Previously, I had written on the importance of defining our circle of competence and also ensuring that we invest within this circle. An investor should spend time to clearly define what he knows so that he can step within its boundaries and not stray too far off. This implies that when the investor is faced with an unfamiliar situation or an analysis which he is not well-versed in, he should pass on it and move on. Doing so helps to save time and effort. However, some may be asking if this is too restrictive a strategy. Shouldn’t the investor try to pick up new skill sets and knowledge as he goes along? This article will talk about how an investor should go about actively expanding his circle of competence.
Defining What You Want To Learn
The investor first has to define or have an inkling of which areas or aspects he wants to learn more of or increase his knowledge in. It may be, for example, the property cycle, retail supply chains or the technical aspects of semiconductors.
There should also be some underlying reason as to why the knowledge is pursued: analysing a company within the sector, looking at an adjacent competitor with different technical skills or products, or just general knowledge of various industries to widen the investor’s scope.
Read Extensively On Chosen Subject Area
The next step is to look for books, articles or material related to the area in which the investor would like to gain competence in. Being a voracious reader helps, of course, in assimilating as much knowledge and information as one can from various sources.
It is also important to try to obtain as many perspectives as one can so that the knowledge is broad-based and not overtly biased.
Speak To A Subject Matter Expert
There is a limit to how much understanding we can obtain through reading alone. This is especially so if we encounter areas we do not understand or are unable to decipher certain sections of what we read, which in turn impedes comprehension. In such cases, it helps to approach a subject matter expert or another investor with the requisite knowledge so that the investor can clarify doubts or ask more in-depth questions. Speaking with someone is also a better and faster way to understand a company, topic or industry compared to hours of reading.
The Foolish Bottom Line
Our circle of competence should not remain static. As explained above, an investor should actively seek to expand its boundaries, albeit slowly and steadily.
By reading extensively and adopting a mindset of continuous learning, one’s circle of competence should be able to expand over time.
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