Know your Limit, and stay within it
Buffett is a longtime champion of the concept of a circle of competence. For decades, he has mostly stuck to investing in sectors he is deeply familiar with. For example, he flat-out ignores most companies in the tech sector, though he has warmed up to Apple (NASDAQ:AAPL) and a select few others over the years. Instead, he chooses to try to handicap the earnings of companies with simpler business models and balance sheets.
Buffett called Munger the “architect” of Berkshire Hathaway’s business strategy, and Munger was doubtless a driving driving force behind Buffett’s commitment to keeping his watchlist slim over the years.
In addition to laser-like focus on specific sectors within their combined circle of competence, Munger has also supported prioritizing learning and cautious investing over speculative ventures. For example, he once suggested that investing in cryptocurrency was “crazy, stupid gambling.”
Being right about very big ideas, and placing big bets when one has this conviction, is another central tenet of the Munger/Buffett ideology. However, making those bets requires investors to have capital on hand.
There are a range of options available to investors looking to growth their wealth right now. Money market accounts, bonds, and certificates of deposit (CDs) are a few great examples.
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Know your ABL’s (Always Be Learning)
From Bill Gates (who reads more than one book per week) to Munger’s business partner Buffett, who reportedly spends most of his day reading, many serious investors spend the majority of their time expanding their knowledge.
Munger was no different. He once said, “The true wisdom in finance comes from understanding the limits of your knowledge.”
There are many directions investors can head with this advice. In one way, it suggests that expanding the limits of your knowledge will pay off. On the other hand, one could argue that intensively focusing on one niche area of the market may be better than trying to learn about everything.
Munger’s legacy demonstrates that the wisest investment decision may be to hold back, rather than charge forward. Knowing your limitations and focusing on areas you are knowledgeable about is likely a much better use of your time.
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Sometimes wading through the vast array of available stocks can seem overwhelming. If you’re keen on expanding the limitations of your investing knowledge, Motley Stock Advisor is a great place to start.
Stock Advisor is a subscription-based service that provides users with market insights and expert-stock picks, so you can take the guesswork out of investing.
Stock Advisor has a proven track record of beating the S&P 500 by more than four times. Their expert research uncovers under-the-radar companies, allowing investors to seize timely opportunities before they blow up.
Their extensive library of stock reports, investment articles, videos and eBooks can help you whether you want to add to your knowledge base or do a deep dive on a specific sector of the market.
When in doubt, rely on experts
Both Buffett and Munger have long argued that stock picking isn’t for everyone. There are significant costs to picking stocks, including the time and resources required to research and pick the best companies, as well as the mental anguish that comes from bad bets and inevitable losses.
Mental fortitude is important, and an investor’s individual risk tolerance threshold will also play a role in how successful they can be over the long-term. For example, how will you approach periods of volatility: Will you stay the course, or adjust your strategy?
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