An updated take on a core Buffett tenet
The need to understand the business you are investing in, for it to be tangible, and easy to describe to a layperson has been cited by Warren Buffett as a core principle in his investing decision making process.
One area that is overlooked when considering the "know what you invest in" principle is the time it takes to research industries outside of the investor's comfort zone. Often the subject matter is abstract and these complex concepts can not be described to others in a few sentences.
I disagree that these difficult to understand areas should be excluded from consideration. Some people have gathered specific insights by working as an equity analyst/asset manager, working in the industry, or immersing themselves in the subject matter. Other times, the complexity the average person finds in learning the business is the same trouble businesses have in duplicating a unique business model. The result can be a wide economic moat between one company and the rest of an industry. Think Intuitive Surgical and their DaVinci surgical robot. (ISRG)
Focusing on one particular area and learning cloud computing or biotechnology may take considerable months or years of research. However, if this exercise is pursued there could be sizable payoff. Market shifts and new breakthroughs may be recognized before the rest of the herd has it revealed to them in a research report or conference call. Think Salesforce's business software. (CRM)
I say invest in what you know, but also invest in learning what you don't, because the harder an industry is to understand, the greater range of investing opportunities you may discover.