Everyone has heard of Peter Lynch's "invest in what you know" mantra. Applying this principle in a vacuum (excluding many other important variables) can be dangerous, but it can also function as a useful heuristic. Of course, there are unlimited nuances to successful investing, but the mantra logically makes sense, which is on reason it has held such staying power.

Throughout my personal investing journey (~3.5 years now), the principle has guided much of my decision-making. I have mostly invested in companies whose products or services I interact with or where I clearly understand the customer value proposition. However, this is not the case for every investment.

Observing the evolution of my portfolio since inception, it's clear one key factor determines the longevity of a position (which is a key factor in overall returns): how well do I know the business? Companies I don't truly understand have tended to be short-term losers: I would react emotionally to a drawdown and panic sell, thinking of all the variables of which I could be unaware. Companies I understand well, however, have tended to be long-term winners. One of the reasons behind this? An ability to withstand volatility.

Perhaps the most difficult aspect of being a long-term investor is dealing with drawdowns. The trick is to understand the source of the drawdown. If you are unfamiliar with the business, however, this is likely an impossibility. How do you determine the reason for a change in public opinion if you don't understand fundamental changes within the business? If there are no major changes, how do you have the conviction to hold when the market is saying, "you're wrong"? The answer is you have to understand what you own.

To understand what you own, you have to invest in what you know. Investing in what you know fuels conviction, a necessary ingredient to deal with volatility successfully. Conviction is often the difference between acting rationally and acting emotionally during a drawdown.

Limiting my investments to those businesses I understand well has improved the quality of my investing activity, as well as my state of mind.

This is an observation I've made from my own experiences, which may or may not hold true for others. Please share your own experiences in the comments, especially if you disagree!