Many investors wisely stick to the “circle of competence” principle when picking stocks, focusing on sectors they know well; engineers in engineering, doctors in healthcare, and others choosing fields where their expertise gives them clearer insight.

This approach reduces risk and leverages professional advantage. There are countless stories of specialists thriving by concentrating on industries that they understand best.​

However, limiting oneself strictly to familiar sectors or products can hinder broader investing opportunities. The truth is, few individual investors know the technical nuances of making semiconductor chips, developing AI algorithms, processing uranium, or manufacturing FDA-approved drugs. If adherence to “only invest in what you know” were absolute, markets would have far fewer participants and less innovation.​

From personal experience in real estate and startups, expertise does carry weight. However, investing success often emerges from venturing well beyond those boundaries.

Many top-performing investors are not sector specialists, but generalists skilled in adapting, researching, and building new competence around each opportunity they pursue.​

The real challenge is cultivating the appetite and discipline to learn about new sectors, novel business models, and unfamiliar dynamics. Becoming a successful investor means becoming a “learning machine”. You have to be willing to absorb fresh knowledge, analyse risks, and derisk ideas through focused research. Rather than saying “circle of competence” isn’t important, the message is to ensure it doesn’t become a bias that blocks opportunities in unfamiliar but promising domains.​

Confidence and competence are related but distinct qualities that both impact personal and professional success.

What is Competence?

Competence is the actual ability, skills, and knowledge required to perform a task effectively and successfully. It is measurable, based on experience, training, essentially, being good at something and having the evidence to prove it (like qualifications or work outcomes).

What is Confidence?

Confidence is the belief in your abilities and the self-assurance to take action, regardless of your actual skill level. It is an internal state that can help you step out of your comfort zone, take risks, and communicate persuasively, even when complete competence may not be present.

Expand the Circle of Competence confidently over time.

Some of the best multibaggers and most profitable trades for me often originated in sectors previously unfamiliar. My curiosity and research led to fresh insights and conviction.

Developing a circle of competence isn’t just about sectoral expertise, it includes skill in hunting for multibaggers, filtering microcaps, managing risk, and confidently qualifying prospects.​

Successful investors focus on gaining enough understanding to make sound judgments, even in sectors or products completely unfamiliar at first. Learning the basics and building a circle of confidence around market size, catalysts, competition, business models, and growth drivers.

The key is to ask: Do you want to learn this sector? If yes, build the building blocks needed to bridge the gap.

Confidence (not hubris) is built by analysing ideas, applying time and open-minded energy, and continually expanding what you’re comfortable with. As markets evolve, the most effective approach isn’t rigidly sticking to what you know, but staying learning-oriented, flexible, and ready to adapt.

Underperformance often awaits those who never step outside old boundaries.​

For those questioning why any investor would choose sectors they know nothing about, the answer is that confidence, curiosity, and diligent research are the true guides to successful investing.

Ultimately, cultivating a “circle of confidence” is crucial.

You don’t need to be able to build a new drug or understand quantum computing in depth; you need to understand enough about business models, key drivers, and how innovation can create outsized returns. That’s how you position yourself to hunt for the next wave of multibagger opportunities by confidently building competence and confidence with intention and clarity.

Developing a “circle of confidence” through deep research and due diligence allows investors to intelligently derisk new ideas. This approach expands their true circle of competence over time.

Rejecting opportunities solely because they fall outside one’s current expertise can be limiting. Most of the best investments aren’t always in sectors you already know well, but in those where qualitative and quantitative factors spark further investigation.​

The key is to build a flexible framework: maintain strict criteria around fundamentals, risk, and business quality, but remain willing to dive in when an idea shows promise, even if it’s unfamiliar at first.

For instance, discovering an illiquid microcap biotech with a strong founder, heavy insider ownership, and a potential breakthrough may not automatically tick every “understood sector” box. Instead, confidence is gained by learning enough about the company’s differentiation, input costs, margins, total addressable market, and the business model’s competitive edge to confidently judge its potential.​

Successful investors don’t need to be experts in every technical detail. They focus on understanding what truly drives a company’s value.

This disciplined approach allows you to spot exceptional opportunities, even in industries you haven’t mastered before. Over time, this approach not only expands your competence, grows your confidence, but also sharpens your ability to identify, analyse, and capitalise on unique investment prospects while managing risk intelligently.