A more beautiful question - the art of asking good questions

The art and science of asking questions is the source of all knowledge. Thomas Berger

To grow in life and in career, we need to keep learning new things and how we can learn new things is by knowing what we don’t know. The answer of what we don’t will come from asking good questions. And once we start asking questions, our ignorance will be gone and our knowledge will increase.

Socrates, the Greek philosopher and one of the founders of Western philosophy, devised a method called Socratic Questioning on asking good questions.

Socratic questioning is disciplined questioning that can be used to pursue thought in many directions and for many purposes, including: to explore complex ideas, to get to the truth of things, to open up issues and problems, to uncover assumptions, to analyze concepts, to distinguish what we know from what we don’t know, to follow out logical implications of thought, or to control the discussion. The key to distinguishing Socratic questioning from questioning per se is that Socratic questioning is systematic, disciplined, and deep, and usually focuses on fundamental concepts, principles, theories, issues, or problems. (Source: Wikipedia)

Professor Bakshi, in his immensely educating post Playing Socratic Solitaire on A Gal Called NIMBY, writes –

Charlie Munger started using these Socratic devices in a variation he called Socratic Solitaire, because, instead of a dialogue with someone else, his method involves solitary play. Munger used to display Socratic Solitaire at shareholder meetings of Wesco Corporation. He would start by asking a series of questions. Then he would answer them himself. Back and forth. Question and Answer. He would do this for a while. And he would enthrall the audience by displaying the breadth and the depth of his multidisciplinary mind.

What warren buffet wrote on asking good questions in 2017 Birkshire hathaway annual letter:

our hope is that the analysts and journalists will ask questions that add to our owners’ understanding and knowledge of their investment. Neither Charlie nor I will get so much as a clue about the questions headed our way. Some will be tough, for sure, and that’s the way we like it.

We ask question, to know something that we don't know and via asking question, we learn the worldly wisdom. What Socrates said on wisdom:

The only true wisdom is in knowing you know nothing. -Socrates

An average four-year-old kid in Britain asks around 400 questions a day. But as we grow in age, we stop asking questions. Our reading and writing skills went up but our questioning skills went down a lot. In the book A More Beautiful Question – Warren Berger explains why questions are more important than answers and how to improve our questioning skills.

Let’s figure out why as we grow, we stop asking questions?

To ask a right question, we need to put pressure on our mind and we need to think and articulate a right question, so that we don’t look like a fool to others.

We are made in such a way that we try to avoid this mental pressure, so most of the time we avoid asking questions and accept whatever comes to our way or whatever presented to us.

To question, we need to first understand our ignorance that we know nothing. We need to be curious to ask questions, we should be having the fire within yourself to know the things out there.

To get the wisdom, we need to remove the garbage from out mind and fill it with right questions and wisdom. We can get the wisdom from books, great leaders, teachers, good blogs, good friends and by our own experience.

We must understand that the questions are more valuable than the answers.

Someone asked Albert Einstein for his phone number. Einstein looked up for his own number in the phone book. When asked why a genius like him cannot remember his own number, he replied – there’s no reason to fill his mind with information that can easily be looked up. This is very true In the current era of internet.

If I want to know something or about someone, why to remember, if I can get that from the internet easily.

Albert Einstein once said –

If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.

The same is said by Abraham Lincoln as well-

Give me six hours to chop down a tree and I will spend the first four sharpening the axe. 

He(Albert Einstein) spends a lot of time to come up with the right question to ask. Finding out the right question to ask is very difficult. It is a skill one must develop by practicing. Warren Berger calls this right question as a most beautiful question.

A beautiful question is an ambitious yet actionable question that can begin to shift the way we perceive or think about something – and that might serve as a catalyst to bring about change.

To ask good questions that produces change he(Warren Berger) proposes a framework called as Why-What If-How:

Why – Person encounters a situation that is less than ideal and asks why.
What If – Person begins to come up with ideas for possible improvements and solutions – with such ideas usually surfacing in the form of what If possibilities.
How – Person takes one of those possibilities and tries to implement it or make it real; this mostly involves figuring out how.

To ask a good question, just adopt the following suggestions:

1. You should know the end purpose: Before asking the question, you should be aware about what you want to achieve by asking the question. You should be clear on your requirement.

2: Your question should be in a planned way: Once you know the end goal, and then plan all your questions in a systematic manner, so the answer should guide you towards your goal or requirement.

