Cathryn Goh

speaker

250 appearances 1 recordings 1 series first heard May 2021 last heard May 2021

Cathryn Goh’s voice in public audio — every appearance, attributed to the second.

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Australian Finance Podcast · Investment Case Study: The Walt Disney Company (NYSE: DIS) · 10 May 2021 podcast

It's not so much about knowing like the size of, you know, the circle or what you know, but more so about where the boundaries are.

So you don't kind of stray too far away from what you know.

So for example, a mechanic knows more about cars than I do.

A doctor would know how to interpret clinical trials better than I would.

So they would have what we call an investing edge when it comes to automotive businesses or biotechnology companies.

It's inside their circle of competence, but it might not be inside of mine.

So tying this back to Disney, someone who's grown up watching Disney movies or subscribes to Disney Plus would know more about the product.

So it would be closer to the center of their circle of competence.

I think it's in most people's circle of competence.

Yeah, exactly.

It's not technical in that nature.

Yeah.

So we've got a simple graphic that explains this visually, and we'll put this in the show notes.

But essentially, as an investor, you don't really want to be straying too far outside of your circle of competence.

And for one, there's a sleep at night factor.

So when you understand a company, you feel more comfortable investing in it.

Imagine you've just started investing and you put $5,000 into a hot tip that you found on social media and then the next day it falls 20%.

Without really knowing or understanding the business, you wouldn't be able to tell whether that share price fall was justified or whether it was just the market overreacting.

Another point is that it helps you avoid mistakes.

So if you're straying outside of your circle of competence, that basically means that you don't properly understand what the business does or how the product works or the industry dynamics.

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