Victor lived in a beautiful village for the last twenty years. He was informed about each and every event happening in his village. He developed a huge repertoire of knowledge using his keen observation. John lived in the city and was a businessman by profession. He wanted to open a retail store in the village. He met with all the elite people to gather information about the village. By spending a few days, he assumed he knew almost everything about the village. Coincidently, Victor also wanted to open a retail store in his village. The circle of competence of Victor was larger than John's circle of competence.
Both of them had to take high stake decisions but the quality of their decisions varied significantly. Victor had in-depth knowledge whereas John had shallow knowledge. When both of them encountered any problem then Victor had more than one solution due to his vast array of skills while John was relying on his superficial knowledge. Without even knowing the history of the village, how does John know that he negotiated the best price for the land? All these small mistakes compounded over the years that destroyed John's business. On the other hand, the intelligent decisions made by Victor made him the most successful businessman of his era.
The core idea is to know your circle of competence. The size of the circle doesn't matter but one must know where does the perimeter lies. Operating within your circle of competence will help you in making efficient and productive decisions. Victor was operating within his circle of competence whereas John strayed outside his genius zone and the rest is history.
The fundamental questions arising in your mind are:
What is the Circle of Competence?
How do you know when you have one?
How do you build and maintain one?
How do you operate outside of one?
Learning comes when experience meets reflection. Circle of competence is an ability to know what you know along with that to know what you don't know. In simple words, it's an ability to know what you don't know. When you truly understand something, you have the foundational skills at your disposal to encounter any challenge to make optimal decisions. Optimal decisions give you more time which can be utilized in expanding your skills even more. You have increased the surface area of your luck by expanding your skills. When you don't know what you are doing, it is riskier than when you do know what you are doing.
Charlie Munger on the circle of competence:
We'd rather deal with what we understand. Why should we want to play a competitive game in a field where we have no advantages may be a disadvantage instead of playing in a field where we have a clear advantage? Each of you will have to figure out where your talent lies and use them appropriately. But if you are trying to succeed in what you were worst at, you were going to have a very lousy career. I can almost guarantee it. To do otherwise, you would have to buy a lottery ticket or get very lucky somewhere else.
Your life in this beautiful galaxy is very limited. You can't learn everything on your own. The best way to improve is to learn from the experience of others. Enter into the minds of the genius people by reading their books. Never reinvent the wheel. In fact, stand on the shoulder of giants. Rome was not built in one day. Likewise, building expertise in any area requires rigorous training. Nothing comes so easily in your life. You have to go through the pain to internalize the key concepts.
I'm no genius. I am smart in spots but I stay around those spots. Thomas Watson
Just taking a few courses and having an overview of things doesn't mean that you are competent. A little learning is a dangerous thing. Drink deep from the ocean of knowledge. Shallow learning intoxicates the brain whereas deep learning sobers you. When you don't know what are the right questions to ask or what are the fundamental skills in a particular field then take it as a signal that you have moved out of your genius zone.
The Circle of competence is not a static thing. The world is highly dynamic. Having expertise doesn't mean that circle of competence is achieved. Don't stagnate yourself even when your dreams come true. Keep learning! keep improving! Leaning makes you feel alive.
The key practices to build a circle of competence:
Curiosity and desire to learn.
Monitoring
Feedback
Curiosity and desire to learn: Too many desires will make your life miserable. Having a single desire will give some purpose to your life. Develop sensitivity and curiosity to penetrate deeper into the nature of things to demystify their hidden meanings. The path to mastery is very long and arduous. The journey is full of disappointments, failures, and setbacks. Failures are the beauty of life. It's an opportunity to learn something new. In the end, disappointments will be offset by learning new things.
Ignorance more often begets confidence than knowledge. Charles Darwin
Monitoring: Never shy away from your weakness. No one wants to admit their weakness because it gives a heavy blow to their ego. It's okay to make mistakes. It's only through acceptance you overcome your weakness. You can't improve when you think you are already good at it. Chronicle your progress every day. It will help you to stay on track of mastery. Most of the time you are psychologically biased. It might hamper your progress because the outside view is missing. Hire a coach to prevent that from happening. He is more likely to identify your gaps, techniques that are suboptimal. Honest feedback will accelerate your learning.
Feedback: Take feedback from your colleagues who really want to see you improve. Sometimes they are better equipped than you to provide essential information. Take their criticisms constructively.
Charlie Munger on building the circle of competence:
In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time - zero. You would be amazed to know how much Warren and I read. My children laugh at me. They think I am a book with a couple of legs sticking out.
You can't always remain within your circle of competence. You might have to take HR decisions without having a detailed knowledge of psychology, taking a new project without having a complete understanding, going to a car mechanic without having knowing the inside out of the car. The necessary steps to keep in mind while operating outside of the circle of competence are:
Know the basics of each domain
Talk to experts who are working on it for at least a decade.
Use the foundational principles to navigate unknown territory.
Understanding the atomic principles paves the way in comprehending the complex phenomenon. When you are new to a particular domain, you don't have the mental prowess to discern what is relevant or irrelevant. Experts will help you in filtering out the signal from the noise. Incentives play an important role here. Imagine you went to a shop to buy a new dress. Seeking advice from a shopkeeper is disastrous for you. He wanted to maximize his profit still retaining you as a customer. His profit depends on the kind of advice he gives to you. Never seek advice from people when incentives are misaligned.
Warren Buffet on the Circle of Competence
I couldn't have given Rose Blumkin(CEO of Nebraska Furniture Mart) $200 million of Berkshire Hathway stock when I bought the business because she doesn't understand stock. She understands cash, furniture, and real estate. She doesn't understand stocks, so she doesn't have anything to do with them. If you deal with Mrs. B in what would I call her circle of competence... She is going to buy 5000 end tables this afternoon (if the price is right). She is going to buy 20 different carpets in odd lots, and everything else like that because she understands carpets. She wouldn't buy 100 shares of General Motors if it was 50 cents a share.
Her iron focus on the things she knew best was largely responsible for her massive success in spite of the obstacles she had faced.
The idea of falsification can be used to validate any theory. Falsification means if you can't disprove a statement using an experiment then you can't prove it either. To prove any theory, search for shreds of evidence that will disprove it, and if you won't be able to disprove it then it strengthens its validity. Natural Selection uses the idea of falsification. When mutations occur, natural selection eliminates what doesn't work thereby increasing the fitness of an individual. It is known as proof by contradiction in the world of mathematics.
According to historicism, history follows fixed laws and trends that inevitably lead to certain outcomes. In simple words, things that happened in the past will continue to happen in the future. It is not always the case because the world is changing continuously. Techniques that worked in the past might not work today. Test the idea rigorously before adopting it.
Comments