Collection: Mohnish Pabrai - #55 'Circle of Competence'



[Transcript]

MOHNISH PABRAI 00:08

Well, to ask the question is to answer. So if you are questioning whether something is in your circle of competence, trust me, it is not in your circle of competence.


So because of what we called – what Buffett says is that the most important thing is to operate within your circle of competence and ideally, you don't want to operate near the edges, you want to operate dead center.


And so it should be obvious that something is within that circle.


ARVIND NAVARATNAM 01:00

How can you tell?


MOHNISH PABRAI 01:01

I gave the example in that Google Talk about that billionaire John Arriaga.


He only buys, you know, real estate within 2 miles of Stanford. You know, I think anytime he looks at something in about 3 seconds, he answered the question of whether is in circle of competence? And once he gets 5 miles from the center, he knows he is outside the circle.


Yeah, that's a good question. I mean, I would say that – In fact, the idea I'm researching now that's a question, that's twirly in my head in the sense that there are some aspects of the business that I understand and some aspects I'm trying to understand.


And – You know, there's enough there is prompting me not to give up, but I would say that I would not make the investment if I cannot within three sentences nail down exactly kind of what the bottom line is, you know, what's going to happen here, and what type of money we're likely to make, and what timeframe and all of that, and so on.


So I think the good news with the circle of competence is that unlike, you know being a basketball player or something where, you know, after 30 or something, you're going to start declining.


Here in investing, you're going to keep improving over your whole lifetime. And over your whole lifetime, that circle is gradually is going to increase its size. Just by default because – And especially, increase its size each time you lose money because that will really teach you a whole bunch of stuff.


And the key is not to focus on increase the size of the circle. The key is to – that will happen by osmosis – but the key is to work very hard, to always stay within – well-within the circle.


(Source: https://youtu.be/dnS5xWIxo1I)

 

[YAPSS Takeaway]

Stay Within Your Circle

"Here in investing, you're going to keep improving over your whole lifetime. And over your whole lifetime, that circle is gradually is going to increase its size. Just by default because – And especially, increase its size each time you lose money because that will really teach you a whole bunch of stuff.


And the key is not to focus on increase the size of the circle. The key is to – that will happen by osmosis – but the key is to work very hard, to always stay within – well-within the circle." ~Mohnish Pabrai