We all like to believe we're experts.
That we have the answers. That our opinion matters.
But what if we're wrong? What if we're outside our circle of competence?
Warren Buffett and Charles Munger have a rule re: investing: stay inside your circle of competence.
Focus on what you know.
What you actually know, inside and out.
Ignore the rest.
It's not just about investing though. It's a principle for making better decisions in all aspects of life and work.
Most of us have a very narrow circle of true competence. A small arena where our knowledge and experience give us an edge. Step outside that circle and we're in trouble.
The problem is that we don't know what we don't know. Outside our circle of competence, we're not just ignorant—we're ignorant of our own ignorance, unable to judge the limits of our knowledge.
And so we plunge ahead, rendering opinions, making predictions, and taking risks, convinced we know best and oblivious to what we don't know.
That's a recipe for bad decisions and painful mistakes, for investing in the wrong things and giving bad advice, for failing slowly and not understanding why.
The circle of competence is your safety zone. Your home base for good decisions. Where you can act with confidence and clarity.
Resist the temptation to stray outside it. Have the humility to know the bounds of your knowledge and the discipline to stay on your game.
My own circle of competence is where tech meets media, content, and community. That's where I work. It's where I think, write, play and invest. Many things outside of that interest me and would probably be an opportunity to make money - if I knew more about them. But I don't, and I don't need to. I know where I sit. I know where I belong.
Define your circle of competence and live within it. Make that a principle, not just for investing, but for the choices you make each day.
Your results will thank you.
