I enjoy taking a nice, long bicycle ride every now and then.
If you are like me, you would stick with using the same old tried-and-tested paths along the park connection network (PCN).
The same goes for investing.
You may be comfortable investing in the stocks that you are familiar with.
Yet, there is a downside to this approach.
In the process, you may suffer from tunnel vision – being overly focused on what’s in front of you without exploring the wider world of stocks.
Widening your circle of competence
Don’t get me wrong.
It’s perfectly normal to feel comfortable investing in what you are good at.
This knowledge is also known as your “circle of competence”, and even Warren Buffett advises us to stay within this circle and not stray too far from it.
But here’s the thing.
If you get too comfortable investing in just a small group of stocks, you may be limiting your choices as an investor.
There could be better investment choices out there that you can tap into to increase your returns or dividend flow.
The key is to slowly expand your circle of competence by reading widely and learning about other industries and companies.
By doing so, you start to gain a better appreciation of the myriad of choices out there.
With the ease of investing in global stocks, there’s no reason to restrict yourself to a specific stock exchange or country.
Setting up guardrails
As a cyclist, I love exploring new areas beyond the familiar.
But while new places are exciting, it’s important to set up guardrails to prevent yourself from straying off the PCN and onto the busy roads.
The heavy traffic in Singapore is dangerous for cyclists, and one wrong move could get me injured or even killed.
You should do this for investing, too.
Learn what you can within your capacity for understanding, but stay away from complex investments or risky stocks that could harm your wealth.
By setting up guardrails on what you should analyse and invest in, you can gain more knowledge while ensuring that you invest safely and according to your goals and objectives.
Get Smart: Expanding your investment options
I make it a point to learn more about a new company every week.
Even if it is just a cursory glance at its earnings and management commentary, it can give me a sense of what the business is like and how it is doing.
Through this process, I’ve discovered interesting smaller Singapore companies such as Riverstone Holdings (SGX: AP4), Centurion Corporation (SGX: OU8), and CSE Global (SGX: 544).
Over in the US, I have also looked deeper into companies such as Airbnb (NASDAQ: ABNB), Lyft (NASDAQ: LYFT), and Spotify (NYSE: SPOT).
Discovering these companies may not always mean that I will add them to my portfolio.
But doing so provides me with an appreciation of the different types of businesses out there and helps to expand my investment options.
You can select companies that you are keen to know more about and apply the same process.
As you learn more about other businesses, you can compile a buy watchlist of stocks that serves as your “reserve list”.
Over time, by expanding your knowledge and widening your circle of competence, you can achieve better results for your investment portfolio.
If you’re looking for the best value buys in the stock market, read Get Smart. It will help you spot opportunities most investors overlook. Each issue gives you the context you need to recognise bargains and act confidently. Join for free and enjoy the advantage of deep investing insight delivered straight to your inbox every week.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
