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Know what you rock at
The circle of competence
Chandan Karkera
October 7th, 2023 • Estimated Reading Time: 6 minutes
After reading this article, you’ll learn:
What is the circle of competence.
Why you should know about it.
How to use this knowledge in your life.
Have you ever heard of the saying “stick to what you know”? As simple as it sounds, it is profound in it’s wisdom. Many people and businesses have been ruined by not following this principle.
Imagine this scenario - you friend tells you about “an incredible investment” idea which he came across. You check it out, and see more of people talking about how their “lives changed” once they invested in this scheme. These people are posh, they own mansions, luxury cars and go on international vacations often.
What this investment is, is unclear. They talk about bitcoin, blockchain, AI & ML in one sentence. You’re convinced…. mostly. After all, they are real people and they’re rich because of this scheme.
You put a large chunk of your hard - earned money into this “investment” only to realize a few months later that you may lose it all.
There are many bad decisions here, but most important of all, you went outside your “circle of competence”. i.e., you have 0 idea about bitcoin, blockchain, AI & ML. But still you decided to invest.
What is the circle of competence?
It is a mental model popularized by Warren Buffet and Charlie Munger, the legendary investors.
Simply put, it is your area of skillset, knowledge & expertise. e.g. as a mechanical engineer, I’m good with building things but not at brain surgery!
Ok, but why should I know about this?
To avoid bad life decisions.
One of the most important decision is to pick a career. Ideally this is an intersection, based on your interests, strengths, and what the world wants.
If you are bad in mathematics & physics, then learning engineering is a foolish choice.
Similarly, if your communication and people skills aren’t great, then learning how to be a salesman will be a disaster.
Don’t get me wrong - things can be learnt. But there are things we all have natural aptitude for e.g. someone may have an ability to learn music really quickly and some of us may be visual learners. The key is to understand this simple concept so our decisions can be based on it.
To avoid financial ruin.
Just because something is in fashion or everyone is talking about it, it is foolish to invest especially if I do not understand it. e.g. I have 0 knowledge about the art / NFT market. So I cannot blindly bid on expensive pieces thinking they would be great investments.
If you look around, there are millions of people who have lost their hard earned money as they didn’t really understand what they were getting into:
To know your strengths and build on them.
You may not become the best soccer player in the planet or the most successful writer of all time. But you can identify what you’re good at, and build on the skills to escape the competition.
One powerful idea here is skill / talent stacking. Scott Adams, creator of Dilbert comics explains it wonderfully here.
To get started, you can explore these resources to understand your strengths & weaknesses so you can strategically build on what you’re good at.
a) StrengthsFinder (CliftonStrengths)
How to increase your circle of competence:
Read - a lot.
Reading is one of the highest return - on - investment skills. When you’re reading a book, you’re receiving decades or sometimes even centuries of distilled information and knowledge, without the fluff.
Consume high - quality media.
The information we put inside our minds is as important as the food we put into our body.
If you consume high - quality junk information, then you will produce worthless ideas.
How you can implement this in your life:
The next time you are faced with a major decision e.g. career, studies, investment etc. ask yourself this question:
“Does this fall inside or outside my circle of competence”?
As always, it is important to think logically and not get swayed by the noise. If it falls outside your circle of competence, you should either:
Let it go.
Learn about it.
Take your time, enroll in courses which will teach you this skill. Ask experts.
Outsource it.
Pay someone else to do it, or hire someone who can help you e.g. a career coach.
Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.
Hope this mental model helps you become a better thinker and avoid taking bad decisions. If you found it helpful, share the article with someone who will benefit from it.
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