Mental Models · Card 4

Circle of Competence

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.

Could I explain the reasoning behind this decision to a stranger in one plain sentence?