Stock market probability of earning >> Circle of competency
Rishi Kashyap
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Circle of competency


For many years I thought that, since I am in merchant Navy shipping stocks falls under my circle of competency.
As I stayed and survived in Share Market, read Investment books, I realized that this was not the case, while your profession may give you an insight of that field, we as an employee rarely see the bigger picture seen by a stock investor !

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence.
The size of that circle is not very important; knowing its boundaries, however, is vital.

Mr Warren Buffett
As I kept learning I realized that I am more comfortable in understanding companies which are into manufacturing and technology than shipping or financial institution companies.
Circle of competency
I still find financial institutions, Banks and Non-Banking Financial Company (NBFC) financial statement analysis difficult to understand.
Balance sheet statement and Cash flow statement of manufacturing companies, specially consumption based companies are comparatively easier  to understand ! They, because of their simple nature of business, are also easier to predict performance.

Whenever I shamelessly accept my lack of knowledge with such companies, many friends immediately state "Oh then you will miss shares like HDFC Bank and Bajaj finance service !"
I blatantly admit YES but there are some multi-baggers undervalued stocks, I have found on my own too !

So my simple rule is  never invest in companies which I do not understand and is beyond my circle of competency !

Obviously Investing in companies which you understand, industry which you understand will improve your Stock market probability of earning.

Rishi Kashyap | | EDIT