A Circle of Competence is the set of topic areas that align with a person's expertise.
If the entire world of information were to be expressed in a circle, an individual's Circle of Competence is the small sub-circle that represents their expertise.
Circle of Competence 101
Warren Buffett and Charlie Munger often reference the importance of knowing the boundaries of your circle of competence.
But what is a Circle of Competence and how does it work?
Here's Circle of Competence 101!
A Circle of Competence is the set of topic areas that align with a person's expertise.
If the entire world of information were to be expressed in a circle, an individual's Circle of Competence is the small sub-circle that represents their expertise.
"You don’t have to be an expert on every company...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."
It is built through experience, reading, dedicated study, and effort.
It is dynamic, not static.
It can expand as you deepen your knowledge in new areas. It can contract if you fail to nurture your existing areas of expertise.
(1) Identify what falls within your circle
(2) Identify the boundaries of your circle
(1) is all about figuring out what you know, while (2) is about humbly admitting what you don’t.
In investing?
Berkshire Hathaway provides the classic example of investing success from sticking within the boundaries of your Circle of Competence.
At times, it has led to what might look like big misses, including failing to see the potential and invest in Google and Amazon.
As Munger once said, you can become a consistent winner by “trying to be consistently not stupid, instead of trying to be very intelligent."
The best operators know their core competencies and are honest about their incompetencies.
The visionary CEOs hire field general, execution-focused COOs.
The field general CEOs hire visionary product leaders.
Own your competencies, outsource the rest.
First, identify your circle and its boundaries.
What topics do you know more about than most people?
What topics do others look to you on?
What are you constantly excited by and learning more about?
Build checks into your decision process that pressure test whether you are remaining true to your Circle of Competence.
Consistently sticking to your circle will lead to good long-term outcomes.
Embrace intellectual curiosity!
Is there a new topic you are excited about? Read everything you can get your hands on.
We live in an unprecedented era of access to information.
You can seek out thought leaders, ask them questions, read their articles, listen to them speak.
It is truly remarkable. Take advantage!
You may just find that your Circle of Competence begins to grow.
For more, check out the resources below:
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1/ An Allegory of Finance
— Sahil Bloom (@SahilBloom) July 18, 2020
I have been posting a lot of educational (and humorous!) threads on finance, money, and economics.
My mission is simple: to demystify these concepts and make them accessible to everyone.
All of the threads can be found below. Enjoy and please share!
More from Sahil Bloom
THREAD: With #silversqueeze trending on Twitter, it appears that this week's market spectacle may well be in the silver market.
A perfect moment for a thread on the Hunt Brothers and their alleged attempt to corner the silver market...
1/ First, let's set the stage.
The Hunt Brothers - Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt - were the sons of Texas tycoon H.L. Hunt.
H.L. Hunt had amassed a billion-dollar fortune in the oil industry.
He died in 1974 and left that fortune to his family.
2/ After H.L.'s passing, the Hunt Brothers had taken over the family holdings and successfully managed to expand the Hunt empire.
By the late 1970s, the family's fortune was estimated to be ~$5 billion.
In the financial world, the Hunt name was as good as gold (or silver!).
3/ But the 1970s were a turbulent time in America.
Following the oil crisis of the early 1970s, the U.S. had entered a period of stagflation - a dire macroeconomic condition characterized by high inflation, low growth, and high unemployment.
4/ The Hunt Brothers - particularly Nelson Bunker and William Herbert - believed that the inflationary environment would persist and destroy the value of their family's holdings.
To hedge this risk, they turned to silver.
They began buying the metal at ~$3 per ounce in 1973.
A perfect moment for a thread on the Hunt Brothers and their alleged attempt to corner the silver market...
1/ First, let's set the stage.
The Hunt Brothers - Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt - were the sons of Texas tycoon H.L. Hunt.
H.L. Hunt had amassed a billion-dollar fortune in the oil industry.
He died in 1974 and left that fortune to his family.
2/ After H.L.'s passing, the Hunt Brothers had taken over the family holdings and successfully managed to expand the Hunt empire.
By the late 1970s, the family's fortune was estimated to be ~$5 billion.
