5x1: Why Warren Buffett Stays in His Lane (And You Should Too) | Wednesday, May 28th, 2025

by Monti Pace

The​ 5x1 newsletter​ is a concise and insightful resource around a simple concept: systems achieve goals.

sys·tem [ˈsistəm]
a set of things working together as parts of a mechanism or an interconnecting network.
a set of principles or procedures according to which something is done; an organized framework or method.

1 x Principle of Systemization

Circle of Competence: Warren Buffett and Charlie Munger popularized this deceptively simple concept. Stick to what you know, and be aware of the boundaries of your knowledge.

Your circle of competence isn’t about being the world’s best at something—it’s about having a realistic understanding of where your knowledge, experience, and judgment give you an actual advantage.

Most people struggle with two problems: they don’t know the edges of their competence, and they don’t have systems to stay within those boundaries when it matters most. We venture into areas where we lack real understanding, make decisions based on surface-level knowledge, and wonder why the results disappoint.

Competence isn’t binary. We tend to think that either you “know” something or you don’t, but that’s not true. Instead, think of your knowledge as existing in concentric circles.

• Your inner circle contains areas where you have deep, nuanced understanding—where you can spot patterns others miss and make decisions with genuine confidence.
• Your middle circle includes areas where you have functional knowledge but lack the subtle expertise to navigate complex situations.
• Your outer circle represents topics where you know just enough to be dangerous.

The most effective people aren’t necessarily those with the largest circles of competence—they’re the ones who know exactly where their boundaries are and have built systems to operate accordingly. They’ve created decision-making processes that keep them in their sweet spot while building partnerships or acquiring expertise to handle everything else.

Smart system design means creating guardrails that prevent you from drifting outside your competence when stakes are high, while also building deliberate processes to expand your circle when it serves your goals. This isn’t about limiting yourself—it’s about maximizing your effectiveness by playing to your genuine strengths.

1 x Systemization Quote

"The most important thing in terms of circle of competence is not how large it is but how well you define the parameter. If you know where your edges are, you are way better off than somebody who has a circle five times as large but is very fuzzy about the border.” - Warren Buffett

1 x Reflection Question

If you could only make decisions in areas where you have a genuine advantage over 80% of other people, what would you have to stop doing immediately, and what would you double down on?

1 x Personal System Idea

"Ask Three People" Decision Filter: Before making any significant personal decision, ask yourself: "Can I name three people who would consider me competent enough to come to me for advice in this area?"

This simple test reveals whether you're operating inside or outside your circle of competence. If you can easily name three people who regularly seek your guidance on similar decisions, you're likely in your competence zone. If you struggle to name even one person, you're probably venturing into unfamiliar territory.

The beauty of this system is that it forces you to think about your reputation and track record from others' perspective. Your friends and family vote with their questions—they naturally ask for help from people they trust to know what they're talking about.

How it works: When facing a major personal decision (buying a house, choosing a school, making a career change, selecting a financial advisor), pause and ask the three-people question. If you pass the test, proceed with confidence. If you don't, it's time to either:

• Seek advice from someone whose circle of competence covers this area
• Do significant research to move this topic closer to your competence zone
• Recognize this as a learning opportunity rather than a high-stakes decision moment

This isn't about perfectionism—it's about honest self-assessment. The goal is preventing costly mistakes in areas where you lack real expertise while building confidence in areas where you genuinely have an edge.

1 x Business System Idea

Strategic Advisory Board System: Create a structure of 3-5 people whose competence circles complement yours, and determine the use cases in which you'll tap their expertise across different business domains.

Many entrepreneurs try to be competent at everything, leading to mediocre decisions across multiple areas. Instead, systematically identify people whose deep expertise covers your blind spots and create a system for accessing their knowledge when it matters most.

Example Structure:

• The Domain Expert: Someone with deep knowledge in your industry who can spot trends and risks you might miss
• The Operations Specialist: Someone skilled at processes, systems, and execution who can help you build efficiently
• The Strategic Advisor: Someone with broad business experience who can help with major decisions and long-term planning
• The Financial Guide: Someone who understands business finances, cash flow, and investment decisions better than you
• The Connector: Someone with a strong network who can open doors and make introductions

Depending on your business, you might need different areas of expertise or want to add or drop from this example.

The System: Before major business decisions, identify which advisor's competence circle covers the decision and reach out proactively.

Keep a simple log of what advice you sought, from whom, and how it worked out. This creates accountability and helps you refine your advisory system over time.

The key is being specific about what you need from each person and honest about what you bring to the relationship. This isn't about free consulting—it's about building mutually beneficial relationships where you stay in your competence lane while accessing expertise in areas where you don't have an edge.