Finding Your Circle of Competence

People who hope to operate their life successfully must at some time come to grips with the idea of competence.  Doing things that you do not know how to do creates risk. While not everything you do know is riskless, at least you can manage the risk within your circle of competence.

So what to do? There are two thoughts:

“The size of your circle of competence is not very important; knowing its boundaries, however, is vital.”

Warren Buffett

“Just do what you do best.”

Legendary Basketball coach Red Auerbach

Auerbach is right and it probably works for a basketball player. That is a limited environment and skill set. Life is more complicated.  Expanding your circle of competence has great value, but not until you address two factors.

  1. For a while, developing your existing competence may have a higher payback for the same effort. Become excellent at something before trying to become mediocre at some other weak area. (The Auerbach Rule)
  2. Knowing the edge of the circle matters so you don’t get into risky territory where others can take advantage of you. (The Buffett Rule)

People win when they are good at something and do it. They lose when they try to do things they do not understand or lack depth of experience.

Those two conditions do not imply that one should do nothing about new things.  New things are fun and exciting.  Often necessary. The two rules imply that if you are outside your circle of competence, you should be careful.  Perhaps enlist a mentor, a coach or a guide. Possibly restrict the capital employed to amounts that are affordable. In all cases know that some experienced person might see things you do not. There may be easy ways to something that you see as a huge obstacle.

There is another aspect to this that most people do not learn until later in life. Have a Don’t Do List.  It does not imply a Can’t Do List, but it narrows the scope of things you will devote time, money and attention towards. It recognizes that time is a scarce resource and as you grow older the inventory shrinks. Use it better if there is less of it.

Life management is about two factors. Effectiveness and efficiency. The Don’t Do List addresses effectiveness. Do things you  care about. The circle of competence is about efficiency.  Do what you are good at.

You can understand meaning better if you make the distinction. People can assist you with efficiency.  You need to choose effectiveness on your own.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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