Circle of competence
Work only inside the area you can genuinely evaluate, and know exactly where its edge is
Draw a line around what you actually understand, then refuse to act outside it. That is the whole method. How big the circle is matters far less than knowing where its edge sits, because the expensive mistakes come from wandering past it while still feeling confident. In practice it means passing on opportunities you cannot evaluate, however attractive they look, and widening the circle slowly, through study, rather than by assumption. Investors coined the phrase, but it gets applied just as often to hiring, career moves and any other decision where being wrong costs a lot.
People on record
Sorted by strength of stance
Does it: documented as part of their own routine. Recommends: explicitly advises other people to do it. Discusses: covered it substantively without clear personal adoption; this can include criticism or disagreement.
- Shane ParrishRecommends
Writer · Farnam Street and The Knowledge Project
Size of the circle matters far less than knowing where its edge is, in his framing: step over it and your advantage passes to other people. Deep skill in one area, he notes, often comes with real weakness elsewhere.
Source: fs.blog: circle of competence - Warren BuffettRecommends
Investor · Berkshire Hathaway chairman
Investors do not need to be experts on every company or even many, he wrote in the 1996 letter; they need to evaluate the ones inside their circle of competence. How big the circle is matters little. Knowing where its boundary lies, he says, is vital.
Source: Berkshire Hathaway: 1996 Chairman's Letter“You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Berkshire Hathaway: 1996 Chairman's Letter (opens in a new tab) · 28 Feb 1997 - Morgan HouselDiscusses
Writer · The Psychology of Money
It sits among his short money rules. Most people overrate the size of their circle and underrate how prone to bias they are, he writes. Nearby on the same list: avoid disaster, be patient.
Source: Collaborative Fund: Little Money Rules
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Deliberate wandering
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On record from 2 of 62 tracked people: 2 recommend it
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