Never invest in a business you cannot understand.”
Warren Buffett has said he knew from a very young age what he was wired for, and had a lot of confidence in his chosen field. The other side of that is for the most part he hasn't become arrogant to the point of believing he could successfully invest in any company he chose to.
There's a huge difference between being confident and arrogant. Confidence comes from knowing you understand what business you're in and what it needs to be successful. Arrogance is where you believe you can be successful whether you understand things or not. It's also very foolish.
The reason Warren Buffett doesn't stay awake at night is because he never goes outside his expertise. He knows what he's in and the fairly accurate place things will be 10 and 20 years from now. He knows the ups and downs of the market and the irrational fears that can make huge swings happen. As he has said in the past, he doesn't invest in something called the "market," he invests in companies. And he knows those companies from top to bottom. If he can't figure them out he simply stays away from them.
This translates to business leadership and management as well. Stay with what you know. This doesn't mean we don't continually learn the changes going on in our particular field. But we shouldn't go wandering off into areas we know nothing about.
Getting away from the investment side, we need to focus on things within our particular niche we serve. It sounds simple, but huge companies to this day make these mistakes. One of the biggest in the world, Wal-Mart (WMT) is still reeling from trying to offer high-end clothing to its customers, which they rejected. It was outside their expertise and it showed by the results.
We need to simply stay with what we know. Follow Warren Buffett in how he does this with Berkshire Hathway (BRK-A) and you'll stay on a pretty even keel over the long term.
Other Buffett Resources:
MSU students have special visit with billionaire Warren Buffett
Sticking to what you know Core businesses
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» Countrywide Financial, Risky Loans, and why You don't do it because Everyone Else Does from ManagersRealm
The growing crisis in the US mortgage industry underscores why we must stay with what we know in business, as we talked about last post. One of the biggest mistakes businesses and business leaders make is doing something because everyone... [Read More]
Tracked on: August 16, 2007 4:47 PM | Permalink to Trackback