During this lecture to the students at Peking University, Mohnish Pabrai shared an anecdote by Charlie Munger, which highlights the power of focusing on a narrow “circle of competence.” He references Johnny Arrillaga, a billionaire who invested exclusively in real estate within a one-mile radius of Stanford University.
Arrillaga’s success came from a disciplined approach—avoiding debt, buying during downturns, and selling during periods of market euphoria. Pabrai emphasizes that wealth-building doesn’t require expertise in many areas; instead, sticking to a small, well-understood niche can be a highly effective strategy for long-term success in investing.
Here’s an excerpt from the lecture:
Charlie Munger says there’s a friend of his, you know, a billionaire who lives near Stanford University, John Arrillaga. John Arrillaga only invests in real estate within one mile of Stanford University.
So you take Stanford, one mile around, that’s the only thing he invests in, nothing else.
From having no money forty years ago he’s a billionaire. All he did was never took on a lot of debt. When things went down, he bought, and when everyone got euphoric, he sold. That’s all he did.
So, what is John Arrillaga’s circle of competence? Is it real estate? No. Is it U.S real estate? No. Is it California real estate? No. Northern California real estate? No. Only real estate around Stanford.
His circle of competence is this small. He knows nothing else. In fact, if I talked to John about a steel company, in and out, he won’t do anything. He’s just going to listen to me and drink some coffee and say, “Okay, next.” I’m not interested in that because it’s not in his circle.
The good thing about getting wealthy is we don’t need to understand a lot of things.
You can watch the entire lecture here:
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
