Wealthy Investors Invest In What They Know

When asked why he didn’t invest in technology stocks, Warren Buffett famously replied that he didn’t invest in companies he didn’t understand. That doesn’t mean he doesn’t invest in technology companies.

​​His company Berkshire Hathaway does have large stakes in Apple and Amazon. Still, those companies are less like companies such as Google, Twitter, and Facebook that explore new tech frontiers but are similar to traditional manufacturing and retail companies with which he’s more familiar.

Warren Buffett is also known for acquiring or snapping up the stocks of companies that offer products or services he uses and likes, like Coca-Cola and Dairy Queen.

Why do ultra-wealthy investors invest in what they know, enjoy and use? Because chances are other people enjoying and using these products or services too, investing in demand – in products and services that people need, want, and enjoy – has always been a good investing strategy.

I suspect that the other reason wealthy investors invest in what they know they enjoy and use is that they are better able to assess the full economic implications of a particular asset and opportunity in an industry they understand than ones in an industry in which they have no experience. A person who grew up playing basketball is more likely to make the high school basketball team than the football team where they’ve never played the sport. People like to stick with what’s familiar because they can evaluate the investing landscape better in familiar situations.

Where can investors look for their next opportunity? If you’re chasing demand and want to stick with something you use, enjoy, and understand, why not invest in travel or travel-related?

We were all affected by the pandemic to one degree or another. Many of us experienced lockdowns, social distancing, and restrictions on travel. With many restrictions now being lifted, your pent-up demand, as well as the pent-up demand of millions of travelers, is about to be unleashed. The signs are already there.

​​Online travel site booking.com recently reported that its revenue more than doubled in the fourth quarter as it saw travel trends improving. CEO Glenn Fogel reported that the company had seen a “meaningful improvement” in bookings so far in the first quarter, echoing what its competitors, like Expedia, have reported.

You don’t have to be a market analyst or genius to understand people will be out traveling in the next few years to get all of their pent-up demand out of their system.

​​Why not invest in this demand while investing in something you will be doing and enjoying soon?