3: Your question should be in the form of an open conversation: Ask question in a way that will open the doors for an interesting conversation. Participate in the discus and understand the scenario to the depth.

4: Use simple language: Don't try to be over smart and don't use the tough words to ask the questions, use as simple as possible words to ask the question.

5: Ask one thing at a time:  Don't try to mingle all your questions in a single big sentence. Just break it in small and simple questions and ask one by one. Don't confuse yourself and the person, to whom you are asking the questions.

6: Ask only important questions: Don't waste your time as well as the person who is giving the answers. Ask only the questions that are important.

7: Don't interrupt, Listen first carefully: While the person is giving the answer of your question, don't interrupt in the middle, let him first complete the answer, then ask the next question.

8: Read good stuff, to understand the big picture: To enhance your persona, read good books and good stuff like this blog. Via reading, you learn new things and your quality of question asking will improve so the wisdom will improve. Everything is linked; it’s a butter-fly effect in play.

Let's see, how asking good questions help you:

1.     Asking good questions provide clarity to your knowledge and allow your mind to understand everything in a better and broad sense

2.     Asking good questions at work place benefits you to make better working relations. As an example of question - Instead of “Did you make your sales goal?” asks, “How have sales been going?”

3.     Asking good questions help you to thing in analytical and logical way. You think about the consequences of every action or inaction.

4.     They inspire people to reflect and see things in fresh, unpredictable ways: “Why did this work?” and "Why did this does not work?”

5.     They encourage out of the box thinking: for any situation you thing different ways for the solution - “Can that be done in any other way?”

6.     They challenge assumptions, they force you to think: “What do you think you will lose if you start sharing responsibility for the implementation process?”

7.     They create ownership of solutions, you started feeling that the work in hand is your responsibility and this will improve your work attitude: “Based on your experience, what do you suggest we do here?”

8.     You started feeling more responsible.

I will end the post with the beautiful suggestion by Mr. Charlie Munger : 

Disclosure: To write this post, i have taken the help from Safal Niveshak, Fundoo Professor and janav's writings. This are really wonderful people, please do read this blogs as well. Thanks Sanjay sir, Vishal and Jana for the wonderful blogs.

- Keep reading, Keep Learning

- Mahesh

The Perils of Overconfidence

Never be afraid to fail. Failure is only a stepping stone to improvement. Never be overconfident because that will block your improvement. - Tony Jaa

What is overconfidence?

As per the definition- the quality of being too confident; excessive confidence is called the overconfidence. The definition says it’s a quality but in real life this quality is dragging us from our own improvement and is lacking us from the real success.

Most of the time we are too much confident(Overconfident) that we are right in our decision, in our way of thinking or in our way of work. We don’t even think from other person point of view(Empathy).

Due to this kind of overconfident, we don’t get the wisdom of the world, we don’t expand our mental or thinking ability, we stop thinking in a broad way. We just behave like the frog who knows only till the periphery of the well. Out of the well, he thinks there is no world.

Daniel Kahneman, the psychologist and writer said:

We're generally overconfident in our opinions and our impressions and judgments. - Daniel Kahneman

Normally we are overconfident while giving opinions and making judgement, it is the default human behavior.

Maria Konnikova, the writer of the book Mastermind-how to think like Sherlock Holmes writes on overconfidence in the book-

how do we make sure we don’t fall victim to overly confident thinking, thinking that forgets to challenge itself on a regular basis? No method is foolproof. In fact, thinking it foolproof is the very thing that might trip us up. Because our habits have become invisible to us, because we are no longer learning actively and it doesn’t seem nearly as hard to think well as it once did, we tend to forget how difficult the process once was. We take for granted the very thing we should value. We think we’ve got it all under control, that our habits are still mindful, our brains still active, our minds still constantly learning and challenged—especially since we’ve worked so hard to get there—but we have instead replaced one, albeit far better, set of habits with another. In doing so we run the risk of falling prey to those two great layers of success: complacency and overconfidence. These are powerful enemies indeed.

Maria continues overconfidence as –

Confidence in ourselves and in our skills, allows us to push our limits and achieve more than we otherwise would, to try even those borderline cases where a less confident person would bow out. A bit of excess confidence doesn’t hurt; a little bit of above-average sensation can go a long way toward our psychological well-being and even our effectiveness at problem solving. When we’re more confident, we take on tougher problems than we otherwise might. We push ourselves beyond our comfort zone.

