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TechnoFunda Investing Newsletter
Weekly Wrap - Issue # 73
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Welcome to the Technofunda Investing community. Thank you for being Life Long Learner...!!!
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📈 Market Kya Lagta Hai
Nifty 50 🔼 +6.56%
Midcap 150 🔼+6.35%
Smallcap 250 🔼 +7.71%
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Sectors in Focus
Major Corporate Developments This Week
- Bajaj Electricals: Company announced a strategic tie-up with SEAK Energetics for tunnel lighting technology in India.
- Tata Steel: Company’s Nederland subsidiary launches major revamp to boost efficiency and profitability.
- Glenmark Pharmaceuticals: Company to launch Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate and Amphetamine Sulfate Tablets.
- Tanla Platforms: Company partners with two overseas telcos for its first international deployment of Messaging as a Platform (MaaP).
- Swaraj Eng: Board approved a plan to expand engine manufacturing capacity from 1,95,000 units to 2,40,000 units annually
- Roto Pumps: Company announced the unveiling of its new manufacturing infrastructure and the launch of the Roto P-Range compact pumps. The company aims to achieve $100 million in revenue by 2028.
- Home First Finance: Company announced the successful raising of Rs 1,250 Crores through a Qualified Institutions Placement.
- PB Fintech: PB Pay Private Limited, has received an in-principle authorisation from the Reserve Bank of India (RBI) to operate as an Online Payment Aggregator.
- BEL: Media sources indicate that company may secure a major deal from the Indian Air Force, which will include the low-level lightweight radar MK-2.
- Steel Stocks: Govt mulls measures against steel dumping, with safeguard duties on steel imports under active consideration.
- Aster DM Healthcare: CCI approves merger of Quality Care India into Aster DM by way of scheme of amalgamation.
- Gensol Eng: SEBI bars Gensol promoters over fund diversion, falsification of records.
- Zydus Lifesciences: Company expands into France, establishes new unit via acquisition of orthopedic firm.
- Ashoka Buildcon: Company declared L-1 bidder for a project worth ₹569 cr by Central Railway.
- Aurobindo Pharma: Company gets USFDA nod for generic Xarelto 2.5mg, eyes $447 million US market.
- Tata Power: Company’s renewable energy portfolio reaches 10.9 GW capacity after signing PPA with NTPC Limited for 200 MW Firm and Dispatchable Renewable Energy Project.
- HCL Tech: Company bags 3 new Google Cloud specialisations, expands AI and cloud expertise. Company Integrates Nvidia Ai Enterprise and Omniverse with Company Genai Solutions
- Godrej Industries: Company acquires food additives business of Savannah Surfactants.
- Transrail Lighting: Company has secured new orders worth ₹1,085 crore in the domestic market.
- Indian Hotels: Company announced an increase in its footprint with 100 new locations in FY25, comprising 74 signings and 26 hotel openings, expanding its portfolio to 380 hotels.
- Power Stocks: Power Ministry announces that the Central Electricity Authority (CEA) will approve 22,000 MW Hydro Pump Storage Projects (PSP) in FY26
TechnoFunda Investing Quote from Legends -
Sir John Templeton’s quote emphasizes the importance of independent thinking in investing. To outperform the average investor (the crowd), one must be willing to take a different path — whether that's in identifying overlooked opportunities, maintaining discipline during market euphoria or fear, or challenging popular narratives. Simply following consensus leads to average results, but true outperformance requires conviction, patience, and the courage to go against the tide when your analysis supports it.
📚 Book I'm Reading This Week
Same As Ever: Timeless Lessons on Risk, Opportunity, and Living a Good Life by Morgan Housel is a thought-provoking book that explores how human behavior, emotions, and decision-making remain consistent over time, even as the world changes rapidly. Through engaging stories and sharp insights, Housel delves into themes like risk, greed, fear, luck, and resilience—showing that understanding the constants in human nature can provide clarity in an uncertain world. The book encourages readers to focus on what truly matters, helping them make better choices in investing, relationships, and life itself.
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TechnoFunda 101 - Power Capsules
Learn technical as well as fundamental concept in a simple way
Circle of Competence: Staying in Your Zone for Smarter Investing
In investing, as in life, knowing your strengths and limitations is essential for long-term success. One of the most effective mental models in this regard is the concept of the Circle of Competence, popularized by legendary investors Warren Buffett and Charlie Munger. It’s a simple but profound idea: focus on what you understand, and avoid areas where you lack expertise.
