I wanted to share with you some edited excerpts from a Q&A session I held with readers in Omaha during Berkshire Hathaway’s shareholder meeting weekend. Today we’ll delve into my research process, how I assess country risk for investments and why some investors avoid technology stocks
When do you know you have done enough research?
Analyzing companies is like building a world. It’s similar to reading sci-fi books. For example, if you read a book about Elon Musk versus a book by Iain Banks, it’s much easier to understand the Musk book because he’s contemporary, and you know a lot about his world. With sci-fi books, you’re reading about a planet with two moons where people are flying instead of walking. Suddenly, there are many more things you have to learn in order to understand the dynamics of that world.
Investing is similar. When you look at a new industry, you need to understand all these different dynamics – the relationships between buyers and suppliers, customers, which metrics are important, and so on. If I’ve owned a company before and sold it a few years ago, and I’m buying it again, it might take me just 30 minutes to update myself on any changes. So, the time it takes can vary greatly depending on how familiar I am with the company or industry.
I wish I could tell you there’s a specific moment when I say, “Okay, that’s enough research.” It’s more of a feeling that I understand the business and I’m comfortable with it.
I don’t know how to define “comfortable” exactly, but I just know. Of course, the investment must meet all our criteria, and then I just feel like, “Okay, I get it.” Walt Disney said, “You can feel quality.” I get that quality feeling.
It’s not a perfect science. It’s a combination of meeting objective criteria and reaching a level of subjective comfort with the investment. The more experience you gain, the better you become at recognizing when you’ve reached that point.
How do you decide if a country is investable?
My rule is simple: If I can write an article critical of the country’s leader and I’m not afraid to travel there afterwards, then it’s investable. If I write an article and I’m afraid to visit, it’s uninvestable.
Let me give you an example. In 2008, I wrote an article about Putin and the whole Yukos saga, where the government essentially stole a company from its public shareholders because Putin wanted to suppress his biggest opposition, Mikhail Khodorkovsky. I wrote the article but never published it. Why? Because I was planning to visit Russia for the first time since leaving in 1991.
I wasn’t worried about being recognized – I’m not that important. But I imagined a scenario where I’m crossing the street, a policeman arrests me, sees my American passport, takes me to the station, and Googles me. If they found that article, things could get very different very quickly.
The same principle applies to China and other countries. If I can’t write critically about a country’s leader, I shouldn’t invest there. It’s usually an indication of bigger issues.
Turkey is a good example. We don’t invest there for this reason. The guy running it is basically a dictator.
There’s a great book called Spin Dictators, by Sergei Guriev. It talks about how modern dictators don’t wear military uniforms anymore; they wear Armani suits and go to Davos. Putin comes to mind here.
And sorry to those who came here from Singapore, but the family running Singapore are kind of dictators too, just more benign ones. I feel okay owning a company listed in Singapore, but not one in Turkey, China, Russia, or even Hungary.
So that’s my rule: If I can’t freely criticize the leadership without fear, I won’t invest there. It’s a simple but effective way to gauge the investment climate of a country.
Why are investors reluctant to invest in technology?
The cause is the guy who lives in Omaha. He’s in his 90s and grew up when people were still riding in carriages. I think there’s absolutely no excuse for anyone less than 90 years old not to own technology stocks.
Let me tell you a story about the “cargo cult.” After World War II, Americans landed on islands in the South Pacific populated by indigenous people whose technological development was more or less Stone Age. These people didn’t understand modern technology or how it worked. When the Americans left, they wanted them to return, and they built large radios out of sand.
I love this story because we can all relate to its message instantly – mimicking someone else without understanding the essence of why they’re doing what they’re doing makes little sense. In fact, it could be comical.
Why am I telling you this? Because when Buffett says, “I don’t buy technology companies,” what a rational person should learn is that Buffett thinks they’re outside his core competence. And he has an excuse because he’s in his 90s.
When you’re 25, you don’t have that excuse. What you should learn from Buffett is not to invest outside your core competence. Let me take it a step further. You should also learn to always try to expand the circumference of your core competence. That fellow, Mr. Buffett, studied tech for a long time and then bought Apple.
I own plenty of technology companies. But I don’t own biotech companies, because I failed biology in high school and don’t understand it. Therefore, I can’t tell you if a company with a molecule has a better molecule than another. And that’s okay. But this doesn’t mean that if you have a PhD in biology, you shouldn’t own those companies.
The key is to invest in what you understand, but always strive to understand more. Technology is such a crucial part of our world now that avoiding it entirely is like ignoring a significant portion of the economy. Just make sure you’re investing in tech companies you truly understand, not just because they’re trendy or because someone else is doing it.
Key takeaways
- A solid research process feels less like checking boxes and more like reaching a point where the world of the business clicks into place and you can “feel” its quality.
- Evaluating country risk becomes simple when you use a practical test: if you can write something critical about a country’s leader without fearing a visit afterward, the investment climate is probably sound.
- Great investing still requires intellectual humility. You stay within your circle of competence while constantly trying to widen it.
- The hesitation around tech investments often comes from mimicking Buffett’s caution without understanding its context. The real lesson is to avoid what you don’t understand and keep expanding what you do.
- Experience teaches you that comfort with an investment is part objective analysis and part intuition, a mix that sharpens the more worlds you have built in your head.
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