With the complexity of today’s financial markets, having deep knowledge has become increasingly important for investors. Deep knowledge refers to having an in-depth understanding of a particular company, industry or investment strategy through rigorous research and analysis. This article reviews the value of deep knowledge in investing and why it should be an integral part of any investor’s process.
Deep industry and company research leads to better investment decisions
Making investment decisions based on surface-level information often leads to poor outcomes. Investors who take the time to thoroughly research companies, their financials, industries, and market landscapes are better positioned to identify promising opportunities and avoid unnecessary risks. Sources of in-depth knowledge include earnings call transcripts, annual reports, industry publications, macroeconomic data, and more.
Experts with deep insights can identify trends others may miss
Renowned investors like Warren Buffett and Ray Dalio attribute their success partly to deeply studying industries and market history. Doing so has enabled them to spot econonic shifts, emerging technologies, consumer behavioral changes, and other trends that are invisible to outsiders. Retail investors may not have the same level of expertise, but can benefit by learning from these experts.
A deep understanding of investments aligns with personal finance goals
Investing without a thorough comprehension of what you’re buying poses unnecessary stress and uncertainty. But when investors truly understand their investments, they tend to have greater conviction during market volatility. They are also better positioned to select investments that align with their personal finance goals and risk tolerance.
Surface-level information leads to speculative trading and volatility
Lacking in-depth knowledge and simply speculation trading based on headlines or tips often produce poor results. In fact, surface-level information and reactiveness are major contributors to market volatility. Investors with a deeper understanding make more rational decisions based on long-term, comprehensive research rather than short-sighted impulses.
Having an expansive knowledge base through rigorous research and learning enables investors to make more informed decisions aligned with their personal financial goals. There is simply no replacement for deep industry, company, product, and category knowledge when it comes to investing successfully.