From Poor Charlie's Almanack:
What makes investment hard...is that it's easy to see that some companies have better businesses than others. But the price of the stock goes up so high that, all of a sudden, the question of which stock is the best to buy gets quite difficult.
We've never eliminated the difficulty of that problem. And ninety-eight percent of the time, our attitude toward the market is ... [that] we're agnostics. We don't know. Is GM valued properly vis-à-vis Ford? We don't know.
We're always looking for something where we think we have an insight which gives us a big statistical advantage. And sometimes it comes from psychology, but often it comes from something else. And we only find a few -- maybe one or two a year. We have no system for having automatic good judgment on all investment decisions that can be made. Ours is a totally different system.
We just look for no-brainer decisions. As Buffett and I say over and over again, we don't leap seven-foot fences. Instead, we look for one-foot fences with big rewards on the other side. So we've succeeded by making the world easy for ourselves, not by solving hard problems.
It doesn't help us merely for favorable odds to exist. They have to be in a place where we can recognize them. So it takes a mispriced opportunity that we're smart enough to recognize. And that combination doesn't occur often.
But it doesn't have to. If you wait for the big opportunity and have the courage and vigor to grasp it firmly when it arrives, how many do you need? For example, take the top ten business investments Berkshire Hathaway's ever made. We would be very rich if we'd never done anything else-in two lifetimes.
So, once again, we don't have any system for giving you perfect investment judgment on all subjects at all times. That would be ridiculous. I'm just trying to give you a method you can use to sift reality to obtain an occasional opportunity for rational reaction.
If you take that method into something as competitive as common stock picking, you're competing with many brilliant people. So, even with our method, we only get a few opportunities. Fortunately, that happens to be enough.