Only Invest in What You Understand, but Keep Learning If You Have a Sound Thesis.

The core premise for this “only invest in what you understand” maxim is obvious and commonly cited. Other important reasons are less obvious. For instance, the probability of exiting a position prematurely escalates when you invest in a business you don’t understand well. You may have a very sound investment premise, but get scared off the position after a period of negative broader market volatility to reduce your ‘mental’ risk ranking – only to see the volatility subside and your original investment premise prove correct. This ‘mental’ risk ranking improves by selling the position, but it can also improve by just doing more homework.