Billionaire investor Warren Buffett is the first to admit that, historically, tech has not been an area he fully understands. That helps explain why it did not feature prominently among the sectors in which Berkshire Hathaway invested during the years when Buffett ran the company.

Still, when it comes to thinking about Space Explorations Technologies (NASDAQ: SPCX) stock, I have found Buffett’s investing wisdom to be helpful when it comes to shaping my own plan of action.

Sticking to what you know

Buffett was not a big investor in tech relative to other areas. But that does not mean he shunned it. He watched IBM for decades before finally taking a stake

That did not turn out to be one of his better investments. But I still think there is an important lesson to be learned by investors.

Buffett stuck to industries and companies he felt he properly understood before investing. He talked about staying inside his ‘circle of competence‘. Importantly, he also noted that it is possible for someone to grow their circle of competence over time.

That matters when it comes to thinking about SpaceX stock (or shares in any company, come to that). I try to stay inside my circle of competence in the way Buffett discussed.

I do not fully understand all of the business, but I feel comfortable that I have a strong enough handle on it to decide whether or not to invest.

Buffett loved a brilliant business model

From insurance to soft drinks companies such as Coca-Cola, Buffett always attached importance to the proven (not just possible) strength of a company’s business model.

‘Business model’ is a term many people use but not everybody really understands. Put simply, a business model is not just a description of what an enterprise does. It looks at how the company is able to turn that activity into money.

Different types of business models can be successful. But Buffett’s investments give some indications of what he valued. He tended to focus on businesses with resilient customer demand and with a competitive advantage.

How does SpaceX stack up in this regard? Demand is strong and soaring revenues suggest that it could grow. I think it is also fairly resilient, as satellite launches and wifi provision both look set to remain large markets.

As for a competitive advantage, again SpaceX stock has some appeal to me. It has proprietary space launch and recapture technology, a large customer base and a strong brand. All of those factors help differentiate itself from rivals.

Does SpaceX offer me a margin of safety?

But there is another concept favoured by Buffett that helps explain why I am not yet ready to buy SpaceX shares: margin of safety. The lossmaking company’s business model remains unproven. It faces multiple risks including competition for satellite launches from a growing group of rivals and growing governmental or regulatory interference with satellite wifi provision.

I do not think the current share price offers me enough margin of safety to account for such risks. For now then, I have no plans to invest.

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Christopher Ruane does not hold any positions in the companies mentioned.