The Three Circle Test: Why You Don’t Need to Be the CEO to Pick Winning Stocks The recent episode of The Investing for Beginners Podcast featuring Stephen Morris' "three circle test" has sparked a much needed conversation about the dangers of investing beyond one's knowledge depth.
While the test itself is not new, its application to everyday investors is a timely reminder that even seasoned traders can fall prey to overconfidence and poor decision making.
At its core, the three circle framework is simple: an investor must be able to answer five basic questions about a company before buying into it. Can they explain the business in plain English?