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Drawing a Circle of Competence

This concept, often referred to by Warren Buffett, proposes that an individual think about his/her areas of understanding and try to remain within them when making judgements.

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- From the 1999 Berkshire Hathaway Chairman's Letter:

If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter.

If others claim predictive skill in those industries...


The remaining text is provided in the full PDF that is available for $4.45

*

This idea is explained in a slightly different way by Ludwig von Mises in 'Human Action':

The engineer, on the other hand...

The remaining text is provided in the full PDF that is available for $4.45

Mnemonic:



Hit within the circle