A circle of competence is the subject area which matches a person's skills or expertise.
The circle of competence is simply the area in which you are able to find strong investment options. Your circle does not need to be big, it's just important that you stay within the circle. The better you are at staying within your circle of competence, the more wealth you can create in the long term. Warren Buffett makes it clear that staying within your area of understanding is one of the key factors behind governing investment success. The better you are at staying within the circle, the more wealth you will end up creating for yourself.
Don't worry about having a big circle, or even being able to evaluate everything. You can beat the market by understanding very few companies, but being able to stay disciplined in not drifting off into other areas because other people recommend it. Investing is a game where the person who can think independently and stay disciplined wins.
How to develop your circle of competence
The Difference Between What You Think You Know and What You Actually Know.
Any links provided to other websites are offered as a matter of convenience, these links do not mean we own them, endorse, sponsor or promote any of the content of the owners.