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You are here: Home / Investing / Circle of Competence: What and Why

Circle of Competence: What and Why

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.

Circle of Competence - Safal Niveshak
Click here to download a larger image

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.

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  1. Investing And The Art Of Cloning – My Option Alerts says:
    January 1, 2019 at 7:34 pm

    […] ‘staying within your circle of competence‘ is exactly what Buffett also advises, right? Another shameless cloning by Mohnish, you see. […]

    Reply
  2. Investing And The Art Of Cloning – The American Investor Daily says:
    January 1, 2019 at 7:51 pm

    […] ‘staying within your circle of competence‘ is exactly what Buffett also advises, right? Another shameless cloning by Mohnish, you see. […]

    Reply
  3. Investing And The Art Of Cloning – Daily Wealth Alerts says:
    January 1, 2019 at 7:55 pm

    […] ‘staying within your circle of competence‘ is exactly what Buffett also advises, right? Another shameless cloning by Mohnish, you see. […]

    Reply
  4. How to Screen for Stock Ideas - Safal Niveshak says:
    February 22, 2019 at 12:38 pm

    […] 2: From the list of companies you get, exclude those outside your circle of competence – businesses you “know” you don’t understand (like I would exclude commodity businesses […]

    Reply
  5. Rule Number One: Never Lose Money | Safal Niveshak says:
    March 11, 2019 at 12:51 pm

    […] outside their circle of competence and buying businesses they don’t understand but just because a few others have recently made […]

    Reply
  6. Rule Number One: Never Lose Money – Involvement Investments says:
    March 12, 2019 at 1:33 am

    […] outside their circle of competence and buying businesses they don’t understand but just because a few others have recently made […]

    Reply
  7. Circle of Competence: What is it? How to find it? – INFIMONEY says:
    March 14, 2019 at 10:35 am

    […] Khandelwal, Author of Safal Niveshak in his value investing master class says, in order to find if a stock or business falls under your […]

    Reply
  8. The Mindset: Stock or Business? | Arjun Badola says:
    October 25, 2020 at 11:29 am

    […] is a photo by Safal Niveshak which explains this […]

    Reply
  9. Investing and the Art of Cloning - Safal Niveshak says:
    May 18, 2022 at 3:15 pm

    […] ‘staying within your circle of competence’ is exactly what Buffett also advises, right? Another shameless cloning by Mohnish, you see. But […]

    Reply

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