Circle of Competence

Published on Aug 8, 2020

A circle of competence is a subject area of expertise and skill.


This has been popularized by Warren Buffet and Charlie Munger. With having to decide between financial investments of great variety, they describe how it would be wiser to simply work within familiar subject expertise. For example, they have not made any investments in the technology sector simply because it is outside of their circle of competence. They would limit their investments in areas where they had little to no familiarity.


To begin, one needs to be honest and acknowledge one's own competence objectively. Then stick to these areas. What you know and what you think you know can be very different.


The circle should be widened, but only gradually and slowly. Make a decision outside of this circle too soon and mistakes can happen.


One's circle of competence is determined usually by:

  • profession and work experience
  • study 
  • spending habits
  • products used
  • aptitude; if you play games where other people have the aptitudes and you don't, it's almost certain you're going to lose


Advantages of staying in your circle of competence:

  • unfair information advantage
  • having an edge over others
  • absolute focus
  • reduction of poor decision making


Notes:

I am guilty of saying yes to work that I am not very knowledgable in, partly because I know I can get up to speed very quickly. I know where to find information, who to ask, and how to get it done. But this comes at a cost. It takes up serious mental energy to be working at full speed and at such high intensity, for a long amount of time. This is draining and not a sustainable way to live.

I am learning to say and admit what I don't know, and if I'm interested in something, I'll find out. 

And if I want to get better at it, I'll spend time to build up that expertise.