Circle of Competence: Avoid Ambiguity Traps

Circle of competence was popularised by Warren Buffett in the world of investing but it could be applied to pretty much any aspect of life.

The idea behind this model is to focus on your strengths that you are either born with or something you have developed over the years instead of investing time and resources on trying to do anything and everything for the sake of it.

Here is an excellent quote by Charlie Munger regarding how circle of competence applies to life:

“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.

If you want to be the best tennis player in the world, you may start out trying and soon find out that it’s hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you’d gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.”

Focussing on your strengths does not imply that you need to avoid exploring other areas, but it is rather about not letting those other areas take away too much time and resources that could be better utilised on your strengths.

Focussing will help you accumulate experience and knowledge in a particular domain giving you an almost unfair advantage over others who are much more scattered in their approach in the field.

A workplace example could be focusing on man management if you feel that is something that comes naturally to you or you have had demonstrable success with that skill. This would work for you much better than trying to become the analytics point of contact for your team. And since man management comes to you naturally, you’ll clearly have an advantage over your peers who are trying to do both analytics and man management simultaneously and end up doing a mediocre job on both.

In our personal lives, it would help to focus on being that person in the community who could be depended on for a particular task/skillset required for a task. It could be something as simple as organising get-togethers if that aligns with your core skillset instead of trying to be the MC and the bartender at the party. Focussing will ensure that you are not distracted and the increases likelihood of you doing a good job.

Another example could be switching to a career at 30 years old when you do not have the required social skills. You are better off focussing your efforts on a career that you will thrive in as an introvert while at the same time giving some room to improve on your social skills without making it your focus. Trying to put all your chips on a career based on a skill that you have not mastered or you struggle with is not the smartest bet to make.

So focus on what you are good at, work on your shortcomings on the side.

Hope this mental model brought some clarity in terms of what to focus on. Share this with your friends & colleagues if you found this useful.

Keep things rational. I’ll be back tomorrow.

Sources & further reading: [1] [2]