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Mental Models · Card 4
Circle of Competence
Confidence isn't competence.Know where yours ends.
- Inside the circle
- Outside it
- You can explain it simply
- Confident, yet can't explain it
Know the edge of what you actually understand; and stop right there, not one step past it.
In Practice
Trading a strategy you can't explain simply to a friend is a decision made outside your circle of competence, no matter how confident it feels.
Generic Example
Fixing a leaking tap yourself is inside most people's circle of competence. Rewiring the house usually isn't.
Ask yourself
Could I explain the reasoning behind this decision to a stranger in one plain sentence?