Confidence is good for our growth, it allows us to work hard and grow more but overconfidence affect us psychologically, it makes us to feel that we only do it and make us rude and arrogant.

But there can be such a thing as being too certain of yourself: overconfidence, when confidence trumps accuracy. We become more confident of our abilities, or of our abilities as compared with others’, than we should be, given the circumstances and the reality. The illusion of validity grows ever stronger, the temptation to do things as you do ever more tempting. This surplus of belief in ourselves can lead to unpleasant results—like being so incredibly wrong about a case when you are usually so incredibly right, thinking a daughter is a husband, or a loving mother, a blackmailed wife.

Studies have shown that with experience, overconfidence increases instead of decreases.

The more you know and the better you are in reality, the more likely you are to overestimate your own ability—and underestimate the force of events beyond your control.

In one study, CEOs were shown to become more overconfident as they gained mergers and acquisitions experience: their estimates of a deal’s value become overly optimistic (something not seen in earlier deals).

In another, in contributions to pension plans, overconfidence correlated with age and education, such that the most overconfident contributors were highly educated males nearing retirement. In research from the University of Vienna, individuals were found to be, in general, not overconfident in their risky asset trades in an experimental market—until, that is, they obtained considerable experience with the market in question. Then levels of overconfidence rose apace.

What’s more, analysts who have been more accurate at predicting earnings in the prior four quarters have been shown to be less accurate in subsequent earnings predictions, and professional traders tend to have a higher degree of overconfidence than students. In fact, one of the best predictors of overconfidence is power, which tends to come with time and experience.

Maria suggests in her book

Overconfidence causes blindness, and blindness in turn causes blunders. We become so enamored of our own skill that we discredit information that experience would otherwise tell us shouldn’t be discredited—even information as glaring as Watson telling us that our theories are “all surmise,” as he does in this case—and we proceed as before. We are blinded for a moment to everything we know about not theorizing before the facts, not getting ahead of ourselves, prying deeper and observing more carefully, and we get carried away by the simplicity of our intuition.

Overconfidence replaces dynamic, active investigation with passive assumptions about our ability or the seeming familiarity of our situation. It shifts our assessment of what leads to success from the conditional to the essential. I am skilled enough that I can beat the environment as easily as I have been doing. Everything is due to my ability, nothing due to the fact that the surroundings just so happened to provide a good background for my skill to shine. And so I will not adjust my behavior. Holmes

Overconfident traders have been shown to perform worse than their less confident peers. They trade more and suffer lower returns. Overconfident CEOs have been shown to overvalue their companies and delay IPOs, with negative effects. They are also more likely to conduct mergers in general, and unfavorable mergers in particular. Overconfident managers have been shown to hurt their firms’ returns. And overconfident detectives have been shown to blemish their otherwise pristine record through an excess of self-congratulation.

What Charlie Munger said on overconfidence:

Similarly, the hedge fund known as ‘Long-Term Capital Management’ recently collapsed, through overconfidence in its highly leveraged methods, despite I.Q.’s of its principals that must have averaged 160. Smart, hard-working people aren’t exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.

How you can detect the overconfidence?

Maria suggests some solution points to identify the overconfidence, let’s explore:

The best remedy for overconfidence is knowing when it is most likely to strike.

Spotting overconfidence, or the elements that lead to it, in others is one thing; identifying it in ourselves is something else entirely, and far more difficult.

Four sets of circumstances tend to predominate.

1.    overconfidence is most common when facing difficulty:

For instance, when we must make a judgment on a case where there’s no way of knowing all the facts. This is called the hard-easy effect. We tend to be underconfident on easy problems and overconfident on difficult ones. That means that we underestimate our ability to do well when all signs point to success, and we overestimate it when the signs become much less favorable, failing to adjust enough for the change in external circumstances.

Repeatedly, researchers have found that as the difficulty of the judgment increases, the mismatch between confidence and accuracy (overconfidence) increases dramatically.

One domain where the hard-easy effect is prevalent is in the making of future predictions - Consider the stock market. It’s impossible to predict the movement of a stock. Sure, you might have experience and even expertise - but you are nevertheless trying to predict the future.

people who at times have outsized success also have outsized failures? The more successful you are, the more likely you are to attribute everything to your ability—and not to the luck of the draw, which, in all future predictions, is an essential part of the equation. (It’s true of all gambling and betting, really, but the stock market makes it somewhat easier to think you have an inside, experiential edge.)

