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.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.
The size of that circle is not very important; knowing its boundaries, however, is vital.
Mr Warren Buffett
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 !
Obviously Investing in companies which you understand, industry which you understand will improve your Stock market probability of earning.