Jun 5

Why Your “Circle of Competence” Could Make or Break Your Investments

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Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.”

— Warren Buffett

When it comes to investing, one of the most underrated concepts — and yet most powerful — is the Circle of Competence.

It's a simple idea:
✅ Invest in what you understand deeply
❌ Stay away from what you don’t

Buffett and Munger have followed this principle for decades. And it’s a big reason why they’ve been able to generate superior long-term returns while avoiding major blow-ups.

🎯 So, What Is a Circle of Competence?

Think of it as your knowledge territory.

If you're a dentist, you probably understand how dental clinics operate — costs, margins, patient flow. That means dental clinic stocks might fall within your circle.

But a biotech firm trying to develop a cancer drug? Unless you’re a scientist… probably outside your circle.

💣 The Danger of Ignoring Your Circle

Let’s face it — we live in a world where hype sells.

AI stocks, crypto coins, meme stocks…
Everyone wants to jump on the next hot thing.

But if you’re investing in something you don’t truly understand, here’s the truth:

You’re not investing. You’re speculating.

Buffett once said he’d rather be certain of a good return than hope for a great one in something he doesn’t understand.

🧭 How to Define YOUR Circle

Ask yourself:

  • Can I explain this business to a 10-year-old?

  • Do I understand what drives its profits?

  • Would I feel confident investing more if the price dropped?


If you can’t say yes to all three — it’s probably outside your circle.

That’s why in our Value Investing Case Study Subscription, we break down real companies into simple, digestible insights, so you expand your circle with confidence — not confusion.


🛡️ Final Word: Stay Humble, Stay Focused

You don’t need to know everything.
You just need to know your area well — and stay within it.

The greatest investors in history didn’t win by being smarter at everything.

They won by staying in their lane… and mastering it.

👉 Ready to sharpen your circle of competence?

Explore how we do it inside our company analysis webinar here.

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Presented by Cayden Chang

Founder of Value Investing Academy and Award-Winning International Speaker, Lifelong Learner Award 2008, Personal Brand Award 2017


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  • A deep dive into a fast-growth company case study.
  • The key financial metrics used when evaluating whether a stock has strong growth potential
  • Step-by-step guide on how to apply the Value Investing Methodology on real-life companies
  • The exact criteria that successful investors use when evaluating any company
  • How to determine the intrinsic value of a stock so you will know exactly when to enter or exit the market
  • How ViA Atlas Intrinsic Value (IV) Directory can get you started on building your own portfolio of superhero stocks, even for busy professionals without much time to spare.


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