Principles: Circle of Competence

Dec 20, 2021 4 min read
Principles: Circle of Competence

Understanding your circle of competence helps you avoid problems, identify opportunities for improvement, and learn from others.

The concept of the Circle of Competence has been used over the years by Warren Buffett as a way to focus investors on only operating in areas they knew best. The bones of the concept appear in his 1996 Shareholder Letter:

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
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