The Circle of Competence: Boundaries Matter More Than Size

I just saw Elon Musk teasing Buffett for not investing in Tesla earlier. Buffett has emphasized that knowing your circle of competence’s boundaries matters more than its size. Buffett: ‘Act within your circle of competence; learn outside your comfort zone.’ ‘You do not need expertise in every company, or even many. You only need to assess companies within your competence. ...The size of that circle is not the key; knowing its boundaries is crucial.’ ---- Robin: ‘Knowing the boundary is one thing; continually learning and growing to expand it is another. Yet Buffett shows that respecting limits while reading extensively every day, avoiding noise, thinking independently, and making time your friend can still produce extraordinary achievements.’ ---- Warren Buffett —The key is not how large your circle is, but knowing where it ends. Knowing the boundary can make you much wealthier than someone whose circle is five times larger but who does not know its limits. Nothing will drive me to invest outside my competence. —Many activities are profitable, but you must do only what is within your abilities. We have no way to knock out Tyson. I am realistic: I know what I can do and enjoy my work. Being a Major League Baseball star might be wonderful, but it is not realistic. —For most investors, what matters is not what they know, but whether they truly understand what they do not know. —If we cannot find what we want within the range we trust, we do not expand it. We wait. —Investing must be rational. If you do not understand it, do not do it. —Different people understand different industries. Know which you understand and when a decision falls within your circle. I do only what I fully understand. —Charlie and I have achieved what we have by finding one-foot hurdles we can step over, rather than imagining an ability to leap seven feet.