2.    overconfidence increases with familiarity

If I’m doing something for the first time, I will likely be cautious. But if I do it many times over, I am increasingly likely to trust in my ability and become complacent, even if the landscape should change. And when we are dealing with familiar tasks, we feel somehow safer, thinking that we don’t have the same need for caution as we would when trying something new or that we haven’t seen before.

In a classic example, Ellen Langer found that people were more likely to succumb to the illusion of control (a side of overconfidence whereby you think you control the environment than you actually do) if they played a lottery that was familiar versus one that was unknown.

It’s like the habit formation that I have explained in this post.

Each time we repeat something, we become better acquainted with it and our actions become more and more automatic, so we are less likely to put adequate thought or consideration into what we’re doing.

3.    overconfidence increases with information

If I know more about something, I am more likely to think I can handle it, even if the additional information doesn’t actually add to my knowledge in a significant way.

This is the exact effect we observed with the clinicians who were making judgments on a case, the more information they had about the patient’s background, the more confident they were in the accuracy of the diagnosis, yet the less warranted was that confidence.

4.    overconfidence increases with action

As we actively engage, we become more confident in what we are doing.

In one classic study, Langer found that individuals who flipped a coin themselves, in contrast to watching someone else flip it, were more confident in being able to predict heads or tails accurately, even though, objectively, the probabilities remained unchanged.

Another instance found when, individuals who chose their own lottery ticket were more confident in a lucky outcome than they were if a lottery ticket was chosen for them.

Let’s take the case of traders once again. The more they trade, the more confident they tend to become in their ability to make good trades. As a result, they often overtrade, and in so doing undermine their prior performance.

You should always remind yourself about our fallibility and ability to deceive ourselves into a very confident blunder.

Let me end the post with the excellent quote by Charles Bukowski

The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence.

Keep reading, Keep learning
-Mahesh

Learn From Your Failures Just as You Do from Your Successes

"One child, one teacher, one book, and one pen, can change the world." ― Malala Yousafzai

We never stop learning, we always learn in one way or in another, but we continue to learn. The education that we receive in our schooling is not only the learning we have. Our actual learning will start once we come out of the school or college and start working in the real world.

We learn at our work place, we learn from our collogues or from our friends. We learn from our enemies as well. We learn from our failures and from our experiences.

Most of the time, we learn from our experiences and from the people around us. But if someone want to improve his learning, then he have to learn from other's experiences as well.

How you can learn from other’s experience?

The answer lies in the reading of good books  and it is also important to learn how to read abook?

Read good books from great authors and learn from there experiences. By developing this small habit, will help you to take right decisions and help you to grow in your life.

By reading and writing, we learn from our experiences as well as from other’s experiences.

Maria konnikova, in the book Mastermind how to think like sherlock holmes writes that we never stop learning, we always learn. Let’s read what she write-

"In observing Watson’s fallacies in this particular instance, Holmes learns ever more about the pitfalls of the thought process, those moments when it is easy to go astray—and precisely in which direction the false path usually lies. From this encounter, he will take away the power of stereotype activation and the overwhelming influence an improper initial frame can have on the inferences that follow, as well as the error that is introduced when one fails to consider every observation and focuses instead on the most salient, recent, or otherwise accessible ones. Not that he doesn’t know both of these things already, but each time serves as a reminder, a reinforcement, a new manifestation in a different context that ensures that his knowledge never goes stale.”

Holmes always keep a keen eye on all the events, on how the other person behave and act, on the things around him and he observe very closely and learn from his observation. Maria Continues-

“Education is all well and good, but it needs to be taken from the level of theory to that of practice, over and over and over—lest it begin to gather dust and let out that stale, rank smell of the attic whose door has remained unopened for years."

Maria suggests that whatever we read or learn, we should bring the learning to the practice. Then only we can learn. While practicing we do mistakes and by mistakes, we open the new door for more learning and this is how the knowledge will expand.

“Practice is the hardest part of learning, and training is the essence of transformation.” ― Ann Voskamp

Mahatma Ghandi suggests, how to live and learn:

“Live as if you were to die tomorrow. Learn as if you were to live forever.” ― Mahatma Gandhi

Read the autobiography of Mahatma Gandhi, My experiments with truth, and you come to know that Mahatma Gandhi is a great learner from his experience as well as from other’s experience. He never stops learning.

