#29 - Sticking to Your Guns

By Armaan Athwal

Today's Overview:

• Understanding your competence to boost performance

• Expanding your circle of competence by pushing the edge

• Quote of the day

Understanding Your Competence

Playing outside your field of knowledge and acting like you are familiar is like trying to navigate a maze blindfolded. You might stumble upon the right path occasionally, but more often than not, you’ll hit dead ends and waste precious time. This is where the concept of the "circle of competence" comes in, famously advocated by investing legends Warren Buffett and Charlie Munger.

Both Buffett and Munger attribute much of their investing success to this principle. They focus exclusively on industries and businesses they thoroughly understand, avoiding those that fall outside their expertise. This disciplined approach has helped them to make consistently smart investment decisions while steering clear of areas where they lack knowledge.

We all have areas where we excel—our unique circles of competence. Imagine a circle that represents everything you know well. Inside this circle, you are confident, knowledgeable, and capable. This is where you make your best decisions and produce your finest work. Venturing outside this circle isn't necessarily bad, but it comes with risks. The further you go, the more uncertain and error-prone your decisions become.

Why is it so important to recognize and respect your circle of competence? First, it helps you play to your strengths. When you focus on what you know best, you leverage your skills and expertise to their fullest potential. This not only boosts your performance but also builds your confidence.

Secondly, staying within your circle of competence saves you from costly mistakes. Imagine an investor who understands tech stocks inside out but decides to dabble in pharmaceuticals without proper knowledge. The chances of making poor investment decisions skyrocket because they lack the necessary expertise in that new area.

So, how do you identify your circle of competence? Start by taking a close look at your experiences, education, and interests. What do you know better than most people? What topics can you discuss effortlessly and confidently? These are your areas of strength.

It's also essential to be honest about what lies outside your circle. Acknowledge the gaps in your knowledge and be willing to say, "I don't know." This humility can save you from overreaching and making errors.

Pushing the Edge

You might ask, "Isn’t staying in your circle limiting yourself?"

Sticking to your circle of competence isn't about limiting yourself; it's about recognizing where you can add the most value and where you need to tread carefully. By understanding and respecting your boundaries, you set yourself up for greater success and fewer pitfalls. Just like Buffett and Munger, knowing your circle of competence can be the cornerstone of a smart, successful strategy in any field.

It's also a common problem where we often just place ourselves outside our circle of competence for a task. We struggle by approaching the problem in an unfamiliar way, lacking the necessary understanding. However, if we took the time to tackle it using our strengths, we could make bigger and more efficient strides.

By trying to expand yourself, you don't just go outside your circle, you go to the edges of your circle and push out gradually. You do this through learning and experience. But do so mindfully and patiently, making sure you genuinely understand new areas before fully engaging in them.

This gradual expansion allows you to build a solid foundation in new areas without overwhelming yourself. For example, if you're a marketing expert looking to understand data analytics, start with basic courses and small projects before diving into complex data sets. This way, you maintain your competence while steadily broadening your expertise.

Embrace the process, stay curious, and continuously seek opportunities for growth. By doing so, you’ll enhance your skills and open up new possibilities for success, all while maintaining a high level of achievement by sticking to what you know best.

Quote of the Day

“The most important thing in terms of your circle of competence is not how large the area of it is, but how well you’ve defined the perimeter.” - Warren Buffett

If you know where you excel, you can achieve remarkable successes.