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It’s better to own a wonderful company at a fair price than a fair company at a wonderful price – Warren Buffett

Most of us have the inclination to root for the underdog. We want to believe that David can topple Goliath. And while it happens sometimes, more often than not it doesn’t. The brutal reality is that the stronger dominate the weaker. Competitive capitalism is a cutthroat affair.

This inclination can lead some of us to see value in a second-rate company like Lyft (LYFT). We twist the numbers in order to rationalize our desire to believe. I know because I’ve done it. I learned this lesson the hard way – as did the great Warren Buffett whose evolution involved moving away from Ben Graham-style “cigar butts” to higher quality companies. It’s only when he learned that lesson that he became Warren Buffett.

I could go into the details of the fundamentals behind LYFT’s disastrous quarter but I want to make a larger point. In investing it is almost always right to bet on the leaders in an industry to continue to lead and the laggards to continue to lag. Own high-quality leaders, not second-rate laggards.

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