There is another way to learn more and that is teaching to other person, whatever you learned. 

Charlie Munger sugegsts:

“The best thing a human being can do is to help another human being know more.”  Charlie Munger

By teaching, you come to know, what you don’t know and knowing what you don’t know is the real wisdom and factual knowledge.

If you don’t believe, just start teaching a simple thing to a toddler that you just learn. You come to know that there are many questions that are still unanswered.

In Mr. Feynman words, you just know the name of the thing, not the thing. You must know difference between knowing the name of something and understanding the thing.

"See that bird? It's a brown-throated thrush, but in Germany it's called a halzenfugel, and in Chinese they call it a chung ling and even if you know all those names for it, you still know nothing about the bird. You only know something about people; what they call the bird. Now that thrush sings, and teaches its young to fly, and flies so many miles away during the summer across the country, and nobody knows how it finds its way."

Once you start thinking in the direction of understanding something, your knowledge will expand exponentially and your learning will not have any limits.

Learn From Your Failures Just as You Do from Your Successes. Its true that we learn from our failures but we must learn from our successes as well. Once you get failed or get succeed, just analyse the events and try to figure out the causes of the failure or success and learn from the events. 

Think if the events not go in the way, the way it happens. What are the consequences? Think like a devil advocate. 

For any work, just do a pre mortem.

I will end the discussion with the quote by Einstein:

 Keep reading, keep learning

-Mahesh

Brain food - Books to read part 1

Whenever you read a good book, somewhere in the world a door opens to allow in more light. –Vera Nazarian

I will share some books that I have read and found very interesting and knowledgeable to share on the blog.

Please read the books and the summary to understand what the book contains and what you can learn from the book.

1: The secret by Rhonda Byrne:

The secret by Rhonda Byrne is my best book on personal development and thought improvement. The book’s main lesson is "It’s all in the mind" i.e. you can get everything you truly desire.

The essence of the book is the power of our minds, which if identified and unleashed properly, can create waves of positive changes in our life. It deals with tuning our thought process which has the capability of making things happen. Everything that happens to us is directly or indirectly the doing of our own thoughts, which if modeled properly, can change everything in our lives. The book deals with the above-mentioned theory scientifically, saying that our thoughts are magnetic and a frequency is associated with each one of them and when they are sent out into the universe, they attract like objects which are reflected to us. In short, our thoughts become things.

2: The monk who Sold his Ferrari by Robin Sharma:

The Monk Who Sold His Ferrari: A Fable About Fulfilling Your Dreams & Reaching Your Destiny, by Robin Sharma, is an interesting book - it’s a fable, and it’s one that will certainly make you give some thought to your life, your goals, your dreams and how your daily habits help you reach those dreams. Yes, it’s a jumble of too many ideas, but you can pick and choose, and the ideas contained within are potentially very powerful.

3: The Alchemist by Paulo Coelho:

The Alchemist is a story of a shepherd in search of true wealth, true love and meaning of life. The book talks about following your dreams, Love and Treasure of the present. The book teaches you that the true wealth is in present, in the place where you are.

We, normally in search of true wealth, love and life roam here and there but in reality, the true wealth is in the present moment only, neither in the past nor in the future. The book teaches us live the life to its fullest in the current moment.

Paulo Coelho's masterpiece tells the mystical story of Santiago, an Andalusian shepherd boy who yearns to travel in search of a worldly treasure. His quest will lead him to riches far different—and far more satisfying—than he ever imagined. Santiago's journey teaches us about the essential wisdom of listening to our hearts, of recognizing opportunity and learning to read the omens strewn along life's path, and, most importantly, to follow our dreams.

4: The checklist manifesto by Atul Gawande:

We live in a world of great and increasing complexity, where even the most expert professionals struggle to master the tasks they face. Longer training, ever more advanced technologies ‘neither seems to prevent grievous errors, The Checklist Manifesto is essential reading for anyone working to get things right.

The book helps you to make the right decisions in business, life and at work.

5: Seeking wisdom: from Darwin to Munger by Peter Bevelin:

This is my favorite book, and I recommend everyone to read it. This book give the answer of so many question, so many WHYs.

