2019: How would Buffett build his circle of competence in today's market?

AUDIENCE MEMBER: Mr. Buffett and Mr. Munger, thank you for taking my question. My name is Feroz Qayyum and I’m from Mississauga in Canada, and now live in New York.

My question is how to best emulate your success in building your circle of competence. Given the environment today in investing is a lot more competitive than when you started out, what would you do differently, if anything at all, when building your circle?

Would you still build a very broad, generalist framework? Or would you build a much deeper but narrower focus, say on industries, markets, or even a country? And if so, which ones would interest you? Thank you.

WARREN BUFFETT: Yeah, well, you’re right. It’s much more competitive now than when I started. And you would — when I started, I literally could take the Moody’s industrial manual and the Moody’s banks and financial manual and I could go through page by page, at least run my eyes over every company and think about which ones I might think more about.

It’s — it’s important — I would just do a whole lot of reading. I’d try and learn as much as I could about as many businesses, and I would try to figure out which ones I really had some important knowledge and understanding that was probably different than, overwhelmingly, most of my competitors.

And I would also try and figure out which ones I didn’t understand, and I would focus on having as big a circle as I could have, and also focus on being as realistic as I could about where the perimeters of my circle of competence were.

I knew when I met (GEICO executive) Lorimer Davidson in January of 1951, I could get insurance. I mean, what he said made so much sense to me in the three or four hours I spent with him on that Saturday.

So, I dug into it and I could understand it. My mind worked well in that respect.

I didn’t think I could understand retailing. All I’d done is work for the same grocery store that Charlie had, and neither one of us learned that much about retailing, except it was harder work than we liked.

And you’ve got to do the same thing, and you’ve got way more competition now. But if you get to know even about a relatively small area more than the other people do, and you don’t feel the compulsion to act too often, you just wait till the odds are strongly in your favor. It’s still a very interesting game. It’s harder than it used to be. Charlie?

CHARLIE MUNGER: Well, I think the great strategy, for the great mass of humanity, is to specialize. Nobody wants to go to a doctor that half-proctologist and half-dentist, you know? (Laughter)

And so, the ordinary way to succeed is to narrowly specialize. Warren and I really didn’t do that. And that — and we didn’t because we prefer the other type of activity. But I don’t think we could recommend it to other people.

WARREN BUFFETT: Yeah, a little more treasure hunting in our day, and it was easy to spot the treasures —

CHARLIE MUNGER: We made it work, but it was kind of a lucky thing.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: It’s not the standard way to go.

WARREN BUFFETT: The business, at least I best understood, actually was insurance. I mean — and I had very little competition. You know, I went to the insurance department in Harrisburg, Pennsylvania. I remember one time I drove there just to check on some Pennsylvania company. And this is when you couldn’t get all this information on the internet.

And I went in and I asked about some company, and the guy said, “You’re the first one that’s ever asked about that company.” And there wasn’t a lot.

I went over to the Standard and Poor’s library on Houston — Houston — Street, I guess they call it. And I would go up there and ask for all this obscure information. And there wasn’t anybody sitting around there. They had a whole bunch of tables that you could set and examine things through. So, there was less competition.

But if you know even one thing very well, it’ll give you an edge at some point. You know, it’s what Tom Watson Sr. said at IBM, you know. “I’m no genius, but I’m smart in spots and I stay around those spots.” And that’s basically what Charlie and I try and do. And I think that’s probably what you can do. But you’ll find those spots in —

CHARLIE MUNGER: Yeah, we did it in several fields. That’s hard.

WARREN BUFFETT: And we got our head handed to us a few times, too.