Circle of Competence

Why a fish should not climb a tree?

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

Put in simple words a person must know what his area of competence is. What he knows the best and what he does not know. He must not hesitate to say *“I don’t know”.*

💡 Each of us through study or experience has built up useful knowledge on certain areas of the world. Some areas are understood by most of us, while some areas require a lot more specialty to evaluate. We must honestly define the areas that we know and stick to them. Our circle of competence can be widened but only over time.

Here is how Charlie Munger uses this modal in real life.

Where should we devote our limited time to get the most success?  He answers the following.

You have to figure out what your aptitudes are. If you play games where other people have the aptitude and you don’t you’re going to lose. You have to find out the areas where you’ve got an edge. And you’ve to play within your own circle of competence.

If you want to be the best tennis player, you can start 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 Manali, that is probably doable by two-thirds of you. It takes the will and it takes the intelligence. Slowly you will know everything about this business in Manali and slowly master the art. That’s 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.

To put it more simply how you can use it in the business is to assign the workers role according to their competence. This concept is also used in Management and I think it is called specialization. In a bakery you would not assign the work of pastry to the worker who knows how to make the best bread. He might be able to do that but not as well as the worker who has gained competence through study and long experience. And operating under the business you know about. You cant directly jump from the bakery business to car manufacturing or some other business. I am not saying that you can't do it but it will take a lot of time to build competence in such area.