Buffett's circle, decoded

📊DEEP DIVE

Is Your Investment Plan Inside Your Circle of Competence?⭕

Let me tell you a true story.

Warren Buffett - yeah, the Oracle of Omaha himself - never claimed to know everything about every company.

In fact, in the 1990s, while the world obsessed over flashy tech stocks like Netscape, he famously bowed out.

Why?

Simple: He didn't understand tech.

Instead, while dot-com fortunes soared (and crashed), Buffett's investments within his circle of competence quietly compounded.

Guess who came out ahead? Of course, our dear friend Warren!

What is the “circle of competence”?

Whatever you know well and truly understand, that is your circle of competence, whether that is an industry, type of business, or a product you know inside and out.

Truly understand the luxury car market? That is your circle. 🏎️

Deeply experienced in operating a restaurant? That is your circle of competence. 🍜

Now, here's the twist for us:

Buffett's "circle of competence" isn't just about individual stocks or businesses. It's your entire investment plan!

Know which funds, strategies, and risks you actually understand, because confidence beats hype, every single time.

How to Actually Implement This (Quick Actionable Plan)⚡️

We’ll start off with simple but powerful funds in today’s issue, especially until you figure out your circle of competence:

Total-Market Index Funds📊
Buffett loves these because they let you own a tiny slice of nearly every major company in the market (from Apple to small companies you've never heard of).

Where to start:

• Look for funds like Vanguard Total Stock Market ETF (VTI), Schwab US Broad Market ETF (SCHB), or iShares Core S&P Total US ETF (ITOT).

• Make sure the expense ratio is low. (Our previous issue explains it right here.)

How to build your circle of competence:

1️⃣ Pick one of the funds above, understand the fund summary (links have been provided), dig into the top 15 holdings and explain the fund in basic terms (out loud or on paper)

2️⃣ View the fund's performance for the last 20 years, 10 years and 5 years - see how swings look, and assess your comfort level with those price swings.

3️⃣ If you were to own this fund, could you easily explain why you own it to a friend? If so, you're on the right track.

Still anxious? Buffett's secret is consistency, not prophecy. Stick to these basics and watch compounding do the work.

And if you wish there were shortcuts to learning new things - like mastering AI, for example - see the newsletter below for hacks you'll love!