In this week's episode, we'll discuss the importance of the circle of competence and that you should be careful about investing in anything that you don't understand. We also talk about what you should avoid as an investor.
The circle of competence.
Be careful to not invest in anything that is outside your circle of competence.
Start your research off with a very intense focus on one area. Then you develop the three circles of competence you have. Try to bring your own personal experiences in - by focusing on what you already know.
A way of getting people to look at things in their lives that they already know a lot about, and translate that into a group of companies that they could begin to explore as investment options.
What to avoid in the circle of competence
A surface level of understanding isn't enough. You have to understand a business enough that you could confidently become the CEO of the company and run it.
You need to be able to know what you don't know.
The beauty of investing in businesses
What is hard in this industry is finding something that is really good that is on sale. And you have to be patient to find it.
This market is big. What that means is that usually, some part of the market is in the process of collapsing and another part is shooting up to the moon. That means there are always possibilities for good investments as a Rule #1 investor.
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