Circle Of Competence

How To Avoid Problems?

Stick To The Knitting!

Strategic Alpha Wealth

Circle Of Competence - Overview

A circle of competence is a clearly defined, narrow area of focus, about which you know a lot and which gives you a competitive edge.

The concept can, allegedly, be traced back to Andrew Carnegie and his single minded focus on steel and iron.

The phrase has come to prominence via Warren Buffet and his partner Charlie Munger in their 1996 shareholder letter.

Buffett and Munger initially developed the idea to limit where they would make financial investments (based on their own understanding and experience).

Buffet and Munger say that it "...is not the product of unique or otherworldly wisdom. Rather, it is merely the mundane result of diligent knowledge acquisition about a targeted subject. Any committed individual can build such a circle of competence, given the will to do so."

Another common and similar phrase with the same meaning is "stick to the knitting" which was popularized by Tom Peters in his book "In Search of Excellence".

Inside the circle lie your skills that you have mastered throughout your career, or life. And beyond the circle are the things you understand only partially, or not at all.




    "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]






The circle of competence model can be very useful in all areas of life and it is very simple:

  • Many people know a little about a lot. But someone with a circle of competence is someone who knows a lot about a clearly defined narrow area of focus.
  • It is any area of life or business where through study and experience, you have built up  a bank of useful and practical knowledge.
  • This means that you know what works, what doesn't work and why.
  • Understand where you’re naturally strong and stay within that area.
  • And it’s not the size of the circle of competence that matters, but how well you stick within it.




    “Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.” [Warren Buffet]












3 Reasons Why You Should Stay Within Your Circle Of Competence

1. You possess an informational advantage over others.

In my current "day job" I am involved in the fuel business, in what is known as the secondary market, and my specialism is refined fuel and crude oil.

Within this field I have developed deep knowledge of this market. One of the features of this market is the number of fraudsters, scammers and general time-wasters.

Over the past 7 or 8 years I have developed a range of skills and techniques for conducting due diligence to identify these bad people. This is a very narrow field, but within it I have an informational advantage over most of the potential buyers/sellers I meet who do not have as much expertise.

Outside of this niche I have a lot of generalised business experience and expertise. But this market is one of my circles of competence.


2. It narrows down your options of what you get involved in.

I am regularly asked if I can source other commodities, but I always decline. I made the decision several years ago to stick exclusively to the fuel business, and I pass on all such requests, preferring to focus exclusively on this.


3. You make fewer mistakes.

I do still make mistakes, but generally I am able to anticipate and avoid most of the typical errors and mistakes that plague less experienced buyers in this market because I actually know what I am doing.



    It is really important to stay within your circle of competence.

    If you are not sure what the boundaries of that circle are for you, then you do not have real mastery of your field. [Charlie Munger]






Return from "Circle Of Competence" to: Mental Models






Chinese (Traditional)EnglishFrenchGermanItalianRussianSpanishVietnamese


Custom Site Search


The Balanced Toolkit



The Balanced Life



3 Keys Solutions


Get new posts by email:

LATEST ARTICLES

  1. How To Stay Connected To Your True Source Of Power

    "Your ego's desire to be in control, your ego usurping the role of your higher self, disconnects you from your true source of power." A stone of help is a constant reminder to stay connected to your…

    Read More

  2. Dying To Self - To Gain All Give All

    "If You Want To Be Given Everything - Give Everything Up". “Tao Te Ching” Your ego is essential and does a wonderful job of running things for you and marshalling your mental and emotional resources t…

    Read More

  3. My Experience Of Mindfulness In Situations Of Imposed Change

    I found that the biggest key to all this is to behave and respond in ways that may seem completely alien to you by cultivating a very deep acceptance of what is. Many years ago my fortunes had change…

    Read More

  4. The Balanced Life

    The Key To Keeping Your Balance Is Knowing When You Lost It. The balanced life is one where you recognise the full spectrum of possible responses and have develop sufficient experience, insight and se…

    Read More

  5. Self Motivation - How To Motivate Yourself In Tough Times

    Our focus here is going to be on the heavy duty / big picture level motivation that you need to get you through tough times often involving imposed change that have large and perhaps dramatic impacts…

    Read More

  6. Your Higher Self - Your Hardwired Portal To The Universe

    Think of your conscious mind as a ship floating on the ocean of your subconscious mind, and above is the sky of your higher consciousness. When things are tough and you are starting to think that no…

    Read More

  7. How Can I Change My Mind?

    Whilst it is true that we can be taught, generally we won't change. Your mind is either working for you or, more typically, working against you. There is a part of your mind that is very happy with h…

    Read More

  8. Managing Personal Change Is Hard - Here's How You CAN Make It Work

    Whilst it is true that we can be taught, generally we won't change. You can waste years of your life (as I have done) and spend a fortune in various forms of introspection, analysis and therapy diggi…

    Read More

  9. Change Comes From Within

    "Until you make the unconscious conscious, it will direct your life and you will call it fate." For much of my life I didn't understand that change comes from within, I used to believe that change wa…

    Read More

  10. How Things Are - The Inbuilt Design Flaw

    This is the nature of things. This is how things are. Nobody has the perfect life. We all struggle and strive to attain health, wealth and personal happiness. Yet these three big areas: our health, o…

    Read More




Support This Site