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The Circle
Of Competence

Investment procedures apply equally to all investors
because they are based on unchanging principles.

In contrast, the selection process differs for each individual investor
because it reflects the circle of competence,
or circle of interest which becomes a circle of increasing competence
with the accumulation of experience by the individual investor.

The circle of competence is a specific application
of the general principle of differential knowledge.

The economist Friedrich A. Hayek (1899 - 1992) noted that
"practically every individual has some advantage over all others
because he possesses unique information of which beneficial use might be made."

The circle of competence of each investor
reflects his or her personal qualities including risk tolerance,
temperament, interests, knowledge, intelligence, and judgmental ability.
Therefore, each step in the selection process will uniquely conform
to the particular individual investor.

In addition, the circle of competence of each investor
represents an arena where he or she has no competition
from other market participants.

This arena is a confidential monopoly created by the investor.
This secret monopoly position is a proprietary interest in intellectual property.
With confidentiality, there is no second guessing of an investor's judgments by others.

The investor uses the tools and techniques of security analysis,
but the investor's job is not the same as the security analyst's job.
Where a security analyst must be prepared to appraise the value of every common stock
or other security traded in the market,
the investor only needs to appraise those stocks in his circle of competence.

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