Wednesday, November 4, 2009

Circle of Competence

The FT summarizes Warren Buffet latest deal: Burlington Northern (BNSF) very well.

Bankers said the BNSF take-over was typical of Mr Buffett: a deal at a low point in the economic cycle for a group with few rivals in a sector set to benefit from long-term trends such as rising oil prices and stricter environmental standards.

This is his biggest bet ever but also a classic display of operating within his circle of competence.

Everyone should try to develop his/her circle of competence and update that circle continuously to stay relevant. Most of us will do this outside of investing and perversely will maintain a circle of ignorance. Some will pass it to financial advisers, who sadly live in a circle of ignorance too.

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