We Have No Problem Saying “We Don’t Know”

The size of your circle of competence doesn’t matter. Knowing its boundaries does.
- Warren Buffett

At Finology, there are things we do exceptionally well. And things we don’t. 

We know how to study a business and build a long-term view. But we also know where our understanding falls short. And when we’re not confident in something, we don’t invest in it.

We don’t recommend it to our users either. Because if we can’t back it with conviction, we’d rather not bring it to the table at all.

We Avoid Metals & Minerals Companies

Not because they’re bad (they’re not), but because they don’t behave like most businesses.

Here, success has less to do with how a company operates and more with where commodity prices go. Iron, aluminium, copper: if prices rise, everyone looks smart. If they fall, everyone gets hit.

It’s hard to analyse fundamentals when the fundamentals don’t drive the outcome.

Could we try tracking global cycles and supply shifts? Sure. But we’d still be guessing. And that’s not how we invest.

Add to that:

• Boom-bust cycles: Global demand swings hit earnings hard.

• Operational issues: Delays, cost overruns, shutdowns, all too common.

• Geopolitical risks: One policy move can throw everything off.

• ESG baggage: Pollution and labour issues come with the territory.

These aren’t just risks; they’re things we know we can’t forecast well. And that’s reason enough for us to stay away.

Auto Ancillaries: Same Story

You can size up a car brand. But figuring out who makes the brake pads, axles, or dashboard sensors? That’s a different challenge altogether.

Most auto component makers supply multiple manufacturers, and most manufacturers source the same part from multiple suppliers. The web is messy and hard to decode from the outside.

Unless you’re on the shop floor or under the hood, it’s nearly impossible to judge product quality, pricing power, or who’s gaining share.

Beyond that:

• Low visibility: It's tough to track who supplies what, to whom, and for how long.

• Tight margins: Most players operate on wafer-thin spreads.

• Heavy reliance: One manufacturer can account for a big chunk of revenue.

• Nothing stands out: Products are largely commoditised and replaceable.

• EV risk is real: Legacy parts may not survive the shift to electric.

Clearly, too many unknowns, too little clarity.

The Utility Sector Also Made The List

Because investing in companies that deal in electricity, waste management, etc., is not so straightforward. Their returns are usually tied to government policies, fixed tariffs, or long-term contracts in lieu of innovation or operational excellence.

What makes things even trickier is that almost every utility company operates with high leverage. Plus,

• Regulated to the bone: Pricing and profits are often capped.

• Heavy upfront costs: Capital goes in fast; returns take time.

• Each seems like the rest: Hard to spot a real winner.

• Numbers can mislead: Similar debt levels hide weak fundamentals.

Consequently, it becomes difficult to tell a fundamentally strong company from a weak one! 

So, We’re Okay Saying, “We Don’t Know”

Knowing where not to look frees us to see what actually matters. That’s the whole idea.

It’s also how we built Finology 30: by focusing only on the companies we understand deeply and can confidently support for, maybe, decades to come. 

Because in the long run, it’s not about knowing everything, just enough of the right things.