Understanding Your Circle of Competence

Establishing your own circle of competence can help you avoid big mistakes and find more valuable investments.
Dec. 13, 2022
Unlock Free Stock Insights + 50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

There are a lot of things that can go into picking a stock. We need to consider both the left brain and the right brain, by looking at areas such as enterprise value or company culture respectively. However, while these aspects certainly lay a great foundation for any successful investor, there are a couple of other considerations to take into account.

Chief among these is the circle of competence.

What is the circle of competence?

This concept, coined by investing royalty Warren Buffett and Charlie Munger, is a simple mental model that helps us to focus on the things that we should be focusing on. It works off the idea that we have all built up a base of knowledge throughout our lives from various areas such as education, jobs, or even our hobbies and interests.

By leveraging this knowledge when it comes to investing, we can avoid costly mistakes. If you stay within your circle of competence, you can enter each and every trade armed with knowledge and experience. 

Importantly, your circle of competence not only tells you what you know but also what you don't know. Pharmaceutical companies, by and large, are outside of our circle of competence here at MyWallSt. As such, despite the potential for huge returns, we tend to steer clear of them.

To be a successful investor it's simply not necessary -- and quite frankly, impossible -- to know everything. But by staying within your circle of competence you can find an abundance of excellent opportunities.

As Charlie Munger put it,

"The whole trick of the game is to have a few times when you know something is better than average, and invest only where you have that extra knowledge. If that gets you a few opportunities, that's enough."



https://youtu.be/U9pAXAiSkyE

Unlock Free Stock Insights +50% Off Discount Code!
Join thousands of savvy investors and get:
  • Weekly Stock Picks: Handpicked from 60,000 global options.
  • Ten Must-Have Stocks: Essential picks to hold until 2034.
  • Exclusive Stock Library: In-depth analysis of 60 top stocks.
  • Proven Success: 10-year track record of outperforming the market.
Sign up to our mailing list now and enjoy a 50% discount on premium services!
By submitting your email address, you consent to us keeping you informed about updates to our website and about other products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Policy and Terms of Use.

The Home of Successful Investing.

© 2024 MyWallSt Ltd. All rights reserved.

Services

Content

Social

Company

Support

Resources

This website is operated by MyWallSt Ltd (“MyWallSt”). MyWallSt is a publisher and a technology platform, not a registered broker-dealer or registered investment adviser, and does not provide investment advice. All information provided by MyWallSt Limited is of a general nature for information and education purposes, and you should not construe any such information as investment advice. MyWallSt Limited does not take your specific needs, investment objectives or financial situation into consideration, and any investments mentioned may not be suitable for you. You should always carry out your own independent verification of facts and data before making any investment decisions, as we cannot guarantee the accuracy or completeness of any information we publish and any opinions that we publish may be wrong and may change at any time without notice. If you are unsure of any investment decision you should seek a professional financial advisor. MyWallSt Limited is not a registered investment adviser and we do not provide regulated investment advice or recommendations. MyWallSt Limited is not regulated by the Central Bank of Ireland. MyWallSt Limited may provide hyperlinks to web sites operated by third parties. Your use of third party web sites and content, including without limitation, your use of any information, data, advertising, products, or other materials on or available through such web sites, is at your own risk and is subject to the third parties' terms of use.