Know your investing circle of competence, or suffer the consequences

There may be a great deal more opportunity in the Chinese markets than in the U.S., but if you don’t understand the country, you are putting yourself at risk.Mark Schiefelbein/AP Photo files

“A man’s got to know his limitations.” — Harry Callahan in Magnum Force

Charlie Munger, vice chairman of Berkshire Hathaway, (the conglomerate controlled by Warren Buffett) and chairman of the Daily Journal Corporation, made some interesting comments at the Journal’s annual meeting a few weeks ago.

“The first rule in fishing has always been: fish where the fish are,” Munger told the meeting. “The second rule of fishing has always been: don’t forget rule No. 1.”

Munger was talking about Li Lu (a very successful Chinese investor) who he noted was fishing where the fishing was good (Charlie was referring to China).

“And the rest of us are like cod fisherman who are trying to catch cod where the fish have been fished out,” he said. “It doesn’t matter how much you work when there’s that much competition.”

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