You Only Have 20 Shots Left

Imagine a situation where you are allowed to make just 20 investments in your whole life. Tough… Isn’t it? Would you like to find yourself in such a situation? To be frank, it would be a very uncomfortable and stressful situation and I would personally ‘not want’ to be in such a situation. But fact is that when we are investing in a particular company’s shares, we should ‘assume’ ourselves to be in such a situation. To know why, read on…
Mr. Buffett once said,
“I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had twenty 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.”
 
Warren Buffet 20 Punch
Only 20 Investments To Make | What Will You Do?
 

Just think of it in this way. You are just allowed to make 20 decisions in rest of your life. Now what will you do? You would ofcourse pick and choose your ‘decisive-situations’ carefully and would take a decision only when you are more than 100% sure.

Now, this 20-punch approach is quite opposite of my personal approach of taking a balanced approach (using MFs, direct stocks and PPFs, RDsetc). But the fact is that I am neither very confident of my stock picks as Mr. Buffett, nor do I consider myself to be capable enough to regularly beat Mr. Market. And hence I have modified my personal investment approach in accordance with my own limitations. But atleast in this post, lets keep my views aside and focus on how exactly can this 20-punch approach be helpful. 🙂

You might argue that even Mr. Buffett would have made more than 20 investments in his life. So how can he argue for just 20? Here we need to understand that 20 is just a number. It is basically a guide as to what one should do before making any investment. So just have a look at your portfolio. If you were allowed to make just 20 decisions going forward, how many of your current holdings would you keep? And if you own more than 20, which are the companies you would get rid off as soon as possible?

This small activity of thinking in 20-slot mode helps in valuing our each and every transaction a lot more than what we would have normally done. And that is the whole purpose of this approach. In realty there is no limitation to number of trades you can make. But just imagine how careful you would become if there were such limitations.

And here is how Mr. Buffett choses his stocks (atleast some of the times):

“It’s not because I calculate some precise P/E ratio or book value ratio, but because I have an idea of what the company will look like in five (or ten) years.”

What are your thoughts? Which companies would you chose if you were only allowed to make 20 transactions in rest of your life?

 

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Written by Dev Ashish

Founder - Stable Investor Investing | Personal Finance | Financial Planning | Common Sense

4 comments

  1. Very good post. It is immaterial whether you have shares in them or not. Every person has to make his own decision about what shares to buy. All these large caps may not be attractive for every one.

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