From Warren E. Buffett (Berkshire Hathaway shareholder letter, 1996) and Charles T. Munger (A Lesson on Elementary, Worldly Wisdom, 1994).
Draws an honest line around what a person or firm understands well enough to judge, then keeps high-stakes decisions inside it or limits the exposure outside.
When to reach for it
When a tempting opportunity sits in an unfamiliar field and its risk cannot be priced with any real confidence.
How it runs
- Name the domain the decision falls in.
- List the specific knowledge that grounds confidence there.
- Look for boundary signs: unanswerable questions, analogies that break.
- Inside the circle, decide with conviction.
- Outside it, decline or shrink the stake until understanding catches up.
Where it sits in SOLVE eX
Go to the source
- Berkshire Hathaway 1996 Chairman's Letter to Shareholders, 1996
- A Lesson on Elementary, Worldly Wisdom, USC Business School talk, 1994