WARREN BUFFETT: Good question.
(Laughs)
Some of the people in the audience are identifying with it, I can hear them.
The
— it’s — you know, it is a question of being self-realistic,
and that applies outside of business as well.
And,
I think
Charlie and I have been reasonably good
at identifying what I would call the perimeter of that circle of competence,
but obviously we’ve gone out of it.
I would say that
in my own case, I’ve gone out of it more often in retail than in any other arena.
I think it’s easy to sort of think you understand retail,
and then
subsequently find out you don’t,
as we did with the department store in Baltimore.
You could say I was outside of my circle of competence
when I bought Berkshire Hathaway,
although I bought it, really, to resell as a stock, originally.
I probably was out of my circle of competence when I
decided that
I should go in and buy control of the company. That was a dumb decision —
which worked out.
The —
being
realistic in appraising your own talents and shortcomings,
I think — I don’t know whether that’s innate,
but some people seem a whole lot better at it than the others.
And I certainly know of a number of CEOs that I feel have
no idea of where their circle of competence begins and ends.
But,
we’ve got a number of managers who I think are just terrific at it.
I mean, they really know when they’re playing in the game they’re going win in,
and they don’t go outside of that game.
The ultimate was Mrs. B, at the Furniture Mart.
She told me that she did not want stock,
in terms of the Berkshire Hathaway deal.
Now, that may sound
like it was a bad decision. It was a splendid decision.
She did not know anything about stock,
but she knew a lot about what to do with cash.
She knew real estate, she knew retailing,
and she knew exactly what she knew and what she didn’t know,
and that took her a long, long, long, long way in business life.
And that — that ability to know
when you’re playing the game in which you’re going to win,
and playing outside of that game, is a huge asset.
I can’t tell you the best way to
develop a great sense of that about yourself.
You might get some of your friends that know you well to
offer contributions. Charlie’s given me a few contributions occasionally,
saying, “What the hell do you know about that?”
That’s one way of putting it, of course.
(Laughs)
But Charlie, do — can you help him out?
CHARLIE MUNGER: Well, I don’t think it’s as difficult
to figure out competence as it may appear to you.
If you’re five-foot-two, you don’t have much of a future in
the National Basketball League.
And if you’re 95 years of age,
you probably shouldn’t try and act the romantic lead part in Hollywood.
(Laughter)
If you weigh 350 pounds,
you probably shouldn’t try and dance the lead part in the Bolshoi Ballet.
And if you can hardly count cards at all,
you probably shouldn’t try and win chess tournaments playing blindfolded,
and so on and so on.
WARREN BUFFETT: You’re ruling out everything I want to do.
(Laughter)
CHARLIE MUNGER: But competency is a relative
is a relative
concept. And what a lot of us need, including the one speaking,
is — what I needed to get ahead was to compete against idiots,
and luckily there’s a large supply.
(Laughter)
WARREN BUFFETT: OK, Carol.