Principles Over Picks
Don't copy the master's holdings — copy the reasoning that produced them, then apply it to your own circle.
- Difficulty
- Moderate
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 93%
Leonard says one of the biggest things people get wrong about Buffett — and something he did himself — is mining money managers for stock-pick ideas. Holdings are filed quarterly through a 13F, so it's trivially easy to see and copy them. A handful of people like Mohnish Pabrai and Guy Spier have done well this way, but for most it will not work. The right approach is to learn their principles and how they think, then apply that to your own life. His demonstration is Buffett's own circle of competence: how can you copy Buffett if his circle differs from yours? Buffett avoided all tech for a very long time because he didn't understand it. If you're a software person, tech may be exactly where you belong. No one's circle is better — they are just different. Which loops back to Leonard's root rule: understand what you're buying.
Origin
Leonard studied Buffett from age 14 for over a decade, and initially did exactly what he now warns against — looking to a professional money manager for pick ideas. He speaks from experience. Working through Buffett's own principles surfaced the contradiction: the circle of competence principle logically forbids blindly copying the man who holds it, because his circle is not yours.
Core principles
- 01A holding is the output of a reasoning process you cannot see from the outside.
- 02Circle of competence is personal and non-transferable — no one's circle is better, they are just different.
- 03If you don't understand it, don't invest in it, regardless of who else is buying.
- 04Learn how they think, then apply that thinking to your life.
- 05Copying picks is the same error as buying because other people are buying.
How to run it
- 1
Notice the copying impulse
Money managers file holdings quarterly via 13F, so their positions are public and easy to mirror. The ease is exactly what makes it tempting and exactly why it fails.
Watch out Leonard notes a couple of investors — Mohnish Pabrai, Guy Spier — have done really well following this type of strategy. They are the exception, not the template.
- 2
Extract the principle instead of the position
Ask what rule generated this holding. Learn how they think, and apply that to your life. The reasoning transfers; the conclusion does not.
- 3
Map your own circle of competence
Buffett's central principle: to invest in something it must be within his circle of competence. Yours is different from his and from everyone else's — not better or worse, just different.
Pro tip A software person can probably invest in tech companies because they understand it — the exact sector Buffett avoided for a very long time.
- 4
Make the exclusion a hard rule
Name the areas you don't understand and rule them out categorically. Leonard doesn't understand biotech or energy, so he has never made an investment in those sectors.
Pro tip Leonard: 'it's a hard rule for me if i don't understand it i don't invest in it and so i just avoid it.' A hard rule removes the decision entirely.
Watch out Plenty of people make a lot of money in the areas you exclude. That is not an argument for entering them.
- 5
Apply the borrowed principle inside your own circle
Take the master's reasoning and run it on the businesses you actually understand. That is what following an investor properly looks like.
In the wild
Leonard poses the logical trap directly: one of Buffett's biggest principles is that an investment must be within his circle of competence. But how can you copy Buffett if he has a different circle of competence than you? Buffett avoided all tech for a very long time because he didn't understand it — yet a software engineer may understand tech deeply.
→ Blindly copying Buffett's holdings means violating Buffett's own most important principle. Following him properly means applying circle of competence to your own circle, which produces different holdings by design.
Leonard doesn't understand biotech and doesn't understand energy, so he has never made any investments in those industries or sectors. He acknowledges there are a lot of people making a lot of money there.
→ He treats it as a hard rule — if he doesn't understand it, he doesn't invest, and he simply avoids it. He applies the same reasoning to NFTs, which he says are certainly not within his circle of competency.
Common mistakes
Mining 13Fs for pick ideas
Leonard did this himself. Quarterly filings make holdings visible, but you inherit a position without the reasoning, the timing, the sizing, or the competence that produced it — and without knowing when they exit.
Assuming a bigger name means a better circle
None of our circles are better than one another — we just understand things differently. Deferring to a famous investor's circle over your own means investing outside your understanding while telling yourself it's rigor.
Buying because other people are buying
Leonard's root objection: that isn't investing at all. Copying a celebrated manager is the sophisticated-looking version of the same error as chasing a crowd into a meme stock.
Is it for you?
Best for
Anyone learning from a public expert — investors following Buffett, but equally anyone with a mentor whose decisions they are tempted to imitate directly.
Not ideal for
The rare investor genuinely running a disciplined cloning strategy with the analytical depth to underwrite each position themselves.
From the transcript
“one of the biggest things people get wrong about buffett or any professional money manager and this is something that i did so i'm speaking…”
“rather the right way to think about it in my opinion is not to copy them but rather to learn from their principles and think…”
“how can you copy warren buffett as an investor if he has a different circle of competence than you right if you're going to follow…”
“i don't understand biotech i don't understand energy these types of things so i've never made any investments in those industries or sectors there's a…”
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