>[!abstract] >A circle of competence is the subject area which matches a person's skills or expertise. The concept was developed by Warren Buffett and Charlie Munger as what they call a mental model, a codified form of business acumen, concerning the investment strategy of limiting one's financial investments in areas where an individual may have limited understanding or experience, while concentrating in areas where one has the greatest familiarity. The strategy emphasizes the importance of aligning one's subjective assessment with actual competence. Buffett summarized the concept in the motto, "*Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital*" ("Wikipedia", 2025). >[!example] Examples >- **Clive Woodward** was coach of the England team from 1997 to 2004, managing them to victory in the 2003 Rugby World Cup against Australia. England remain the only team from the Northern Hemisphere to have won the World Cup. Woodward became a national hero and was subsequently knighted in 2004. That same year, he announced a switch to football, despite having no experience in the sport. He then had a very disappointing two-year stint at the Southampton Football Club before resigning. > >- **Michael Jordan** played 15 seasons in the NBA between 1984 and 2003, winning six National Basketball Association (NBA) championships with the Chicago Bulls. He is considered to be one of the greatest players of all time. In 1993, Jordan announced his retirement, saying that he lost his desire to play basketball. He then signed a Minor League Baseball (MiLB) contract with the Chicago White Sox in 1994. He batted .202 (a very poor average, especially as this was Minor League) and left baseball the following year, returning to the NBA, after which the Bulls finished with the best regular season record in NBA history. >[!related] >- **North** (upstream): [[Specialization]] >- **West** (similar): — >- **East** (different): [[Dunning-Kruger effect|Beginner's bubble]], [[Dunning-Kruger effect]] >- **South** (downstream): [[Peter principle]]