In the financial world, the Hunt name was as good as gold (or silver!).
3/ But the 1970s were a turbulent time in America.
Following the oil crisis of the early 1970s, the U.S. had entered a period of stagflation - a dire macroeconomic condition characterized by high inflation, low growth, and high unemployment.
Stagflation 101
— Sahil Bloom (@SahilBloom) September 2, 2020
The term "stagflation" is used frequently in discussions of monetary policy and risks in the post-COVID world.
But what is stagflation and how does it work?
Here's Stagflation 101!
\U0001f447\U0001f447\U0001f447 pic.twitter.com/at4FmaCmkM
4/ The Hunt Brothers - particularly Nelson Bunker and William Herbert - believed that the inflationary environment would persist and destroy the value of their family's holdings.
To hedge this risk, they turned to silver.
They began buying the metal at ~$3 per ounce in 1973.
10 threads to accelerate your career:
How to Win (without talent or luck)
20+ principles compiled from the most impressive leaders and thinkers in the world.
20 Ways to Stand Out in a Hiring Process (that don’t involve your resume)
You can stand out without fancy degrees or credentials—learn how.
Common Interview Questions (& how to nail them)
Interviews suck—proper preparation makes them suck slightly less.
How to Write Cold Emails (or DMs)
Because one lucky break can make all the difference…
How to Win (without talent or luck)
20+ principles compiled from the most impressive leaders and thinkers in the world.
How to Win (without talent or luck):
— Sahil Bloom (@SahilBloom) October 16, 2021
20 Ways to Stand Out in a Hiring Process (that don’t involve your resume)
You can stand out without fancy degrees or credentials—learn how.
The hiring process is ultra-competitive.
— Sahil Bloom (@SahilBloom) May 31, 2021
But you\u2019ve incorrectly been told that the only way to stand out is by having fancy degrees and credentials.
THREAD: 20 ways to stand out in a hiring process (that don\u2019t involve your resume):
Common Interview Questions (& how to nail them)
Interviews suck—proper preparation makes them suck slightly less.
The interview process is ultra-competitive.
— Sahil Bloom (@SahilBloom) August 7, 2021
But with proper preparation, it is possible to stand out.
THREAD: 20 common interview questions, what they really mean, and how to nail them:
How to Write Cold Emails (or DMs)
Because one lucky break can make all the difference…
One cold email can change your life.
— Sahil Bloom (@SahilBloom) October 24, 2021
Here's how to write a great one:
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Always. No, your company is not an exception.
A tactic I don’t appreciate at all because of how unfairly it penalizes low-leverage, junior employees, and those loyal enough not to question it, but that’s negotiation for you after all. Weaponized information asymmetry.
Listen to Aditya
And by the way, you should never be worried that an offer would be withdrawn if you politely negotiate.
I have seen this happen *extremely* rarely, mostly to women, and anyway is a giant red flag. It suggests you probably didn’t want to work there.
You wish there was no negotiating so it would all be more fair? I feel you, but it’s not happening.
Instead, negotiate hard, use your privilege, and then go and share numbers with your underrepresented and underpaid colleagues. […]
Always. No, your company is not an exception.
A tactic I don’t appreciate at all because of how unfairly it penalizes low-leverage, junior employees, and those loyal enough not to question it, but that’s negotiation for you after all. Weaponized information asymmetry.
Listen to Aditya
"we don't negotiate salaries" really means "we'd prefer to negotiate massive signing bonuses and equity grants, but we'll negotiate salary if you REALLY insist" https://t.co/80k7nWAMoK
— Aditya Mukerjee, the Otterrific \U0001f3f3\ufe0f\u200d\U0001f308 (@chimeracoder) December 4, 2018
And by the way, you should never be worried that an offer would be withdrawn if you politely negotiate.
I have seen this happen *extremely* rarely, mostly to women, and anyway is a giant red flag. It suggests you probably didn’t want to work there.
You wish there was no negotiating so it would all be more fair? I feel you, but it’s not happening.
Instead, negotiate hard, use your privilege, and then go and share numbers with your underrepresented and underpaid colleagues. […]
