Amateurs vs Professionals

Dear reader, What is the difference between Amateurs and Professionals? While there are many factors, many Amateurs have similar knowledge and abilities to Professionals: the difference ultimately comes down to mindset.

• Amateurs focus on an outcome; Professionals focus on the process.
• Amateurs value isolated performance; Professionals value consistency.
• Amateurs think in absolutes; Professionals think in probabilities.
• Amateurs think good outcomes are the result of their brilliance; Professionals understand when good outcomes are the result of luck.
• Amateurs believe that the world should work as they want it to; Professionals work with the world as it is.

Importantly, Professionals understand their Circle of Competence.

“What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: you don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however is vital.”
– Warren Buffett, 1996 Berkshire Hathaway Shareholder’s Letter

Everyone has an area of life in which they are an expert: a field in which they not only have intimate knowledge, but have also accumulated experience and wisdom.

Everyone knows conceptually how a restaurant works. But to successfully run a restaurant business takes a specific skillset. Likewise, investing in a restaurant requires an understanding of the mechanics of its business, beyond just being a frequent customer. Warren Buffett has been so successful in large part because he has stuck to his Circle of Competence, only investing in businesses he feels he understands and has an edge in evaluating.

The concept of the Circle of Competence applies beyond investing. We all have a limited amount of time, attention, and resources. Where should we focus our efforts in order to achieve the most success?

Perhaps most importantly, we should never be afraid to say “I don’t know”.

Yours Sincerely,
Henry Chong