Intelligent Women Only Invest Within Their Circle Of Competence

Published by Linda Brown on

Intelligent women only invest in companies they have knowledge of!  Smart women do not venture outside of their “circle of competence.”  In other words, they focus only on areas they are familiar with that match their expertise.  If the company does something they do not understand they take a pass on its’ stock and move on to another company instead.  Investing in this manner provides them with much better investment results!

One of the world’s best mutual fund managers, Peter Lynch, has suggested that an average investor can do better, than the experts, by investing in companies they know and understand well!  He believes, with the proper research, that an investor can turn their everyday experiences into a “winning” stock portfolio. 

Women are at an advantage to know what companies, or products, are worth investing in. This edge they have comes from women being the “major” shoppers in their family.  A survey by the American Consumer stated that 74.9% of women as the primary shoppers for their households.

For example, most women have the tendency to know what items are popular by going to the malls or by talking with family and friends.  However, when relatives or friends offer their stock advice it is important for a woman to stay within her circle of competence.  She should use her “own” educated judgment in choosing her stocks! 

Women, during a routine shopping visit,  can observe how busy a store is. They may see a parking lot full of cars with long lines at the checkouts.  This could provide a “clue” for them to check the company’s stock out! They could then research the store online by typing the store’s stock symbol into a financial search engine.  Two popular financial sites are Yahoo Finance and Google Finance.  Both have the necessary financial data for researching companies.  Yahoo Finance is very popular and provides more content than Google Finance. 

It is “ironic, “and I have read of doctors, for example, who invest in the auto industry. This is a perfect case of going outside of ones’ “circle of competence!”  The doctors may have had better results if they had invested in a pharmaceutical company instead.  Surely, doctors would have knowledge of what medications they were prescribing their patients.

I have, also, read of athletes who invest large amounts of money in companies that they have little knowledge of!  Don’t make this mistake!  Make sure you do the necessary research and read the company’s profile.  You should be familiar with a company’s line of business before you purchase stock in any company.

If the company does something you do not understand take a “pass” and invest in something else instead! When someone asks you what the company does, that you are invested in, be prepared to tell them.

I do not invest in companies that I do not understand.  For instance, some of the Biotech companies “puzzle” me. I don’t know for sure if their medications are going to be a winner, making me money going forward, or if they are going to be a flop.  I’m unsure of their future and if I invested in them, I would definitely be going outside my “circle of competence.”  So, I avoid investing in biotechs and move on to other companies that I have a better understanding of.  

For example, I invest in Amazon because I have knowledge of the company.  I am very familiar with the company and frequently use Amazon Prime for my online shopping. Most people know this company is huge for online shopping whether they’re ordering a book or an electronic item.  So, I would definitely feel more at ease purchasing their stock.   

In conclusion, intelligent women only invest in companies that they understand well!  They do not invest outside of their “circle of competence!”  Women should be able to explain what each and every company they invest in does.

Moreover, women can be on the lookout when shopping for “clues” on potential stock investments.  This could help them to choose the right company to invest in.  And, they should always use their “own” educated judgment, thinking independently, when choosing their stocks.

Linda Brown

I'm an Accountant, Blogger & Investment Consultant with a "Bachelor of Business Administration"degree. Teaching women how to invest in stocks successfully! Men welcome!