Have you wondered what stocks to invest in, what business to start, or even what job to take? Perpahs. You might be wondering what would any of these three even have in common.
But think about it. Would you invest in a business that you don’t understand very well? Some do and pay for it when things go sideways.
Would you start a business offering a service you don’t know much about? I’d say no. Selling and marketing your service is hard enough. Adding a service you don’t know much about would make it even harder.
You apply for a job that you are not pretty sure you couldn’t do. Some people don’t mind overreaching. But, imagine going from a tone-deaf accountant to a full-time pop singer. It just is not going to happen.
What do all of these have in common? Your “circle of competence.” Even Warren Buffet had something to say about that. He advised staying in it. But, just what is and where is the line?
What Is The Circle of Competence?
Imagine you are at bat. There are going to be balls that are easy to hit. There are going to be balls that take some effort. Then there are those that you no matter how hard you try you are just not going to hit them. The area where you can hit the ball and at least go to to first base would be your “circle of competence.”
You know how to do it. You also can do it. You can do it repeatedly and with good results.
There may be things you do know about, but you can’t do it or you can’t do it well. It is the same as watching a video on drumming. You know how to do the drumming by watching the video. But that doesn’t mean that you can move your fingers to layout a beat. It definitely doesn’t mean that you can do it well.
Is it in or out?
When it comes to investing Warren Buffet said this:
You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
Warren Buffet
If the company is outside your area to understand clearly then it is outside your circle of competence. This is great because it greatly narrows down the field. You don’t need to be chasing the latest “hot” stock. Just stick to what you know.
While GAFA has made tremendous runs, Warren Buffet did understand them well and so didn’t invest in them. But he has done pretty well despite that. In the same way you don’t have to go after every potential all-star. You only need one home run to make it big.
But where do you actually drawn the line?
The Problem With Finding Where You Are Competent
There are three things that will get in the way of objectively determine where and how competent you are.
- Dunning-Kruger Effect
- Optimism/Pessimism Bias
- It Feels Natural
Dunning-Kruger: So dumb that you feel smart
The Dunning–Kruger effect is simply a bias where people with low ability overestimate their ability. People with low abilities tend not to know what they don’t know. So, they way overestimate their circle of competence.
On the other hand, more skilled and knowledgeable people tend to know that there are plenty of things they don’t know or can’t do yet. This shows up in their confidence as well. So, it is possible that a confident person is not the one with the best skills. This could just be the Dunning-Kruger effect showing up.
Overshooting or Undershooting your ability
With optimism bias, you just feel that you can do better than what the situation normally allows. This is usually for tasks that people have familiarity with. If you did a survey of how many Americans are better than average drivers, you get 73 percent (2018 AAA Survey).
This is impossible since only 49% of people could ever be better than average. This just goes to show how overly optimistic Americans are. But, if you take a different survey in a different country like Sweden you only see only a slight decrease. In any case, too many people tend to overestimate how good they are. This too can overextend your boundary of the circle of competence.
On the other side, there is a pessimistic bias. This is where you are less confident in how things will work out. You may even see that you are less capable of handling the situation than you actually are.
This can particularly be a problem in such countries as Japan. There the self-confidence rate for teenagers is very low compared to other developed countries. In this case people will shrink their circle of competence smaller than it actually is.
So, how do you find out about how big your circle of confidence is?
You can do a self-inventory. Just start listing the things that you think you are competent in. I would strongly urge that after you have written it, go back and think back to the time when you actually used that skill. Did it go well or not? Then write that down.
Further you can ask multiple people as to what you are good at. Be sure that you have a good enough relationship that they will give you an honest answer. Some people will say nice things in order to be polite. You need to ignore that. What you should look for are trends.
Digging Deeper: There is more than just one circle
Besides the one circle of competence, there are a couple of levels if you dig deeper. Gay Hendricks mentions this in his book, “The Big Leap.” He talks about how every person has several skill levels. These are:
- Just bad at: You’re bad at them and you generally don’t feel good doing them.
- Competent: You’re ok at doing them, others could probably beat you
- Excellent: You’re in the top class compared to others, but for some reason, you don’t quite enjoy it
- Genius: This is where you really excel and you enjoy spending time here.
The thing is many people starting out are not sure what they are competent at let alone what they are geniuses at. Also on the face of it seems that all you have to do is read his book and do some soul searching. After that you will find the answer.
But I feel that life is not like that. You and your skills are not static. You are either adding new abilities or wasting them.
