Understanding your Circle of Competence: How Warren Buffett Avoids Problems, Thomas Edison, Salvador Dali, and a Navy SEAL all follow the 20% Rule

Alessio Frateily

Alessio Frateily

Jul 13, 20235 min read

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Understanding your Circle of Competence: How Warren Buffett Avoids Problems, Thomas Edison, Salvador Dali, and a Navy SEAL all follow the 20% Rule

In the world of investing, Warren Buffett is widely recognized as one of the greatest investors of all time. One of the key principles that has guided his success is the concept of the Circle of Competence. Buffett believes that in order to be a successful investor, one must only operate in areas they know best.

The Circle of Competence is a simple concept. Each of us, through experience or study, has built up useful knowledge in certain areas of the world. Some areas are understood by most of us, while others require more specialization to evaluate. By staying within our circle of competence, we can avoid problems and identify opportunities for improvement.

Buffett explains this concept in his 1996 Shareholder Letter, stating, "What an investor needs is the ability to correctly evaluate selected businesses. You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence."

He emphasizes that the size of the circle is not as important as knowing its boundaries. It is crucial to understand where our knowledge and expertise lie. This allows us to make informed decisions and avoid costly mistakes.

To illustrate this point, Buffett shares the story of one of his business managers, a Russian immigrant with poor English who built the largest furniture store in Nebraska. While she had immense success in the furniture and real estate industries, she had no knowledge or understanding of stocks. Buffett explains, "She understands cash. She understands furniture. She understands real estate. She doesn't understand stocks, so she doesn't have anything to do with them."

By staying within her circle of competence, this business manager was able to focus on what she knew best and achieve extreme success. Her narrow area of competence allowed her to overcome her limitations and thrive in her chosen field.

The concept of the Circle of Competence raises an essential question: Where should we devote our limited time in life to achieve the most success? Buffett advises that we must figure out our own aptitudes and play within our circle of competence. It is crucial to identify where we have an edge and focus on developing expertise in those areas.

Buffett provides an example, saying, "If you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you'd gradually know all about the plumbing business in Bemidji and master the art."

This example highlights the importance of discipline and continuous learning. Even those who may not excel in traditional areas of expertise can rise high in life by slowly developing a circle of competence through work and dedication.

Similarly, another principle that supports success is the 20% Rule. Just as we have minimum recommended dosages for maintaining physical health, we must also be rigorous about the minimum dose of deliberate learning that will maintain our economic health.

The 20% Rule is followed by individuals and companies known for their success. Companies like Google, Genentech, and 3M encourage their employees to spend a significant portion of their time on experiments and skill-building. These companies recognize the importance of continuous learning and the impact it has on innovation and growth.

Navy SEAL Jocko Willink advocates for the 20% Rule, stating that SEALs should spend 20% of their week training in order to improve. He emphasizes the need for ongoing learning in professions that require high skills and non-routine activities.

The 20% Rule has also been embraced by individuals like Bill Gates and Warren Buffett. Gates has dedicated an hour per day throughout his career to learning, while Buffett has spent 80% of his entire career reading and thinking.

Thomas Edison is famous for following the 10,000 Experiment Rule, and Elon Musk is known for his dedication to continuous learning, although the exact percentage of his time spent reading is unknown.

All of this research and evidence has led to the conclusion that increasing learning time is crucial for success. Finding at least 10 hours per week for learning is not as difficult as it may seem. By following the 20% Rule, one should aim to spend 8-14 hours per week on learning, depending on their work schedule.

But how can we find the time for learning when we already feel overwhelmed? This is where adaptive learning comes into play. Adaptive learning is a proven approach to finding time for learning by prioritizing and optimizing our schedules.

In conclusion, understanding our Circle of Competence and following the 20% Rule can greatly enhance our chances of success in life and business. By staying within our areas of expertise and dedicating time to continuous learning, we can avoid problems, identify opportunities, and achieve long-term growth. Here are three actionable pieces of advice to implement:

  • 1. Define the perimeter of your Circle of Competence: Take the time to identify your areas of expertise and focus on developing mastery in those areas.
  • 2. Dedicate time to deliberate learning: Follow the 20% Rule and allocate a significant portion of your week to learning and experimentation. This will ensure ongoing growth and improvement.
  • 3. Prioritize adaptive learning: Find ways to optimize your schedule and make learning a priority. Look for pockets of time throughout the day where you can dedicate to learning, and make it a habit to continually seek knowledge.

By implementing these strategies, you can expand your circle of competence, enhance your skills, and increase your chances of success in all aspects of life.

Resource:

  1. "Understanding your Circle of Competence: How Warren Buffett Avoids Problems", https://fs.blog/circle-of-competence/ (Glasp)
  2. "Thomas Edison, Salvador Dali, and a Navy SEAL all follow the 20% Rule", https://medium.com/accelerated-intelligence/thomas-edison-salvador-dali-and-a-navy-seal-all-follow-the-20-rule-427eb55c9b3c (Glasp)

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