1. Circle of competence
Buffett's first filter is not valuation or growth, it is comprehension. He calls the set of businesses he can model the circle of competence and insists that what matters is not the diameter of the circle but knowing precisely where its edges are. The 1996 Berkshire shareholder letter put it plainly: "What an investor needs is the ability to correctly evaluate selected businesses. Note that word 'selected': you don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital." This is why Buffett famously avoided technology for most of his career. He skipped the late-1990s dot-com run not because he doubted the internet would matter, but because he could not handicap which specific companies would still compound twenty years out. The Apple position acquired from 2016 onward was the public correction to that prior, only justified once the iPhone had become a durable consumer-goods franchise rather than a speculative platform bet. The practical test invest-like applies for this principle is simple: if a thoughtful analyst cannot describe the business's revenue model, durable advantage, and reinvestment runway in three plain English sentences without industry jargon, the business is outside circle.