- Chellamuthu Kuppusamy
Street dogs are very astute. They reveal enough facts or behaviours worth many PhDs. If an unfamiliar street dog crosses the border and enters into different territory, resident dogs of that territory furiously bark and chase that poor guy away - back to his street again. Interestingly, these brave soldiers turn submissive if they happen to visit areas outside their border. As a whole, street dogs precisely know their circle of control.
Majority of the stock investors don’t possess this obvious quality from dogs. Investors should try to assess their strengths in terms of cognizance about a particular industry or companies, and more important they should be able to tell the areas they are not aware of. For example, you might understand the business dynamics of steel industry. But pharmaceutical companies operate under different environment where you cannot deploy same approach. As a whole, we should define an imaginary ‘circle of competence’ and precisely know its boundaries. Under no circumstance, you should dare to cross the periphery of this circle and get bitten strange dogs. If you really need to explore new horizons outside your circle, you should work very hard in acquiring necessary knowledge and courage to expand this border. But for that, I repeat, you should work very hard.
From 'Behavioural Finance' chapter in the book The Science of Stock Market Investment - Practical Guide to Intelligent Investors