Every once in a while, legendary businessman Warren Buffett dishes out a few morsels of advice to illustrate the core investment — and life — principles that helped him achieve success.
In a 1994 commencement speech at the University of Southern California, Berkshire Hathaway vice chairman Charlie Munger revealed one lesson, called the “20-slot” rule, that he says that Buffett loves to teach when lecturing at business schools.
According to Munger, Buffett starts by telling MBA students, “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.”
Under those rules, Buffett explains, “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.”
Munger expressed that this concept had always seemed like a no-brainer to him and Buffett. “To me, it’s obvious that the winner has to bet very selectively,” he told the students. “It’s been obvious to me since very early in life. I don’t know why it’s not obvious to many other people.”
Buffett touched on the rule during a 1998 lecture at the University of Florida, in which he told MBA students that they shouldn’t just assume they’re going to get 20 great ideas in their lifetime.
They can bet on 20 ideas, but only “three or five or seven” might make them rich, he said. “But what you can’t do is get rich by trying one new idea every day.”