scorecardresearchWarren Buffett's '20-slot' rule: The secret to smart investing

Warren Buffett's '20-slot' rule: The secret to smart investing

Updated: 06 Sep 2023, 02:06 PM IST

  • Warren Buffett endorses the '20-slot' rule, emphasising the importance of selective investing. The method urges investors to think deeply about their 20 lifetime investments.

FILE PHOTO: Berkshire Hathaway CEO Warren Buffett

FILE PHOTO: Berkshire Hathaway CEO Warren Buffett

Warren Buffett, the iconic figure in the world of investing, has always been revered for his ability to pinpoint lucrative investments. However, what truly captures the attention of budding investors and business students alike is his knack for encapsulating complex investment principles in easy-to-understand nuggets of wisdom. One such principle, widely known as the '20-slot' rule, has emerged as one of his most resonating pieces of advice.

The Essence of the '20-Slot' Rule

In a revelation by Charlie Munger, the vice chairman of Berkshire Hathaway, during a 1994 address at the University of Southern California, the "20-slot" rule was laid bare. The rule, as Buffett has frequently expounded upon in his lectures at business schools, is simple yet profound. He describes it as giving an MBA student a ticket with merely 20 slots, symbolising the 20 investments they are allowed to make throughout their life. After these slots are exhausted, no further investments can be pursued.

"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 punch through the card, you couldn't make any more investments at all."

Buffett’s emphasis here is unmistakable. With limited opportunities, individuals would be compelled to make more judicious and deliberate decisions. "You'd really have to think carefully about what you did, and you'd be forced to load up on what you really think about. So you'd do much better," Buffett elucidates.

Betting Selectively: The Key to Investment Success

Munger’s stance on this is aligned with Buffett's, believing that the path to success necessitates selective betting. He conveyed to students, "To me, it's obvious that the winner has to bet very selectively." He expressed bewilderment as to why this isn't a universal notion, considering it's always been clear to him and Buffett.

Recalling a 1998 lecture at the University of Florida, Buffett reminded students of the limitations of the rule. While they have the potential to bet on 20 ideas, only a handful, "three or five or seven", in Buffett’s words, may truly pave their way to affluence. His warning was stern: “But what you can't do is get rich by trying one new idea every day."

In Conclusion

Buffett's '20-slot' rule is not merely about financial wisdom; it's a metaphor for life, urging us to choose our battles wisely. As the world of investing becomes increasingly intricate, going back to basics with Buffett’s age-old wisdom might just be the roadmap many need for financial success.


(Several parts of the text in this article, including the title, were generated with the help of an AI tool.)

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First Published: 06 Sep 2023, 02:06 PM IST