Circle of Competence
Know the boundary of what you actually understand — and stay inside it, or expand it deliberately before acting outside it. The concept applies to investing, career decisions, and intellectual life generally.
Core Idea
The size of your circle matters less than knowing where the edge is. A person with a small but well-defined circle will outperform someone with a large but poorly-defined one, because the second person doesn't know when they're operating on chauffeur knowledge.
In Investing
Munger and Buffett famously avoided technology stocks for decades — not because tech was bad, but because it was outside their circle. When they finally invested in Apple, it was because the business had become understandable to them as a consumer-brand company, not a tech company.
Expanding the Circle
The circle is not fixed. Munger's mental-models-latticework is a method for systematically expanding it across disciplines. But expansion must be honest — you have to actually build Planck knowledge, not just learn the vocabulary.
Connection to Other Concepts
- epistemic-humility — knowing the limits of your knowledge
- planck-vs-chauffeur-knowledge — the test for whether you're inside or outside your circle
- specific-knowledge — your circle of competence overlaps with what Naval calls specific knowledge