What is a circle of competence?
In the business world, Warren Buffett is recognized as the largest investor of all time. It is estimated that Warren Buffett's personal shares are worth over $ 56.9 billion. In 2007, the second richest person in the world Forbes
was one of the keys to the financial success of Warren Buffett is his faith in the circle of competence. The circle of competence is simply the theory that the investor should choose one specific area in which he will focus on his efforts. Ideally, this should be an area in which its skills and experiences are over the area of the average investor. According to Warren Buffett, a successful investor does not have to have a large circle of competence; He needs to know when he works outside his field of expertise.
A circle of competence for beginners is a great way to start investing in stocks, because the list of available options in something that seems to be much more manageable. From this investment strategy he plays on his own unique perspective of the individual, also makes it easierComes to develop a better understanding of the competitive and weaknesses of the company as well as its market and products.
However, the development of a strong circle of competence does not necessarily mean that you must have a title in business or economy. If you want to find your circle of competence, think about your education, personal interests and past work experiences. If you have a title in computer science, you have a qualification to understand how the software company makes money. If you spent 10 years work as a manager of a large clothing store, you have an advantage in understanding investments in the retail area. If you are passionate outside, you are more suitable than most others to determine which companies have items that will like tourism and camping enthusiasts. Even pay attention to which products your family Yous can regularly provide you with valuable information about what shares you may wantt to buy.
Although the circle of competence is a useful tool for determining which supplies you could buy, it should not be the only factor used in decision -making. In order to make a profit investment, the company must have an attractive price of shares, shareholder management procedures and a solid plan for future growth management. Once you determine your circle of competence and identify a list of potential stock purchases, the next step towards a successful investment is the analysis of documents such as the balance sheets and income reports.