Circle of competence

[1][2] 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.

"[4] In his 1996 letter to Berkshire Hathaway, Buffett further expanded: What an investor needs is the ability to correctly evaluate selected businesses.

[6] The strategy of operating within their individual circles has been cited as the reason both Buffett and Munger avoided investing in the technology sector.

[7] The breadth of any individual's circle of competence may be determined by a range of factors, including their profession, spending habits, and the types of products they normally use.

Remaining within one's circle confers a number of benefits, such as an unfair information advantage, the narrowing of available options, and the reduction of poor decision making.