§ 01
The size of your circle does not matter. What matters is knowing its boundaries. Buffett avoided tech stocks for decades, not because they were bad investments, but because they were outside his circle.
§ 02
| Inside Your Circle | Outside Your Circle |
|---|---|
| You understand the business model | You cannot explain how it makes money |
| You can predict earnings 5 years out | Revenue depends on unknowable trends |
| You know what could go wrong | You cannot identify the key risks |
| You have an edge over other investors | You are relying on the crowd |
§ 03
You read a headline about a quantum computing startup with 'revolutionary technology.' You do not understand quantum physics. What should you do?
§ 04
Five questions · AI feedback
Sit with the ideas.
A software engineer who understands cloud infrastructure wants to invest. They are considering: (A) a cloud computing company whose architecture they use daily, (B) a pharmaceutical company developing a novel cancer drug, (C) a regional bank. Which is most clearly inside their circle of competence?
Why: