Mental Models

How To Find Your Circle of Competence To Become More Knowledgeable

The Keys To Making Decisions from Warren Buffett and Charlie Munger

Harsha Sri-Ramesh

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Warren Buffet and Charlie Munger are regarded as two of the smartest value investors of our time, they also have a knack for being able to think better than all their competition.

Their success comes from what they call their ‘circle of competence’.

What is a circle of competence?

A circle of competence is how much you know about a given topic or area of expertise.
Having a circle of competence means you are aware of how much you know but also how much you don’t know. To sum it up, the circle is your awareness. How does this become your advantage?

At the 2020 AGM of the Daily Journal Annual Meeting, Munger summed this up nicely:

‘I think about things where I have an advantage over other people. I don’t play in a game where the other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid. You have to know the edge of your own competency. I’m very good at knowing when I can’t handle something.’

As someone who might be at the start of their career, why is developing a circle of competence important? Simple, you’re giving yourself better odds at success and reducing the odds of failure.

The difference between people is that some have a surface level of understanding based on a few books they’ve read, whereas others have lived it through a lifetime’s worth of experience.

The former has a few pieces of the jigsaw and thinks they’ve made a picture, the latter can see the whole puzzle for what is.

There are levels to being competent, so let’s briefly go up the levels:

4 Levels of Competence

1. Unconscious Incompetence

When you don’t know what you don’t know, eg. you have no idea that there is such a thing as a ‘circle of competence’ and because you don’t know it exists there’s no possibility of you building upon it. It’s like ground zero you’re not even at the beginning of this learning journey.

If you’ve never heard of the circle of competence prior to reading this, then you are here.

2. Conscious Incompetence

When you know what you don’t know. You know that there’s a concept called a circle of competence but you don’t know how it applies to you.

You’re at level 1 of your learning journey, you’re sitting in the first lecture with no idea what the rest of the term looks like.

3. Conscious Competence

So now you know what the skill is and you have the ability to perform and act on it but only when you actively work towards it. You know what a circle of competence is, and you know how to use this tool but it takes a lot of work and focus to utilise.

You’re probably consciously competent in speaking a second language, you can do it but it requires a bit of work.

4. Unconscious Competence

This is like driving (I’m assuming you can drive). Your left foot instinctively pushes down the clutch as your hand automatically flicks the gear stick to first gear. This process is ingrained in you, you don’t even have to think. You are fluent in your skill.

‘Levels of Competence’ taken from Jim Kwik’s book ‘Limitless’, would highly recommend you check it out.

Do I have a circle of competence?

You may think you don’t but trust me, you do.

There are things that you know better than others. Your life’s experiences, your education, your relationships and your circumstances have uniquely shaped you into who you are today.

Naval Ravikant articulates this beautifully:

‘The first thing to notice about specific knowledge is that you can’t be trained for it… [it’s] found much more by pursuing your innate talents, your genuine curiosity, and your passion… [it’s’] the knowledge that you care about. Especially if you’re later in life, let’s say your post 20, 21, 22, you almost don’t get to choose which specific knowledge you have. Rather, you get to look at what you have already built by that point in time, and then you can build on top of it.’

You need to lean into your unique set of inclinations and make them work for you. Your strength is that this is something you already have whether you know it or not.

Take time to reflect and figure out where you perform with the least resistance. When you’ve found out what those skills are — build on them.

This doesn’t mean you’ll be fixed in this circle of competence forever, you can expand and build it over time as your life experiences fuse with your circle.

How do I build my circle?

The circle is not static, it is dynamic by nature. As times change, information changes, knowledge can become outdated. The circle is never completed, it is constantly being built.

This is why it is crucial that you maintain an ethos of lifelong learning, this is how you stay on top of your game. By being willing to learn you are in a state to absorb new ideas and think about how they fit within your frame of understanding.

Find mentors, people who are ahead of you in their craft. This comes with letting go of your ego and being willing to learn and take critique to build your competence. Having a mentor makes it easier to know your blind spots so you know where to improve.

Know where the circle finishes

Be willing to admit what you do not know, this saves you from running the risk of falling flat on your face. Be okay with not being an expert in every area. Steve Jobs would’ve been a terrible heart surgeon. I wouldn't get on a plane if Oprah was the pilot.

Grow with what you know.

Summarised:

“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 Buffett

In short:

Building a circle of competence will give you the competitive advantage of making decisions based on your strengths. It means you avoid falling into what you do not know, but it supports expanding on what you currently do know.

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