The term circle of competence is often used by remarkable investors such as Warren Buffett, who advocate that you should stick within your circle of competence. However, some of us investors are constantly learning and researching new industries. Our goal is simple. To expand our circle of competence.
Why you should try to expand your circle of competence
There are thousands of stocks to research and analyze. If your circle of competence is small, you are limiting your universe of investable stocks. Our advice is not to ignore Buffett’s advice.
In fact, you should avoid investing outside of your circle of competence. But in order to increase the potential number of stocks you can invest in you have to try to expand your circle of competence constantly.
In order to do it, there are several approaches. In essence, you are just trying to be more knowledgeable about a specific industry, or even another country. Here is how you can do it.
Knowing what is outside your circle of competence
It is also incredibly important to pinpoint exactly what is outside your circle of competence. Most of us tend to have a biased view of ourselves, our abilities, and our knowledge. This can set you up for losses.
As you may perceive your knowledge on some topics to be higher than what it actually is. Giving you the confidence to invest in something outside your circle of competence. Therefore in order to further expand your knowledge on any given area, you have to first be aware of what your circle of competence actually is.
Expand your circle of competence
Talk with industry experts
Talking with industry experts, if you can get hold of one, is perhaps one of the easiest ways to become a better investor. You want to look for someone that has experience in the industry and will be able to point you in the right direction. Additionally, you might not be able to expand your circle of competence, but someone with more knowledge might point out exactly where you should be looking.
You would be amazed at how many insights you can get into a business if you are willing to take the time and talk with the right people. Remember that one of the most important moments of Warren Buffett’s career was visiting Geico headquarters and talking with an industry expert. It completely changed his investing journey.
Taking Warren Buffett’s experience while visiting Geico, this is a piece of advice we can take with us. Visiting a company will allow you to see firsthand how it operates. You might even get a chance to talk with an industry expert. It is a simple step that can really help you to understand any business or industry. Obviously not every company will receive you, but trying to do so is a good start.
Study the industry
Researching and studying an industry is another great way to expand your circle of competence. You can start by reading some books on the topic, or even do an online course. These things should get your foot in the door, and allow you to have a much clearer picture of how the industry operates.
Working in an industry will give you a lot of insights into how it works. This can be a great advantage over investors that do not have any working experience in the field. Talking with your co-workers and really getting into the day-to-day operations of an industry can really help you to expand your circle of competence in the right direction.
Put in the effort
You can’t meaningfully expand your competence in any area if you do not put the time and effort into it. Therefore, you need to constantly monitor news, articles, and even videos. You should devour any content on that topic. This is what allows you to start to understand the foundations of a certain industry. Leading you to later understand how the companies within that industry are positioned in terms of the competitive landscape.
Here is what Warren Buffett has to say about expanding your competence: