the edge of your competence knowing what you don’t know

The edge of your competence is knowing what you don’t know [my notes].

Based on the below insights from Charlie Munger and Warren Buffett, here is an extrapolated list of advice:

1/ Understanding the Edge of Competence:

Recognize the boundaries of your competence.
Constantly assess and measure your achievements against those of others.
Avoid misapprehensions about your own competency to prevent costly mistakes.

2/ Emphasis on Learning from Mistakes:

Focus on studying mistakes rather than just successes.
Develop a "latticework" of mental models to understand and interpret experiences.
Combine vicarious and direct experiences to enrich your mental models.

3/ The "Lollapalooza Effect" and Continuous Learning:

Embrace a mindset of continuous learning throughout life.
Recognize that the cumulative impact of multiple factors can lead to significant outcomes.
Be aware of the interconnectedness of various factors and their combined effects.

4/ Simple Rules for a Happy Life:

Avoid envy and resentment.
Live within your means and avoid overspending.
Maintain a cheerful disposition despite challenges.
Deal with reliable people and fulfill your responsibilities.

5/ Breaking Investing Habits:

Move away from the "cigar-butt" investing habit of buying businesses at bargain prices.
Instead, focus on investing in wonderful businesses at fair prices.
Understand the concept of durable competitive advantage in investing.

6/ Durable Competitive Advantage:

Prioritize understanding the concept of durable competitive advantage.
Recognize that the size of the circle of competence is less crucial than knowing where its edges lie.
Invest in businesses with sustainable competitive advantages.

7/ Simplicity in Life and Investing:

Simplify your approach to life and investing.
Follow straightforward rules that contribute to a better life.
Recognize the effectiveness of simple principles, even if they seem trite.

8/ Self-Awareness and Rational Thinking:

Be determinedly rational in your decision-making.
Avoid self-delusion by regularly reassessing your own competence.
Cultivate self-awareness about your strengths and limitations.

** 

Ref. notes: 

1/ understanding "the edge" of one's competence — in other words, knowing what you don’t know.

“Well it’s a hugely important thing, knowing the edge. It’s hardly a competence if you don’t know the edge of it. You know, if you have a misapprehension regarding your own competency that means you lack competence, you’re going to make terrible mistakes. I think you’ve got to constantly measure what you achieve against other people of achievement, and you have to keep being determinedly rational, and avoiding a lot of self-delusion,” Munger said at the 2019 Daily Journal meeting.

2/ Buffett said Munger “has always emphasized the study of mistakes rather than successes, both in business and other aspects of life.”

 “latticework” of mental models.

“You’ve got to have models in your head. And you’ve got to array your experience — both vicarious and direct — on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head,” 

3// "lollapalooza effect"

 a life properly lived is just learn, learn, learn all the time. 

4//  the secret to a long and happy life is "simple."

“You don’t have a lot of envy, you don’t have a lot of resentment, you don’t overspend your income. You stay cheerful in spite of your troubles. You deal with reliable people, and you do what you’re supposed to. All these simple rules work so well to make your life better, and they’re so trite.”

4// breaking the "cigar-butt" investing habit

Buffett credited Munger for breaking his "cigar-butt" investing habit, a strategy the investor learned from Benjamin Graham of finding companies at bargain prices and getting "free puffs" out of them.

The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices,” Buffett wrote.

[Julia La Roche was formerly a Correspondent at Yahoo Finance.]

Charlie taught me about durable competitive advantage — not how big circle of competence is, but knowing where the edges are most important,"