The 'Circle of Competence' and 'Doing Less' Strategies in Value Investing: Insights from Didi Drivers Focusing on Large Orders

The concept of the “Circle of Competence” originates from Buffett’s investment philosophy, referring to the idea that investors should focus on industries and companies they truly understand [1]. The core of this strategy lies in acknowledging cognitive limitations and conducting in-depth research within familiar areas to gain information advantages.

Buffett once vividly analogized: “Life is like rolling a snowball; the most important thing is to find wet snow and a long hill” [1]. Here, “wet snow” represents high-quality targets, and “a long hill” symbolizes the power of time. Only within one’s circle of competence can investors accurately identify what constitutes real “wet snow”.

Building a circle of competence requires systematic methods:

• In-depth industry research
  : Focus on a few industries to accumulate professional knowledge
• Continuous learning
  : Track industry development trends and changes in company fundamentals
• Experience validation
  : Continuously verify and adjust cognitive boundaries through practice
• Strict self-discipline
  : Resist temptations outside the circle of competence and maintain investment discipline

The work experience of ride-hailing drivers provides an interesting analogy for investment strategies. According to a 2025 industry report, successful ride-hailing drivers generally adopt a multi-dimensional strategy of “algorithm understanding, scenario operation, risk avoidance, and technical empowerment” to improve efficiency [3].

Specific cases include:

• Time focus
  : Shanghai drivers focus on the evening rush hour when hospitals change shifts, with the average order price reaching 1.8 times that of normal hours [3].
• Location optimization
  : Beijing drivers found that the conversion rate of pre-booked orders at the International Medical Department of Peking Union Medical College Hospital reaches 64% on workdays [3].
• Timing grasp
  : Shenzhen drivers noticed that when flights at Bao’an Airport are delayed by more than 2 hours, the proportion of premium car orders surges to 81% [3].

Similar to Didi drivers focusing on high-quality orders, the “doing less” strategy in value investing manifests in:

• Select 10-15 deeply researched targets from thousands of stocks
• Focus on high-quality enterprises with wide moats and stable cash flows
• Adhere to the principle of quality over quantity

• Reduce unnecessary transactions to avoid “noise trading”
• Hold long-term to allow the power of compound interest to fully发挥
• Buffett started investing at the age of 11, and by the age of 90, his assets grew from 1 million US dollars to over 100 billion US dollars, relying on long-term stable investments rather than short-term huge profits [1].

• Focus on core financial indicators to avoid information noise
• Prioritize in-depth research over broad coverage
• Establish one’s own investment framework to filter irrelevant information

Focus strategies can bring significant information advantages:

• In-depth understanding
  : Gain a deeper understanding of enterprises in the focused field
• Trend grasp
  : More accurately capture industry development trends
• Risk identification
  : Detect potential risk factors earlier

Reducing the number of investment targets can improve decision quality:

• More research time
  : Allocate more time to research each target
• Higher confidence
  : Make investment decisions based on more solid research
• Better timing
  : More accurately judge the timing of buying and selling

Focus strategies can effectively reduce various costs:

• Transaction costs
  : Fees and taxes from frequent trading
• Opportunity costs
  : Avoid mediocre returns caused by diversified investments
• Time costs
  : Reduce unnecessary research and tracking time

The compound interest effect is the mathematical foundation of successful value investing. The formula is:

Taking a monthly deposit of 10,000 yuan as an example, assuming an annual return rate of 20%, after 40 years:

• Annual investment: 10,000 yuan × 12 months = 120,000 yuan
• Final value: 120,000 × [(1 + 0.20)^40 – 1] ÷ 0.20 ≈ 271 million yuan [1].

Focus strategies enhance the compound interest effect in the following ways:

• More stable high returns
  : High-quality targets usually provide more stable returns
• Longer holding periods
  : Reduce transactions, allowing compound interest to work for a longer time
• Fewer drawdowns
  : High-quality companies have stronger risk resistance, reducing principal losses

1. Self-assessment
   : Analyze one’s knowledge background, work experience, and interests
2. Industry selection
   : Choose 2-3 industries with existing foundations for in-depth research
3. Step-by-step
   : Start with simple and easy-to-understand industries, then gradually expand the scope

1. Quantitative screening
   : Establish basic screening criteria for financial indicators
2. Qualitative analysis
   : Deeply understand business models and competitive advantages
3. Continuous tracking
   : Establish a long-term tracking mechanism to update cognition in a timely manner

1. Buying discipline
   : Only buy when the price is lower than the intrinsic value
2. Holding discipline
   : Hold long-term and not be affected by short-term market fluctuations
3. Selling discipline
   : Only sell when fundamentals deteriorate or prices are severely overvalued

Although focus strategies are effective, over-concentration needs to be avoided:

• The position of a single stock should not exceed 20-30% of the total investment
• Properly diversify industries with high correlation
• Maintain moderate liquidity

Market environments are changing, so investors need to:

• Continuously learn new knowledge and expand the circle of competence at the right time
• Regularly evaluate the effectiveness of the investment portfolio
• Adjust investment strategies according to market changes

The “Circle of Competence” and “Doing Less” strategies in value investing can significantly improve investment returns by focusing on high-quality targets, conducting in-depth research, and holding long-term. The experience of Didi drivers focusing on large orders provides a vivid analogy: through strategies such as algorithm understanding, scenario operation, and risk avoidance, limited energy and time are invested in opportunities with the highest returns.

In investment practice, the key to success lies in: clarifying the boundaries of the circle of competence, adhering to quality over quantity, leveraging the compound interest effect, and maintaining investment discipline. As Buffett said, the key to investment success is not frequent operations, but finding real “wet snow” within the circle of competence, then letting time, the friend, roll the snowball of wealth for us [1].

[1] Yahoo Finance Hong Kong - “The Century Power of Compound Interest Effect: A Mathematical Model from Monthly Deposits of 10,000 Yuan to 100 Million Yuan in Retirement Funds” (https://hk.finance.yahoo.com/news/複利效應的世紀威力-從月存1萬到億萬退休金的數學模型-020500192.html)

[2] Investopedia - “Charlie Munger: Berkshire Hathaway’s Visionary Investor and …” (https://www.investopedia.com/terms/c/charlie-munger.asp)

[3] Tencent Cloud Developer Community - “Running Ride-Hailing in 2025: Start with Understanding the Platform’s Algorithms…” (https://cloud.tencent.com/developer/news/2273804)

[4] Jinling AI Data