This article covers:

• Learning From What You Do

• Listening to the Experts

• How to Identify Potential Investments

• Stepping Outside Your Comfort Zone

“Many investors have their sights set on making quick money, but this attitude is often to their own detriment because it can lead to emotions that sway one judgement. Making investment decisions in a hurry, without a thorough understanding of what you are investing in, has all the hallmarks of a gamble rather than a well thought-out investment.

However, your own personal experiences and knowledge can play a vital role in overcoming this. In fact, one of the most useful resources to help identify investment opportunities may be your own knowledge. Here's why you ought to focus more on what you know.

Learning From What You Do

Before the pandemic, data showed the average Australian will change jobs 12 times throughout their life, with an average tenure of 3.3 years. An increase in workplace mobility has only made it easier to change careers since that time. Nonetheless, it safe to say that many of us spend time working in various jobs and industries throughout our lives, which broadens our expertise and knowledge in different fields.

You may wonder how this relates to investing, but a shareholder is a part owner of a business. Therefore, if you have specific insights from a particular industry, or knowledge spread across different industries, you may be able to apply some of this knowledge to expand and assess your net' of investment opportunities.

A common misconception is that you need to have been a manager to have valuable' insights in a certain industry. However, in many cases, frontline employees have the greatest insights since they are exposed to the nuances of a company day-do-day operations. This is not to downplay the expert knowledge one can accumulate working their way up to a managerial position, but the point is that all types of experience may be helpful to evaluate stocks.

Listening to the Experts

Many of the top investors in the world live by the maxim "invest in what you know". No one illustrates this better than The Oracle of Omaha, Warren Buffett, who often reminds investors, "never invest in a business you cannot understand".Peter Lynch, who once reportedly said, "never invest in an idea you can't illustrate with a crayon", echoes similar sentiments. This train of thought is associated with the belief that we can potentially lower our risk of making a poor investment decision by sticking to what we know, including companies that are easy to understand, and even easier to explain.This mantra also serves as a reminder that there are always alternative investments to consider, with thousands of shares to choose from on the stock market. That means if you find it tricky to analyse the ins and outs of a company product or service, or find it hard to comprehend its operations, you can always review another stock where the company is easy to understand, and aligns with what you know. 

How to Identify Potential Investments

Every day, we take in a lot of information. Whether it be the goods and services we use, our hobbies and interests, work, advertising, or general observations, our lived experiences and expertise are one thing that separate us from other investors when deciding what to invest in.

In a world where just about every stock has its own fan club', leveraging your knowledge can help you hone in on the cold hard facts about a company, and its growth prospects, to decide whether it might be an appropriate investment.

One way you may wish to harness your knowledge is to think about how you interact with the world, and what companies you share a touchpoint' with. What products or services do you engage with as part of your daily routine? Is there anything you do or use to improve the quality of your life? Are there opportunities related to how we are evolving as a society?

For example, ESG investing has become a prominent theme over recent years. Many of us would have identified early on that governments are paving the way for a transition to renewable forms of energy. This sort of knowledge may lead one to look at what sort of opportunities will facilitate this transition. 

Some investors may even have detailed knowledge or first-hand experience in industries that are about to see burgeoning growth as a result of this shift in societal values.

Your knowledge can be useful to effectively create a shortlist of potential investment opportunities. From there, you'll need to conduct more extensive due diligence. Not every great idea or observation makes a great business, and similarly, not every great business makes a great stock.

Stepping Outside Your Comfort Zone

While our focus has been on investing in what you know, it may not be wise to limit ourselves to this narrow range. There is still merit in stepping outside your comfort zone to invest in areas where we may not have the most comprehensive knowledge, provided you understand what you are investing in.

The reality is, just as there are a number of straightforward businesses listed on the ASX and US share markets - for example, retailers and banks - there are also a large number of businesses that engage in highly complex, sophisticated, or specialist operations. This may include the realms of biotechnology, defence, and mineral exploration, among others.

It may be disadvantageous not to have a more thorough knowledge of the operations in highly technical industries, but you can at least partially overcome this by doing your research, and also investing cautiously. This will help you offset some of the shortfall about what you may not know, although there are never any guarantees in the stock market. 

Even then, you don't necessarily need to invest in these opportunities, but you can always add them to your shortlist.