The Money Guru: Why you should define your circle of competence

You will often hear business coaches say that confidence is key to success. While this is certainly true, humility is no less of a virtue.

Confidence and humility should not be seen as opposites, but rather the antidotes to, respectively, shyness and overconfidence, both of which present pitfalls.

It can be tempting for those who have achieved a level of success to believe that they hold all the answers. Admitting ignorance of certain topics, and asking for help from others with more knowledge and experience, can be a difficult prospect, but is just as important a factor to business success.

Famed investor Warren Buffett in fact called “defining your circle of competence” as “the most important aspect of investing”.

“It’s not how large your circle is,” he said. “You don’t have to be an expert on everything. But knowing where the perimeter of that circle of what you know and what you don’t know is and staying inside of it is all-important.”

He continued: “So, if I understand a few things, and I stick in that arena, I’ll do okay. And if I don’t understand something but I get all excited about it because my neighbours are talking about it and the stocks are going up and everything, I’ll start fooling about some place else, and eventually I’ll get creamed, and I should.”

Mr Buffett referred to another leading entrepreneur: “It was Tom Watson Snr, who started IBM, who said, ‘I’m no genius, but I’m smart in spots, and I stay around those spots.’ And that is the key.”

Diana Tremblay, General Motors vice president of global business services, meanwhile said that that best career advice she ever received was to accept that being a leader does not mean claiming knowledge on everything.

“Don’t think because you’re a leader that you have all the answers,” she said. “You should make sure you’re spending as much time listening, if not more, than talking. And make sure that you’re not afraid to ask for help if there are things you don’t know – I can guarantee there are things you don’t know.”

She added: “It’s OK to reach out and ask for help, and allow those people that have that expertise to contribute. You don’t have to know it all because you’re the leader.”