Followers of Warren Buffett, myself included, would be familiar with the concept of “Circle of Competence”. They key to his philosophy is to encourage investors to stick to what they know best, evident from his Shareholder’s Letter.
I’m no genius. I’m smart in spots – but I stay around these spots.Tom Watson Snr, Founder of IBM
The concept is simple. To invest successfully, one need not bother themselves with technical, such as beta, capital asset pricing models, modern portfolio theory or option pricing. As an investor, one should simply purchase a ......
What an investor needs is the ability to correctly evaluate selected businesses. Note the word “selected”: You don’t have to be an expert at every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