If you don’t use them, they waste away. Your brain is a big energy hog. If you don’t nurture what you have, those circuits will just be recycled for other uses.
The same goes for muscle and physical ability. If you don’t work out regularly you know what happens.
It can tricky determining “great” from “genius”
That being said there are things that people are good at and things that they are naturally really good at. It just takes time trying out a bunch of things to see where the natural talents lie. There is no guru who can figure that out for you. Gurus are not mindreaders nor soul readers.
Still the above is a fairly useful framework to start figuring out what to work on and what to delegate. When you look at the time and cost to do X, ask yourself would I hire me for that task or someone else? Would I spend the time and energy to get really good at it? If the answer is no and no, do something else.
For example, most of us are relatively competent at cleaning the house. But if given the choice would it be better to give that task to a paid help or a Roomba? If it were me I would start with the Roomba.
Write a list out of all the things you are doing. Start putting them in categories of Competent, Excellent, and Genius. Don’t be shy. Then start working on reducing the boring but competent activities using other people’s time. Oh and be sure you quickly get rid of the incompetent ones first.
Expanding The Circle
However, how many of you just want to maintain the skills you have? Don’t you want to better even slightly?
There are two major ways to expand your circle of competence:
- Mastery
- Skill Stacking
Mastery: Getting so good that they can’t ignore you
If you want to learn more about Mastery I would point you to “Mastery” by Robert Greene. Or you could look at the book by Cal Newport called “So Good That They Can’t Ignore You.” Both are excellent on the topic.
Gaining mastery is more than just following whatever you are interested in. There is a lot of work and a lot of deliberate practice. There is also a good deal of pain along the way. Many of us don’t know what we are passionate about. It’s by trying lots of things, sticking to a few, and going deep down the rabbit hole.
That is how you find out what your passionate. But, how you choose is up to you.
Mastery matters when money also matters
In any case, the pursuit of mastery of one particular subject will help you go very far and live a very fulfilled life. Provided that the mastery is connected to a way to generate income.
This not to say that you should pick something that will make you rich. There are plenty of artisans and craftsman that take pleasure in the art. They are not rich, but they make enough to do what they want and can turn down clients when they wish.
You might also think that being a master at obscure Japanese animation would be an income-losing proposition. But it doesn’t have to be. You could create a YouTube channel, build a fan base and then funnel them through a subscription model. This is what Toshio Okada has done. Sometimes it pays to be a Japanese otaku.
Everyone holds his fortune in his own hands, like a sculptor the raw material he will fashion into a figure. But it’s the same with that type of artistic activity as with all others: We are merely born with the capability to do it. The skill to mold the material into what we want must be learned and attentively cultivated.
Johann Wolfgang van Goethe
Skill Stacking: Connecting skills that matter
This leads to the next point of expanding your circle of competence. That is skill stacking. Scott Adams originally came up with the concept in “How to Fail at Almost Everything and Still Win Big.”
The idea here is to work on one skill at a time until you are really competent at it. Then you work on another skill. The trick here is to find a way where you can leverage both. Then you just go on and kept building and leveraging.
Where can skill stacking go wrong?
Where people tend to mess up is:
- not really building up one skill where it will matter
- dabbling a whole bunch of things that you can’t make work together
One could be a decent cartoonist and good speaker and a bad video editor and still make a YouTube channel. But, if you just speak in front of the camera and don’t actually use the cartoon illustrations, the skills don’t stack. Also, even if you are a decent cartoonist, you will still need to see the level of other people on YouTube. You will still need to bring that skill up to the point where it is at least as good as the rest.
But here the thing here is that you don’t want to be the same as all the other cartoon explainer videos on YouTube. So, you need to figure out what other skills you can bring to the table. If you got nothing then now is a good time to learn.
You can get so good at one thing that they can’t ignore you, or you can can pretty good at several skills that compliment each other.
Conclusion
The “Circle of Competence” is a good mental model introduced by Warren Buffet. It helps you make decisions on whether to do invest time and money in something now. However, there are several biases that can sometimes prevent us from truly knowing our circle of competence.
Also, we need to consider that in the future we may want to reduce the boring parts of our circle of competence and extend other parts by pursing mastery or skill stacking. I feel that all of these things together can really help you grow.
If you need more help adding business presentation skills to your stack please, let me know. I help people effectively stack the skills of logic, psychology, and rhetoric to build powerful presentations. A good presentation can make or break a business. Just contact me on Twitter, Facebook, or the contact form here, if you need help.
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