Knowing what you don’t know is a powerful intelligence. As they say, ignorance fosters limitation. Ignorance creates confusion. Ignorance can create losses. Ignorance undermines good intentions. This is why knowledge is described as a form of power.
Knowing a field in and out through study, research, or firsthand experience provides a platform for success. Hence, in investing, building a business or career, the preceding offers valid wisdom.
Straight to the discourse, “area of competence” is a term used to describe the specific boundaries of one’s or an organisation’s skills, knowledge, and capabilities. It represents unique, specialised expertise in which one has acquired sufficient knowledge and practical ability to excel.
Similar to the term is ‘Circle of competence’, popularised by Warren Buffett. It describes the advantage of operating in an industry or field where one has extensive knowledge gained over years of experience. Because it is a circle, it has a diameter and a radius. The key is knowing where you are within your diameter and radius, and understanding where you are veering off into unrelated adjacent areas. Veering beyond the circumference of your competence can throw up illusions and fantasies that provide a slim chance of success. It is like a gamble, which isn’t good when one is building a business or making a conscious investment.
Meanwhile, the terms area and circle of competence share a similarity – they capture the benefits of possessing more than average knowledge and experience in a field. This is also called earned knowledge. Earned knowledge delivers competence, when leveraged over time in making an investment and building a business/ career decision, can help you spot opportunities that others gloss over.
Precisely, in a capitalist economy where money moves towards value, competence is a huge lever. It is how the wise capture more value and move money away from the arrogant, the foolish, the impatient and the incompetent.
Businessman Charles Munger wrote, “I want to think about things where I have an advantage over other people. I don’t want to play a game where people have an advantage over me. I don’t play in a game where other people are wise and I am stupid. I look for a game where I am wise, and they are stupid. And believe me, it works better. God bless our stupid competitors. They make us rich.”
You can readily predict your future success in a business by your competence level in the industry. Most importantly, here are three competence keys you have to consider when deciding on where to invest, what business to build:
- What is your level of aptitude in the field? – Big investors admit that if you play in a game where others have more aptitudes than you, you are likely going to lose. Going into any field isn’t hopeless, though. You can build the competence required over time, but then you have to put in the work and be willing to learn while guiding discouragement arising from knocks and winds that are often lurking around paths you are not familiar with.
- Focus on outcome over ego – You don’t have to shoot destiny at scrap. You must be more intentional about success. This involves focusing on the outcome. Arrogance doesn’t win business. Confidence without a sufficient level of skills and knowledge could lead to irreparable blunders. So, you always need to ask yourself if you know enough about where your business interest lies. Munger said, “If you want to succeed, you’ve got to do two things. You’ve got to have a certain amount of confidence. And you have to know what you know and what you don’t know. You have to know the edge of your competency. And if you know the edge of your competency, you’re a much safer thinker and a much safer investor than you are if you don’t know it.”
- Stay within your circle of competence or expand it – To raise the odds of success in any field, as mentioned earlier, stay within your circle of competence and, over time, work to expand it to ensure consistent alignment with market transformation. Market moves, economy makes new demands, consumers change. It is important to gradually expand your circle of competence to maintain operational relevance.
