This is a mental model developed and popularized by Warren Buffet & Charlie Munger.
In simple terms, a circle of competence can be defined as an area that matches a person’s skills, aptitude or expertise.
Buffett recommends everyone to take identify and advantage of their own circle of competence as everyone can’t be an expert in every field of life, “Know your circle of competence and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.”
3 Reasons why one should stick to his circle of competence :
a) It gives you an advantage over others: You may be working in a certain profession or your family is engaged in a certain business, this may result in you having extra information than others. And above that if you happen to be passionate about the same field, you would have more insights as you would be spending more time to understand the same. This gives you an advantage over others.
b) It narrows down your focus: Rather than becoming a Jack of all and master of none and getting lost in the plethora of information and opportunities, you would be better placed to take benefit of the area of your own expertise. This would help you to save time to act faster.
c) You would make less mistakes: If you are operating within the domain of your knowledge, chances are that you would make fewer mistakes as compared to a situation when you venture out of it.
What is your Circle Of Competence?
Here is Charlie Munger take on how to recognize and develop your own circle of competence :
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.
If you want to be the best tennis player in the world, you may start out trying and soon find out that it’s hopeless—that other people blow right by you.
However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you.
It takes a will.
It takes the intelligence.
But after a while, you’d gradually know all about the plumbing business in Bemidji and master the art.
That is an attainable objective, given enough discipline.
And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.
In summary, it can be said that if someone wants to improve his chances of success in life, he should identify and define his own circle of competence and operate within it. As one becomes more expert in it, keep it expanding slowly.2 claps