Circle of Competence

Written

Notes on Understanding your Circle of Competence: How Warren Buffett Avoids Problems

The circle of competence is the set of things we actually know.

Knowing the boundaries of the circle is much more important than the actual size of it. We usually think this circle is larger than it is.

I’m no genius. I’m smart in spots—but I stay around those spots. — Tom Watson Sr., Founder of IBM

As Buffett said in his 1996 shareholder letter, we don’t even necessarily need to have an understanding of something. We just need to be aware of the limits of our understanding and act appropriately by avoiding those areas until we have a true understanding of them.

You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence. — Charlie Munger

Identify the boundaries of your circle of competence. You can then see logical places to expand your skills and also which areas you might want to achieve greater expertise, to rise to the top ranks of a specialty.


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