1: The good news?
“Every person is going to have a circle of competence,” Charlie Munger writes in Poor Charlie’s Almanack, the Wit and Wisdom of Charlie Munger.
The bad news? “It’s going to be very hard to enlarge that circle,” Charlie observes.
Until his passing in 2023 at the age of 99, Charlie served as Vice Chairman of Berkshire Hathaway, founded by Warren Buffett. Berkshire is one of eight companies with a market value of over $1 trillion.
“If I had to make my living as a musician … I can’t even think of a level low enough to describe where I would be sorted out,” Charlie reasons.
The point? We “have to figure out what our own aptitudes are,” he writes. “If you play games where other people have the aptitudes and you don’t, you’re going to lose.
“And that’s as close to certain as any prediction you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.”
One of the most important things we must do is dedicate ourselves to understanding where our talents lie. We will have advantages and we need to use them.
“But if you try to succeed in what you’re worst at, you’re going to have a very lousy career. I can almost guarantee it,” he says.
2: Let’s say we want to be the world’s #1 tennis player. It quickly becomes evident that this desire is hopeless. Other people will blow right by us.
“However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you,” Charlie observes. “It takes a will. It takes intelligence. But after a while, you’d gradually know all about the plumbing business in Bemidji and master the art.”
That’s within our circle of competence.
“That is an attainable objective, given enough discipline,” he suggests.
“And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence,” Charlie writes.
Here’s what we need to know: “So some edges can be acquired. And the game of life, to some extent, for most of us, is trying to be something like a good plumbing contractor in Bemidji. Very few of us are chosen to win the world’s chess tournaments.”
Which helps explain why Charlie and Warren Buffett generally avoided investments in technology companies. “The fact that we don’t think we’re very good at it and have pretty much stayed out of it doesn’t mean that it’s irrational for you to do it,” he reasons.
3: Getting better at getting better is what RiseWithDrew is all about. Monday through Thursday, we explore ideas from authors, thought leaders, and exemplary organizations. On Fridays, to begin 2025, I am sharing some of Charlie’s wit and wisdom.
Knowing our circle of competence is key. When we are within our circle of competence, we can challenge so-called experts “whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present,” Charlie writes.
“But there are also cases,” he notes, “where you have to recognize that you have no wisdom to add and that your best course is to trust some expert. . . When you don’t know, and you don’t have any special competence, don’t be afraid to say so.”
We must know what we know and what we don’t know.
“What could possibly be more useful in life than that?” Charlie asks.
Because “nobody expects you to know everything about everything,” he reasons. “I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”
More next week!
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Reflection: What are the areas where I truly have an edge? Am I currently involved in a project that falls outside my circle of competence? Am I being honest with myself about where my knowledge ends?
Action: Define the boundaries of my circle of competence and commit to gradually expanding it by learning something new every day.