Circle of competence
A circle of competence is the subject area that is a person or group's skills or expertise.[1]
The circle of competence can be determined by many factors, including their profession, spending habits, and the types of products they normally use.[2]
The "circle of competence," a term popularized by Warren Buffett and Charlie Munger.
Your circle of competence encompasses the areas where you possess useful knowledge and experience, giving you an edge.
It emphasizes investing or making decisions within your zone of expertise, rather than venturing into areas where your knowledge is limited.
By staying within your circle of competence, you can make better decisions, reduce risks, and increase your chances of success.
Warren Buffett and Charlie Munger view it as a mental model, a codified form of business acumen, concerning the investment strategy of limiting one's financial investments in areas where an individual may have limited understanding or experience, while concentrating in areas where they have a high level of understanding.
Circle Of Competence Media
Euler diagram showing the actual circle of competence compared to the perceived circle, for an individual who overestimates their level of competence
References
- ↑ The 'Circle Of Competence' Theory Will Help You Make Vastly Smarter Decisions. Business Insider. Retrieved 13 January 2018.
- ↑ Ang, Rusmin. 3 reasons why you should stay within your circle of competence. The Fifth Person (September 2, 2016). Retrieved 13 January 2018.
