Circle of Competence in the World of Investing
•By Shazwan Ismaon
Artikel ini juga tersedia dalam Bahasa Melayu
Loading...
In order to become a successful investor, it is extremely important for us to understand the concept of Circle of Competence.
Circle of Competence means that we need to identify and master a particular aspect or field in which we have deep knowledge.
With this deep knowledge, we can make investment decisions with greater confidence and safety.
This concept was introduced by Warren Buffett, a renowned investor who often emphasises the importance of fully understanding the field or industry you are investing in.
Buffett said, "Risk comes from not knowing what you are doing."
In other words, when we invest in fields that we truly understand, we can reduce risk and increase the chances of success by choosing the right and profitable stocks.
Peter Lynch, another famous investor, also shared the same view. He once told the story of how he got one of his best stock tips from a conversation with his daughter.
His daughter told him about a trending donut — Dunkin' Donuts — and Lynch decided to buy shares in the company. This shows how important it is to recognise and understand our surroundings to make wise investment decisions.
A few days ago, I had the opportunity to meet an old friend who is also a senior doctor from our time in Russia, who now runs Klinik Angkasa.
He had just returned from a trip from Kuala Terengganu to Johor Bahru, and took the opportunity to stop briefly in Ayer Keroh.
Interestingly, he chose to stay overnight there including breakfast. So, I also had the chance to enjoy breakfast with him at Ames Hotel.
During our conversation, many interesting topics were discussed, including the latest trends for GPs (General Practitioners) in Malaysia.
He shared his views on the possibility of large bodies or organisations attempting to buy private clinics and unite them under one brand.
This would certainly be a major challenge for small-scale private GPs.
If you only focus on working at your own clinic without having a unique selling point — USP, you will most likely be left behind and unable to compete.
In this case, there was also mention of another friend's clinic, for example Klinik Sumayyah which is indeed thriving now.
He also talked about how a haemodialysis centre (kidney dialysis centre) operates; the strengths and weaknesses of such a network.
This was a fascinating insight that gave me a deeper understanding of healthcare institutions in Malaysia.
Sometimes we have acquaintances who work in or are involved in sectors different from our own.
By meeting and having sessions with them, this can somewhat broaden our perspective and further enhance our ability to understand the stocks listed on the stock market.
As an investor or trader, one of the things we must always keep up with is current news and developments in the world around us.
Finally, since he had come from afar and even treated me to a meal, I shared with him how to access the Mahersaham app and how to scan counters using the Telegram bot for buying stocks.
Even the senior doctor did not want to miss the opportunity to open a CDS account and learn about stocks.
Circle of Competence means mastering a particular field or sector in depth so that you can make more accurate investment decisions based on real knowledge, not mere speculation.
You can expand your Circle of Competence by meeting and discussing with people from various industries, reading company annual reports, and making industry visits to understand actual operations.
Investing in fields you understand reduces risk because you are able to assess the strengths, weaknesses, and prospects of a company more accurately compared to investing blindly.
Yes, anyone can succeed in stock investing, including doctors. In fact, deep knowledge of the healthcare sector can be an advantage for investing in medical and pharmaceutical-related stocks.
Understanding the Circle of Competence helps you become a more focused and knowledgeable investor in the fields you have mastered.
Open your CDS account today through our step-by-step guide here to start investing in the stock market.
Download our free stock basics ebook to learn the fundamentals of stock investing from scratch.