Ever since his high school days, LeBron James was a basketball prodigy.

Dubbed by Sports Illustrated as ‘The Chosen One’, his innate talent, skills, and passion for the game made him arguably one of the greatest to ever play it.

I played a bit of basketball growing up, but I was no LeBron. Once I entered high school though, most kids were already better than me.

LeBron’s natural ability to excel at the sport gave him an advantage over other players, whereas I knew my abilities.

Sadly, that meant I wasn’t making the school team.

Know your limit, play within it

In the business world, Charlie Munger referred to this as the circle of competence. He once said:

“I think about things where I have an advantage over other people. I don’t play in a game where the other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid.

You have to know the edge of your own competency. I’m very good at knowing when I can’t handle something.”

During the 2020 stock market bubble, retail traders (including myself) were throwing cash left and right at any stock.

But as Charlie put it, I was “playing in a game where the other people are wise and I’m stupid.”

I had no clue how to value a stock, but I thought I did.

A classic example of the Dunning-Kruger effect, which is when people overestimate their competence in areas where they really have no knowledge.

That was definitely me.

Looking back, most of the companies I was buying, although they might have been decent companies, were way overvalued.

But fundamental stock analysis was not in my circle of competence, and as a result, it ended in a dumpster fire.

Why lose when you can win?

Understanding where your capabilities stand can help you identify opportunities where you have a higher chance of succeeding.

“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.”

High school me thought that playing basketball was within my circle of competence. I thought I was good until I saw how much better everyone else was around me.

Sure, it was a hobby, but when it came down to skill and pure talent, I simply didn’t stack up. I recognized that I was at the edge of my own competency and likely not going to make the team.

Now, I could have trained my butt off to develop my skills and grow my circle of competence.

But, like all things in life, there are tradeoffs to be made and I decided to move on to other things.

Discovering my circle of competence

In university, I struggled to get through a computer science program. I was a lost soul, but curious, so I gave it a try.

No matter how much I studied though, I was still falling behind in most of my classes.

The skills that I needed to develop were outside of my circle of competence. I was also losing motivation and felt like all of my classmates had an advantage over me. I just couldn’t grasp the concepts as well as they could.

After months of self-reflection, exploration, and doubting myself, I leaned into what I felt I was good at and passionate about: creative problem-solving.

I remembered that I was pretty artistic growing up and that led me to discover my actual circle of competence.

Connecting those dots for me eventually led to my current career in design.

✅ I had a talent for design

✅ I was passionate about solving problems

✅ I was genuinely curious

✅ I received positive feedback from my peers

I was motivated, performing well at my job, and felt like I was killing it.

Everyone has a circle of competence

The thing is, you already have a circle of competence, whether you know it or not.

It’s the innate talents you were born with, the skills you’ve developed expertise in, the specific knowledge you’ve gained over the years, and the things that you’re passionate about.

If your goal in life is to “win”, then understand yourself well enough to identify the perimeter of your circle of competence. Then focus on operating within it.

→ What skills do you possess that could give you an advantage?

→ What knowledge do you have that could give you an edge?

→ What areas are you lacking in?

Once you lean into the skills and knowledge that you already have, and make an effort to continue improving in that area, you’ll start to develop an advantage over others.

Perhaps you’ve learned a secret technique that makes chicken taste like wagyu beef.

Or you know everything there is to know about underwater basket weaving.

Your circle doesn’t have to be big.

The size of the circle doesn’t matter.

In fact, Lebron James’ circle might have just one competency that he’s spent his entire life optimizing.

What matters is that you operate within the perimeter of your circle and continue to hone your skills.

As long as the passion is there, it’ll open up doors to endless growth opportunities.

Then, use your edge to crush the competition.