The market has gone haywire. As I write, the Dow Jones industrial average has experienced 14 triple-digit fits and starts since July 20. Subprime fears have made financial stocks even more volatile. This pinball effect is leaving many investors feeling skittish about where to put their money. During tough times like these I stay focused on the areas I know best, which keeps me calm and confident in my decisions.
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.
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