A given business falls into one of three areas: it’s at the center of your circle of competence, near its edge, or outside it. You should always ask where a company falls with regard to your circle before you invest in it.
Companies that are outside your circle of competence can be tempting, though. Too many people invest based on the tiniest amount of knowledge available. The people with the most knowledge are the ones who are most likely to come out ahead.
Investing is never easy, but you can stack the odds in your favor by analyzing other people’s playbooks and borrowing their best moves. One good rule of thumb is to beware of your own ignorance. Learn the tried-and-true principles of some of the best investors of all time with our Instaread on Richer, Wiser, Happier.