What is the Circle of Competence?
Your Circle of Competence is essentially the areas in which you have expertise or a thorough understanding. Everyone’s circle is different, shaped by their background, career, and personal experiences. For some, it might be technology, for others, it could be consumer goods or finance. The key to success is to recognize what lies inside your circle and, more importantly, what lies outside of it.
As Buffett puts it, “You don’t have to be an expert on everything, but you do have to know where your circle of competence is and stay inside it.” This approach allows investors to avoid the pitfalls of overconfidence, helping them stay grounded in areas where they have a genuine edge.
Why Circle of Competence Matters in Investing
- Informed Decision-Making: When you invest in companies within your circle of competence, you can assess their business models, financial health, and future prospects with greater clarity. This deep knowledge allows you to ask the right questions and avoid falling for surface-level narratives or media hype.
- Minimizing Risk: Stepping outside your circle can lead to poor decisions based on incomplete or misunderstood information. Investors who chase opportunities in industries they don’t understand are more likely to misjudge risks, leading to costly mistakes. Staying within your circle helps reduce this risk by ensuring you make decisions from a position of strength.
- Confidence and Conviction: Investing within your circle of competence allows you to hold positions with greater conviction, even during market volatility. When you understand a business thoroughly, you're less likely to panic when stock prices fluctuate, as you have a clear vision of the company's long-term potential.
Real-World Example: Warren Buffett and Coca-Cola
A famous example of the Circle of Competence in action is Warren Buffett’s investment in Coca-Cola. Buffett had a deep understanding of the consumer goods sector, particularly beverages, due to his personal consumption habits and knowledge of the industry’s economics. He recognized Coca-Cola’s strong brand, global distribution network, and ability to generate consistent cash flow.
Rather than chasing technology stocks or industries he didn’t fully grasp at the time, Buffett stayed within his circle, investing heavily in Coca-Cola during the late 1980s. His deep understanding of the business and its competitive advantages gave him the confidence to hold the stock through various market cycles, making it one of Berkshire Hathaway’s most profitable long-term investments.
How to Identify Your Circle of Competence
- Reflect on Your Expertise: Start by asking yourself which industries, products, or companies you know inside and out. This could come from your professional background, hobbies, or personal interests. For example, if you work in the pharmaceutical industry, your circle of competence likely includes drug companies, regulatory processes, and medical innovations.
- Know Your Limits: Equally important is recognizing where your knowledge falls short. If you’ve never studied the semiconductor industry or don’t understand how blockchain technology works, it’s probably outside your circle of competence. Acknowledging these gaps can help you avoid making uninformed investments in these areas.
- Expand Your Circle Slowly: While it’s important to stay within your circle, that doesn’t mean you can’t grow it. Gradually expanding your competence by learning about new industries or studying successful companies can give you more opportunities over time. Just be sure to do so methodically, rather than jumping into unfamiliar sectors without thorough research.
Practical Steps for Using the Circle of Competence in Investing
- Stick to What You Know: Before making any investment, ask yourself: “Do I truly understand how this business operates?” If the answer is no, take a step back. Focus on companies where you understand the drivers of growth, the competitive landscape, and potential risks.
- Avoid FOMO (Fear of Missing Out): The temptation to invest in "hot" sectors or the latest market trends is always there. However, stepping outside your circle to chase returns can lead to disastrous outcomes. Remember, it’s better to make no investment than to make an uninformed one.
- Use Your Competence to Your Advantage: If you have deep knowledge in a particular area, use that expertise to find hidden gems that others may overlook. For instance, if you understand the dynamics of the renewable energy sector, you might be able to spot undervalued companies poised for long-term growth.
- Diversify Within Your Circle: While it’s important to stay within your circle, you should still diversify your investments across different companies or industries you understand well. This can help mitigate risk while ensuring you remain confident in your portfolio.
Conclusion
The Circle of Competence is a vital mental model for anyone looking to make smarter investment decisions. By staying within the boundaries of what you know and avoiding areas you don’t fully understand, you can increase your chances of success while minimizing risk. Whether you're investing in large-cap stocks or small businesses, the key is to develop a deep understanding of your chosen field, make informed decisions, and resist the temptation to venture into uncharted territory.
Remember, the most successful investors aren’t those who know everything—they're the ones who know their limitations and operate with a clear sense of competence.
🎙️ My Weekly Podcast For You
Keep Compounding...
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Vivek Mashrani, CFA
Founder, TechnoFunda Investing
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