Navigating the world of investing can feel overwhelming, especially for new investors. It’s common to wonder where to begin, what to study, and how to avoid costly mistakes. The “circle of competence” is an idea that helps investors focus on what they truly understand. This approach isn’t just for seasoned experts. It’s a foundation anyone can use to build confidence and make smarter decisions.
In this episode of the InvestED Podcast, we discuss how to find your own circle of competence. We explore why it matters and what can happen when you step outside of it. We also dissect the urge to branch out and try new things: should you diversify immediately, or maintain your focus on one business? Learning to identify whether to stick to one area of expertise or spread out helps build real skill as a Rule #1 investor.
Expanding your knowledge is important, but discipline matters just as much. Staying focused can make all the difference in your results. Tune in to understand how a clear sense of your circle of competence can help you invest with more confidence.
Here are three reasons why you should listen to this episode:
Discover how knowing your circle of competence can help you invest with more clarity and confidence.
Learn practical methods to stay focused and disciplined, even when new opportunities arise.
Understand how experienced investors expand their knowledge while staying true to their core strengths.
Resources
Rule #1s "InvestED" Podcast and Website - Website | Apple Podcast | YouTube
Visit Rule #1 for more investing resources: Website | Facebook | LinkedIn | X (Twitter) | Instagram
Danielle Town: Website | LinkedIn | Instagram | Facebook | YouTube | X (Twitter)
Taking Control of Your Financial Future
Investing is often seen as a daunting world, especially for those just starting out. The sheer amount of information and advice can leave new investors wondering where to begin and what truly matters.
Today, financial knowledge isn’t just for Wall Street insiders. Access to data and education is easier than ever, giving everyone the chance to make smart choices with their own money.
Financial literacy is no longer a privilege; it’s within reach of anyone willing to learn. With the right tools, anyone can build confidence, take ownership, and shape their financial future.
Understanding the Circle of Competence
One of the most powerful concepts in investing is the “circle of competence.”
This simple idea encourages investors to focus on what they truly understand. It involves knowing your strengths and sticking to them. New opportunities may seem exciting, but investing in something without knowledge of it is risky.
By sticking to areas where you have real knowledge or experience, you can make decisions with greater clarity and confidence. This approach allows you to spot opportunities earlier and avoid the pitfalls of venturing into unfamiliar territory. When you know the landscape, you’re able to make more informed investment choices.
Anyone can define their own circle of competence, whether it’s a particular industry, product, or company type. Recognizing your strengths and limitations helps protect you from unnecessary risks and keeps you grounded in a noisy market.
Expanding the Circle of Competence
As you gain experience, your circle of competence naturally grows. Exposure to new companies, industries, and trends gradually expands your knowledge and feel comfortable analyzing.
“What we know is that life is deeply interconnected, and companies are deeply interconnected, and it is almost impossible to investigate one company and go deep into an industry without it bleeding into other industries very, very quickly.”
This growth is steady and built on curiosity, not something that happens overnight. New knowledge builds on what you already understand.
By building on your strengths, you can expand your skills without losing focus. The key is to grow with intention, deepening your understanding in a way that supports long-term success.
Challenges of Staying Focused
Even the most disciplined investors face distractions. With so many opportunities out there, it’s easy to get pulled away from your core strengths. As your experience grows, maintaining focus becomes a real challenge.
It’s natural to be curious and want to explore new ideas. But without a clear process, this curiosity can lead you to risk your capital using only surface-level knowledge of your investments.
Staying focused means two things. The first is knowing when to say no. The second is knowing when to dig deeper into a business and learn more about it.
The Temptation to Chase New Ideas
Every investor feels the urge to jump into the latest trend or hot sector. New opportunities are exciting, but chasing them without careful research often leads to mistakes. Recognizing this temptation is the first step to staying on track.
Taking a pause before acting helps you determine if a new idea really fits within your circle of competence. This habit can help you avoid costly missteps and keep your investing journey steady.
Recognizing the Limits of Your Knowledge
It’s easy to overestimate what you know, especially after a few successes. Honest self-assessment is crucial for long-term success.
Admitting when something is outside your expertise is not a weakness. It’s a sign of wisdom and discipline.
Investors who recognize their limits can better protect themselves from unnecessary risks. This awareness lets you focus your energy where it matters most.
Strategies for Maintaining Investment Discipline
Discipline is the backbone of successful investing.
“Some part of the market is always in the process of collapsing. Some part of the market is always in the process of shooting up to the moon. That means there's always possibilities for a good investment…it’s always a possibility, and the most difficult thing in the world is to just stick with one until I beat it to death.”
