Tom Watson [the founder of IBM] said – “I’m no genius. I’m smart in spots and I stay around those spots.”
Charlie Munger and Warren Buffett define these spots where you are smart as your ‘circle of competence’ – the area beyond which you must not venture out if you were to make effective, profitable investment decisions.
I have talked about the circle of competence numerous times in my posts and presentations. But if you still have doubts on this concept, its relevance, the dangers of not adhering to it, when do you know something is within your circle, and how to grow that circle, here is an illustration that, to the best of my knowledge, may help you with the answers.
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Let me know if you think I may have missed out on anything related to the subject in the above illustration.
P.S. You may read a detailed explanation on ‘circle of competence’ here.