"A man who has committed a mistake and doesn't correct it, is committing another mistake."-Confucius

What goodreads say about the book:

This book is for those who love the constant search for knowledge. It is in the spirit of Charles Munger, who says, "All I want to know is where I'm going to die so I'll never go there." There are roads that lead to unhappiness. An understanding of how and why we can "die" should help us avoid them. We can't eliminate mistakes, but we can prevent those that can really hurt us.
Using exemplars of clear thinking and attained wisdom, Bevelin focuses on how our thoughts are influenced, why we make misjudgments and tools to improve our thinking. Bevelin tackles such eternal questions as: Why do we behave like we do? What do we want out of life? What interferes with our goals?
Read and study this wonderful multidisciplinary exploration of wisdom. It may change the way you think and act in business and in life.

6: 48 laws of power by Robert Greene:

This is also one my favorite book and I have written a full post on this book and the lessons tough by the book. You can read it here.

This book is all about, to make you wiser. This amoral, cunning, ruthless, and instructive book synthesizes the philosophies of Machiavelli, Sun Tzu, and Carl Von Clausewitz with the historical legacies of statesmen, warriors, seducers, and con men throughout the ages.

7: Mastermind: How to think like Sherlock Holmes by Maria konnikova:

This book helps you to think like Sherlock Holmes. It teaches how to gather information and then how to discard the unnecessary information and work with the remaining true information to get to the truth.

We can, says psychologist and journalist Maria Konnikova, and in Mastermind she shows us how. Beginning with the "brain attic"--Holmes's metaphor for how we store information and organize knowledge--Konnikova unpacks the mental strategies that lead to clearer thinking and deeper insights. Drawing on twenty-first-century neuroscience and psychology, Mastermind explores Holmes's unique methods of ever-present mindfulness, astute observation, and logical deduction.

8: The intelligent investor by Benjamin Graham:

This is the best book on value investing, you can say father of value investing. It teaches you all about value investing but you should have patience while reading the book. Read this book slowly and grasp the wisdom. This is the bible of value investing. A must read if you are an investor.

9: One upon wall street By Peter Lynch:

This another investment book that you must read. This book teaches you how you can find best investment ideas around you like Jockey, we use it daily but never think about the stock.

In easy-to-follow terminology, Lynch offers directions for sorting out the long shots from the no shots by spending just a few minutes with a company's financial statements. His advice for producing "ten baggers" can turn a stock portfolio into a star performer!

10: The Dhandho investor: The Low-Risk Value Method to High Returns by Mohnish Pabrai

This book also teaches you the value investing.

A comprehensive value investing framework for the individual investor in a straightforward and accessible manner, The Dhandho Investor lays out the powerful framework of value investing. Written with the intelligent individual investor in mind, this comprehensive guide distills the Dhandho capital allocation framework of the business savvy Patels from India and presents how they can be applied successfully to the stock market. The Dhandho method expands on the groundbreaking principles of value investing expounded by Benjamin Graham, Warren Buffett, and Charlie Munger. Readers will be introduced to important value investing concepts such as "Heads, I win! Tails, I don't lose that much!" "Few Bets, Big Bets, Infrequent Bets," Abhimanyu's dilemma, and a detailed treatise on using the Kelly Formula to invest in undervalued stocks. Using a light, entertaining style, Pabrai lays out the Dhandho framework in an easy-to-use format. Any investor who adopts the framework is bound to improve on results and soundly beat the markets and most professionals.

Reading good books is a beautiful experience. Do read a lot of books from different streams.

I will end the post with the below picture:

Keep reading, Keep learning

-Mahesh

Circle of competence

We always look for success, benefit and many such things which is good for us but we never look for the reasons why somethings work for someone and not for others. Think about this in this way, why Warren Buffett had earned billions in stock market, why not all who have invested. There are many reasons for this, we may discuss this in any other post but the one of the reason is the Circle Of Competence.

The circle of competence is not limited till investing, you can apply the learning to any field of your life or work. 

The only true wisdom is in knowing you know nothing - Socrates

By the definition -

What an investor needs is the ability to correctly evaluate selected businesses. Note that word 'selected': You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence.

Circle of competence is knowing the boundaries of your knowings, of your capabilities, of your talent, its all about what you know and what you don't know.

Once you identify that what you know and what you don't know then only the real seeking of the knowledge will start. And the get knowledge keep your ego aside and be open to all the knowledge that you encounter in your life. You can get the knowledge from the good books, from good blogs, from good and knowledgeable people around you, many more sources there,just start looking and observing.

