Buffett: "I invest in what I know and in what I understand"

Warren Buffett, the world's richest man, is someone to whom all investors should listen and from whom they should at least attempt to learn. In an interview on CNBC this morning, Mr. Buffett spoke about his latest deal to partner with Mars in a purchase of Wrigley at $80 per share (I wrote a blog about that here). When asked about why he was interested in the company, his comment was quite refreshing. Well, he said, when compared to the balance sheets of Wall Street's banks, this is a company whose value I understand.

Coming from one of the world's most respected, and successful, investors, this should cause many investors to truly question what is going-on in today's marketplace. When a savvy investor like Mr. Buffett can't make heads-or-tails of what financial institutions are reporting in their reports, how can a retail investor hope to do so? Instead, invest in what you understand.

Mr. Buffett's joke about doing a 70-year taste test of Wrigley's products speaks volumes about how investors should make their own investment decisions. Just like you shouldn't buy foods whose ingredients you can't pronounce, don't buy stocks who's underlying business you can't describe in a single sentence (or paragraph). Simple.