Warren Buffett is one of the most wildly successful investors in the world. In fact, he’s beaten the S&P 500 pretty consistently in the last 50 years. While it’s not likely that you’ll be able to emulate his success exactly, there are some things that you can do in order to be a better investor. One of those things is called the “20 slot rule.”
Buffett frequently uses the “20 slot rule” when speaking at business colleges to explain how to better view investments, and how to manage your time and attention. As an investor, it can be tempting to leap at every opportunity which presents itself. Buffett, however, doesn’t condone that.
“I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
To rephrase, the “20 slot rule” forces investors to engage in a type of selective investing where each opportunity has to be carefully measured and approached. By only focusing on a few things that you’re really good at and very comfortable and confident with, your success is going to be better than if you simply throw a little bit in to everything.
This is an approach that Buffett and Charlie Munger both use frequently. When speaking on it, Munger expressed his surprise that more people don’t engage in selective focusing of their skills and investments.
“It just isn’t the conventional wisdom,” Munger said. “To me, it’s obvious that the winner has to bet very selectively… But this is one of the very few business classes in the U.S. where anybody will be saying so.”