We all as human being have some limits, in fact everything in this world have its limit. In all the fields we can use the wisdom of circle of competence. You can see Circle of competence(CoC) in investing. 

In investing it is knowing of your knowledge of the industries, its fundamentals, how the industry work, what are the MOATs in this business etc. 

In life, Knowing your limits physically as well as mentally(Your knowledge) is CoC.
In Machinery, knowing the limits of the machine is its CoC.
In construction, knowing the limits of the load is its CoC.
the list will go on......

As Charles Munger suggested to investors at the 2014 DJCO meeting –

Warren and I know better than most people what we know and what we don’t know. That’s even better than having a lot of extra IQ points.
People chronically misappraise the limits of their own knowledge; that’s one of the most basic parts of human nature. Knowing the edge of your circle of competence is one of the most difficult things for a human being to do.
Knowing what you don’t know is much more useful in life and business than being brilliant.

The well known scientist Richard Feynman said- 

“The first principle is that you must not fool yourself — and you are the easiest person to fool.”

By not working under our CoC we are bound to make ourself a fool.

How you can improve you Circle of Competence is guided by Chalie Munger- 

"Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.”

To make the Circle of Competence in our life, we must ask the question  like - 

how can we make the best use of our lives? How can we make the best use of our time?

“We shall never have more time.

We have, and have always had,

all the time there is.”

Newspapers are full of articles explaining how to live on such-and-such a sum but I have never seen an essay "how to live on 24 hours a day" Yet it has been said that time is money. That proverb understates the case. Time is a great deal more than money. If you have time, you can obtain money-usually. But…you cannot buy yourself a minute more time.

people have to realize that what a wonder it is that our daily allocation of time appears anew each time we wake:

The supply of time is truly a daily miracle. You wake up in the morning and lo! your purse is magically filled with 24 hours of the unmanufactured tissue of the universe of your life! It is yours. 

You cannot draw on the future. Impossible to get into debt! You can only waste the passing moment. You cannot waste tomorrow, it is kept from you.

You have to live on this 24 hours of time. Out of it you have to spin health, pleasure, money, content, respect and the evolution of your immortal soul. It’s right use…is a matter of the highest urgency.

You might had heard of the Butterfly Effect, lets see how the Circle of competence work with butter Fly Effect.

Lets understand Butterfly effect first-

“You could not remove a single grain of sand from its place without thereby … changing something throughout all parts of the immeasurable whole.”— Fichte, The Vocation of Man (1800)

The butterfly effect is the idea that small things can have non-linear impacts on a complex system. The concept is imagined with a butterfly flapping its wings and causing a typhoon.

In investing, everything is hard coupled with everything. If one small incident happen anywhere in the world its impact will come to all the markets of the world. 

an analogy of butterfly effect you can make with the habits i.e One small change in your life make huge differences with time. Like a habit of reading make you more knowledgeable, One small investment and allow it to compound for long time makes a huge difference. You can read about it here.

Understanding your circle of competence helps you avoid problems, identify opportunities for improvement, and learn from others.

“I’m no genius. I’m smart in spots—but I stay around those spots.” — Tom Watson Sr., Founder of IBM 

In 1996 Shareholder Letter by Warren Buffett to his shareholders:

What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

Value investing is totally based on Circle of competence, Margin of safety and fundamentals of the company and compound effect with the time. 

Circle of competence, think of the business like Shoes. How they make the shoe, what is the raw material. What are the machinery required. What kind of knowledge is required to make a shoe. By some research you can understand the shoe business, its market and how they make money. There are many such simple businesses.

But now think about the mobile chip, computer chip. Think how much  difficult it is to analyse this businesses, how they make the product and how they make the money out of the business. Its not that you can not understand this businesses, its just it will take more efforts.

Here you are clear that what is your Circle of competence what is not.

Charlie munger suggest on CoC in life as -

You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose. And that's as close to certain as any prediction that you can make. You have to figure out where you've got an edge. And you've got to play within your own circle of competence.
If you want to be the best tennis player in the world, you may start out trying and soon find out that it's hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you'd gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.

So, the simple takeaway from Circle of competence is,  if you want to improve your odds of success in life and business then define the perimeter of your circle of competence, and operate inside it. Over time, work to expand that circle but never fool yourself about where it stands today, and never be afraid to say “I don’t know.”

Disclosure: To write the post i have taken help from Farnam street blog post

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-Mahesh