One should concentrate only on the areas which are known well to him, ignore the areas which are not comfortable enough when dealing with financial markets
However, should try to learn and gain more knowledge on any new topic. Not everyone can be expert in all areas. In Investing, many people invest in companies which are very new to them and end up in lot of confusions about the companies' performance and book losses
For example, I'm not aware on how pharma companies work. In that case why should I invest in pharma companies because covid is rising. How does that matter ? Anyway I'm not aware of what is happening in these companies. I can't spell any tablets name properly, then why pharma ?. Definitely I'm not against pharma companies
May be I like and know much about IT & FMCG companies. Do I ? 🤔. In that case why not invest in IT & FMCG companies which might have futuristic approach / greater demand on its products and services? Does this sounds good and reasonable?
To build / know our circle of competence, we need to work exactly opposite. We need to understand the reverse. For example: if we don't want to attract any loses in financial markets, we need to write down, all the factors which will attract loses in financial markets and make sure we never do that. This is one of the idea to achieve success. Try this out
Warren Buffet's investing process involves
- IN (simple and easy to understand business)
- OUT (Difficult to understand business)
- TOO HARD (So complex and not worth spending any time)
Buffet also mentioned, 99% of stock ideas that came to him fall under Too Hard category. Then where are we ? Can we understand any business that easily. If so, that's our circle of competence and that is the company to invest
It is always important to understand what we don't know rather than understanding what we know. If we got this point right, that's when we are ready to enter the stock markets
Financial Advice from Socrates, Einstein & Frank Wells
"The only true wisdom is in knowing you know nothing" - Socrates
These words by Socrates fits very well even now in the financial markets, we never should sit in front of the stock market thinking that we know everything, Stock Market has the great capacity to prove us that we are wrong in many situations
At the same time, we should not hesitate to take the calculated risk. Before taking a position, it is better to be prepared for any negative turn of the market and we have the capability to hold that position
We all know more about Albert Einstein. yes, he developed the Theory of Relativity (E=mc2), he also co-invented the refrigerator which operated on compressed gas, he also co-invented Light intensity self-adjusting camera and so on. we know the list keeps on extending
He also told "Ego = 1 / Knowledge", which means Ego and Knowledge can never be at the same place and can never be equal. More the Knowledge lesser the ego, lesser the knowledge more the ego
To know more about investing and trading, one should understand this and gather and collect information from all possible source without this Ego. No matter the age of a person, who has knowledge. These days more information are available on Internet and anyone can be more knowledgeable than us
We would have heard about Frank Wells, he was the president of Walt Disney company from 1984 to 1994 (till his death), after his death, his son found a little piece of paper from his wallet. Can you imagine what was written in that paper ? "Humility is the essence of Life". He carried that note with him for 30 years. Now you decide how this can be related to stock market
Hope this blog adds value to your ideas.
Have a Great Day
B G Nareshkumar
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