Staying within the circle of competence
Every investor has a boundary — a set of businesses, industries, and situations they genuinely understand. Warren Buffett called it the circle of competence, and the single most important thing about that circle is not how large it is, but how honestly you know its edges.
At Yellow Mountain Capital, we have built our entire process around respecting that boundary. We would rather pass on a hundred opportunities we cannot fully evaluate than force conviction on a single one we do not understand.
Why the edges matter more than the size
A wide circle is not an advantage if you cannot tell where it ends. The costly mistakes in investing rarely come from businesses that were too simple — they come from businesses that looked simple but hid complexity a step beyond our understanding.
Diversification is protection against ignorance. It makes little sense if you know what you are doing.
This is why we keep a concentrated portfolio of eight to fifteen positions. Concentration forces us to know each holding deeply, to monitor it closely, and to be honest when a thesis begins to drift outside what we can reasonably judge.
How we apply it in practice
- We screen broadly, but we only advance ideas we can explain in plain language.
- We favour small and mid-cap businesses where diligent research still produces an informational edge.
- We measure success by business performance over two-to-five years, not by short-term price movement.
- We hold cash patiently when nothing inside our circle is attractively priced.
None of this is glamorous. It will not identify the next disruptor, and it will not produce a headline year every year. What it does do — reliably, across cycles — is keep our capital working within the bounds of what we actually know. Over a long enough horizon, that discipline compounds.
As always, we are grateful for the trust of our partners, and we remain humble about everything that still lies beyond our edge.