One of the most exciting parts of being an investor is that there is always something new to learn. Expanding your circle of competence is not only possible—it’s essential if you want to grow and adapt to changing markets. However, the key is to do it thoughtfully, without losing sight of the principles that have kept you successful so far. I’ve found that while expanding my knowledge, it’s important to stay grounded and avoid taking unnecessary risks in unfamiliar territory. Let me share some of my experiences with expanding my circle of competence and the lessons I’ve learned along the way.
The Slow and Steady Approach
When I first started investing, my circle of competence was fairly narrow. I understood consumer goods and financial services because those were industries where I had deep understanding and had years of experience. It felt natural to focus on these areas, and I had a deep understanding of the businesses, their challenges, and their opportunities.
As time went on, I became curious about other sectors, particularly technology and renewable energy. But instead of diving in headfirst, I took a slow and steady approach. I knew that it was easy to make mistakes when stepping into unfamiliar territory, so I started by learning as much as I could without making big investment moves.
In 2017, I decided to expand my knowledge into renewable energy. At first, I knew very little about the industry—its drivers, the competitive landscape, or the regulatory environment. I started by reading industry reports, following key players, and attending conferences. I also spoke with people who worked in the field to get a better understanding of the nuances. It took nearly a year of learning before I felt comfortable making a small investment. I started with a modest position in a renewable energy company that had a solid balance sheet and strong cash flow. Over the next few years, as my understanding grew, I gradually increased my investment.
The Lesson: Expanding your circle of competence takes time. You don’t have to rush. Start small, learn as much as you can, and then gradually make your moves. This way, you minimize risk while gaining valuable experience.
Learning from the Experts
One of the best ways I’ve found to grow my circle of competence is by learning from experts. There’s no substitute for firsthand knowledge, and talking to people who have deep expertise can accelerate your learning curve.
When I was exploring the technology sector, I reached out to a friend who worked in software development. We had numerous conversations about the industry, and he helped me understand the business models, growth metrics, and challenges that tech companies face. I also read books and articles written by tech investors who had decades of experience. This combination of learning from experts and self-study allowed me to expand my competence in a way that was both effective and manageable.
I remember evaluating a tech company in 2018 that specialized in cloud services. It was trading at a high price-to-earnings (P/E) ratio, and I wanted to understand if it was justified. By learning from experts and studying similar businesses, I was able to assess the company’s growth potential and risks more accurately. I ended up investing, and within two years, the stock had appreciated by 70%. I wouldn’t have had the confidence to make that investment without expanding my circle of competence through careful study.
Staying Grounded
While it’s important to grow your circle of competence, it’s just as crucial to stay grounded. One of the biggest risks in expanding your knowledge is the temptation to think you know more than you actually do. I’ve made it a rule to always start small when venturing into new areas and to be willing to admit when I don’t know enough.
For example, I once considered investing in a biotech company. I had done my homework, read about the science, and even talked to a few industry experts. But I still felt there were too many unknowns—clinical trials, regulatory approvals, and the inherent uncertainty of drug development. Instead of making a big bet, I decided to pass on the investment. Looking back, I’m glad I did, as the company faced unexpected setbacks, and its stock price took a significant hit. Staying grounded means recognizing when you’re out of your depth and being okay with walking away.
Practical Tips for Expanding Your Circle of Competence
If you’re looking to grow your circle of competence, here are some practical tips that have worked for me:
Start Small: When you’re learning about a new industry, begin with small investments. This allows you to gain experience without exposing yourself to excessive risk. Think of it as paying for your education.
Learn Continuously: Read books, industry reports, and news articles. Follow companies in the sector and watch how they perform over time. Attend conferences and seminars where you can learn directly from industry insiders.
Talk to Experts: Seek out people who know more than you do. Their insights can help you understand the nuances that aren’t obvious from just reading financial statements.
Be Patient: Expanding your circle of competence takes time. It’s better to move slowly and truly understand what you’re getting into than to rush and make costly mistakes.
Know When to Say No: Even if you’ve spent time learning about a new area, sometimes the right decision is to walk away. If you’re not comfortable or if there are too many unknowns, it’s okay to pass.
Conclusion: Growth with Discipline
Expanding your circle of competence is an essential part of growing as an investor. It allows you to adapt to new opportunities, explore different industries, and improve your ability to find value. However, it must be done with discipline. Taking the time to learn, starting small, and knowing when to say no are all crucial elements of expanding safely and effectively.
In my experience, the best investments come from a place of genuine understanding. By expanding your circle of competence in a thoughtful way, you can continue to grow as an investor while minimizing the risks associated with venturing into the unknown. Remember, it’s not about knowing everything—it’s about knowing enough to make smart, informed decisions.