Subprime Risks: Overblown

Sep 03, 2007

This way I can concentrate on what matters most: underlying business fundamentals. And I don't waste time worrying about things I can't control or predict, like what sectors will be in vogue next or where interest rates are going.

Warren Buffett and Charles Munger have dubbed this kind of industry-specific expertise a "circle of competence." The circle's size doesn't matter as much as recognizing its boundaries. When times get tough, fear leads people to overdiversify their investments in hopes of minimizing losses. Bad idea.

Buy: City National (74, CYN), Assured Guaranty (26, AGO), and HCC Insurance Holdings (28, HCC ).

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