Before getting into any investment, there are two key questions Warren Buffett always asks himself.
“The first question is, can I understand it? And unless it’s going to be in a business that I think I can understand, there’s no sense looking at it,” Buffett said at the 1995 Berkshire Hathaway annual meeting. “There’s no sense kidding myself into thinking that I’m going to understand some software company, or some biotech company, or something of the sort. What the hell am I going to know about it? So, that’s the first threshold question. And then the second question is does it look like it has good economics? Has it earned high returns on capital?”
Hear Buffett’s full explanation
© 2023 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.