Why We Like BP's Stock and 2 Other Comeback Picks

These recent purchases illustrate the diversity of ideas we find appealing today.

Staying within your circle of competence is a central tenet of value investing. It's clear that you're more likely to succeed by investing in situations, companies and industries you know well rather than by dabbling in the unfamiliar. Over the years, however, we've seen many instances in which investors -- either because they're overconfident or because they're searching for "hot" new ideas -- swing at pitches outside of their investing strike zone. As in baseball, the results are often disappointing.

Which is not to say you can't expand your area of expertise. Legg Mason's Bill Miller put it this way when we interviewed him a few years ago: "There's no reason to say, 'Here's my circle of competence, and it's never getting any bigger because I'm not going to learn anything new.' We're trying to understand new things if we can." We agree and, in fact, can find far more investing opportunities today than when we started out -- in large part because of a much broader base of experience on which to draw for insight. (For more on the benefits of investing outside of your comfort zone, see Investor Psychology: Too Close To Home.)

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Whitney Tilson
Contributing Editor, Kiplinger's Personal Finance