Warren Buffett and Charlie Munger said it best when they recommended that investors stay within their “Circle of Competence”. Your circle of competence is the knowledge base you have developed, over and above the average investor, for example in a certain part of the market or investment type. Having an informational and analytical edge means you are in your comfort zone and unlikely to be put off from investing, even when a sector or situation seems complex to others. The ability to quickly assess the key fundamental driving factors of a given investment opportunity can tip the odds in the favour of the prepared investor, which can result in uncovering unique opportunities and being in a smaller pool of investors, both of which have their own advantages.
I’m no genius, but I’m smart in spots, and I stay around those spots.” Tom Watson [IBM founder]
“Risk varies inversely with knowledge.” Irving Fisher
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