Having a clear process makes it easier to stay focused and avoid distractions. Here are a few strategies to help you stay disciplined:
Keep a running watchlist of companies within your circle of competence.
Set clear criteria for what makes a company worth further research.
Regularly review and update your investment process.
Document your findings and decisions to stay accountable.
Take breaks from market noise to maintain clarity and focus.
If you want to build these habits from the ground up, try Rule #1’s free online course. You’ll get step-by-step lessons and hands-on tools designed to strengthen your investing discipline.
Balancing New Opportunities with Discipline
Growth as an investor doesn’t mean ignoring new ideas altogether. The key is finding a balance, exploring opportunities while staying anchored to your core strengths.
“The second way is just learning a hard lesson over and over again to stay focused, to stay focused, to stay focused and get it done. Get the hard work done. It's always, of course, the last piece that's hardest.”
Expanding your circle of competence should be a thoughtful process, not an impulsive leap.
Tips for balancing growth and discipline:
Carefully research new sectors before diving in.
Expand your circle slowly, building on what you already know.
Lean on your established process to assess new opportunities.
Avoid spreading yourself too thin by taking on too many new ideas at once.
Stay patient and let your circle grow naturally over time.
Take your investing knowledge to the next level with the Rule #1 Virtual Investing Workshop. Get practical experience, live coaching, and proven strategies to help you find strong companies for your portfolio.
The Lasting Value of Knowing Your Circle
Mastering your circle of competence is a lifelong process. It’s about knowing yourself, being honest about your strengths and limits, and committing to continuous learning. The journey isn’t always easy, but it’s the surest way to invest with confidence and clarity.
Focusing on your circle of competence can transform the way you invest. It helps you avoid costly mistakes and builds a strong foundation for long-term success.
Expert Advice & Powerful Quotes
“What we know is that life is deeply interconnected, and companies are deeply interconnected, and it is almost impossible to investigate one company and go deep into an industry without it bleeding into other industries very, very quickly.”
“As a Rule 1 investor is always a possibility, and the most difficult thing in the world is to just stick with one until I beat it to death.”
“The second way is just learning a hard lesson over and over again to stay focused, to stay focused, to stay focused and get it done. Get the hard work done. It's always, of course, the last piece that's hardest.”
“Stay in our circles, and be disciplined and fight against that inevitable experience of widening your circle, and it’ll widen plenty fast, all by itself.”
Danielle Town – Attorney, Author & Investing Advocate
Danielle Town is a best-selling author, attorney, and passionate advocate for empowering new investors. She has a background in law and a deep curiosity about financial independence. Danielle is dedicated to demystifying investing for anyone seeking financial control. She co-authored Invested, sharing her journey learning value investing with her father, Phil Town. Danielle believes anyone can build confidence in investing by focusing on clarity, patience, and wisdom.
Through her writing, podcasting, and teaching, Danielle helps others cut through the noise of the market. She guides people in developing sound investing habits that last. Her approach encourages aligning money choices with personal values and long-term goals. Danielle shows that investing is a lifelong practice, built on steady learning and self-awareness. She inspires anyone to take the first step and make smart, values-driven decisions.
📌 Expertise: Value Investing · Financial Education · Personal Finance · Mindful Money Management
🔗 Connect: Website | LinkedIn | Instagram | Facebook | YouTube | X (Twitter)
Know Your Edge: The Power of the Circle of Competence
When information is everywhere and options are limitless, it’s tempting to chase every new opportunity. But true investing success doesn’t come from following the crowd. It starts with understanding your own circle of competence. Know what you truly understand and understand where your strengths lie.
Listen to the Full Episode – In this InvestED Podcast episode, we learn how knowing your circle of competence can change the way you invest. We explore why top investors stay in their lane—and how your edge grows with experience. You’ll hear how curiosity opens new doors, but discipline is what protects your investments.
Reflect on Your Own Process – Consider how you evaluate new investment ideas. Are you stretching beyond what you genuinely understand, or are you building on your core knowledge? Be honest about your limits, stay focused, and let your circle of competence grow gradually. Thoughtful self-assessment and patience can help you avoid pitfalls and invest with more clarity.
Explore More – Visit Rule #1 for more episodes and resources on building your investing discipline. Discover workshops, tools, and stories that support your journey to becoming a mindful and successful Rule #1 investor.
Focus on what you know best. When you expand your skills with intention, investing shifts from chasing trends to building real, lasting confidence. That’s the Rule #1 way to lasting financial success.
