If you don't know where the boundaries of your competence lie, you will be mired in disaster. If you know where the boundary of your circle of competence is, you will be far wealthier than those whose circle of competence is 5 times larger than yours but who don't know where its boundary lies. Charlie Munger and Buffett say that the most important thing for investment success is the circle of competence principle: knowing the boundaries of your own abilities, so that operating within them gives you an advantage over others. Conversely, if you don't know your own limits, your endeavors carry far greater risk of surprises. Therefore, understanding the boundary of your circle of competence is even more important than expanding it.
Where is the boundary of the circle of competence? People's metacognition of their own understanding falls into four categories:
Not knowing what you know - No exposure at all, completely unknown
Knowing what you know - Know it exists, but don't understand it
Thinking you know what you know - Understand a little, but assume you've mastered it
Knowing what you don't know - Actually understand it
Not knowing what you don't know - Internalized as instinct, ready to be activated at any time
Our circle of competence extends only as far as what we know we know. It is worth noting that within this range lies a layer known as the fog zone of assumed knowledge. As a result, our actual circle of competence is smaller than we think, and the less self-aware a person is, the smaller their actual capabilities are.
How can we expand our circle of competence? First, we must understand ourselves, reflect carefully, consolidate our learning, and dispel the fog. Second, think and do more: turn what we know we do not know into what we know we do know. The size of our circle of competence is not the key; knowing its boundaries is. Because only
Only by acting on what we know we know can we act with confidence, gain something, and be considered wise.
Acting without knowing that you know is called rashness,
Acting on the assumption that you know is called foolishness.
Knowing that you do not know but still daring to act is called recklessness,
Acting without knowing that you do not know is called madness; after madness comes destruction.
In other words, if a person does not know how capable they are, even great ability is useless; the bigger the undertaking they dare to take on, the bigger the trouble they will get into.