How to Identify Company or Sector for Investing? | Circle of Competence by Warren Buffett

It’s important to stick with “What You Know”. Warren Buffett calls this his ‘Circle of Competence’. To understand business well and its future prospect, you must focus your attention on industries that you are comfortable with.

Imagine that you’re going to actually own and operate a business. This will help you to remain rational when stock goes down without any reasons indicating decline in business fundamentals. If you understand business well, you will take this as an opportunity to buy more shares instead of getting fearful and selling out.