281- Circle of Competence

InvestED: The Rule #1 Investing Podcast

Phil Town & Danielle Town

Investing, Business

4.6 • 1.6K Ratings

🗓️ 1 September 2020

⏱️ 28 minutes

🔗️ Recording | iTunes | RSS

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Summary

Invest in what you understand. Sounds simple, right? Shouldn’t everyone be investing in what they understand? Warren Buffett once stated that defining your circle of competence is the most important aspect of investing. Circle of competence is tricky to define, but is essentially built by the things you are passionate about, what you’re talented or good at, and things you spend money on. It could even be related to the industry you currently work in and are knowledgeable about. The goal is to be proud of the companies you own, and how your money is being used to support those businesses. In many ways, defining your circle of competence comes naturally. However, as you live your life, your interests will change and expand, and you can apply these new interests to your investing strategy. Take Warren Buffett for example. Much of the reason why he invested in Coca Cola is simply because he appreciates the company and enjoys the product. It aligns with his values, thus making it a great fit within his circle of competence. Let me give you another example. I’m a fan of motorcycles, so researching and investing in Harley Davidson was a natural choice for me. Since Harley Davidson is a company that is within my circle of competence, I enjoyed learning about them, I understand their business more easily, and am happy to have owned the company. Investing in your circle of confidence will help you reduce risk and makes your initial stages of research much more enjoyable. Although, it’s an often overlooked factor since many investors feel that they can make money with any company—regardless of whether they understand it or whether it aligns with their values. Today, Phil and Danielle dive deeper into the concept of circle of competence, and why it is a critical part of successful investing. If you want to learn more about your own circle of competence, download my FREE 3 Circles Exercise Guide. It will help point you in the right direction so you can invest in businesses you understand!: https://bit.ly/3luGI4V Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:15.2	Hi everybody and welcome to Invested. I'm Danielle town. We are playing today one from the vault for you which is on circle of competence which I think goes perfectly with everything we've been discussing around checklists and how to really dig into a company. So I hope you enjoy this episode on discovering how to know what each of our own
0:21.7	individual circle of confidence really is.
0:24.7	Enjoy.
0:25.7	Hey everybody, this is Phil Town. And this is Danielle Town. Welcome to the
0:34.8	Invested Podcast we are diving into the deep water of investing your own money
0:40.9	your very own money not letting some financial advisor do it for you not having the
0:46.5	financial advice priest class tell you how to talk to God.
0:50.3	That's a good one.
0:56.0	This is a reference to the Gutenberg printing press, completely changing the way the world functions made the world made literacy possible for the little guy by printing the Bible all over the place and these guys giving it away
1:10.4	literacy happened then democracy happened.
1:12.8	And today, financial literacy is happening
1:15.2	because of the internet.
1:16.7	All of that valuable financial information
1:19.0	that used to be hoarded behind high walls on Wall Street and paid for at the tune of $50,000 a year for data
1:29.0	is now available online, virtually free.
1:32.8	It's just a question of how much,
1:34.3	do you want to save some time, you can pay for some tools.
1:36.8	But if you just want the data, the way you used
1:38.9	to get it out of the library, it's free and it's fast.
1:42.4	And you can do it all yourself. So financial literacy is now possible and we are teaching you
1:48.1	How to how to take advantage of these tools that are out there now. It's pretty cool. Well you're teaching me is what's
1:54.6	happening here. Yes. I'm trying to figure this stuff out. That was a good intro though. I liked
	...

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