This blog's content was taken from episode 256, "What S&P 500 Companies Are Saying About 2023"

You can go check out the whole episode here:

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The Buffet punch card analogy goes a little something like this.

“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.”

My investing style is to own truly great businesses and do my best to pay an appropriate price. This is obviously much easier said than done. Myself and many investors have made mistakes in this area.

When it comes to life and certainly in portfolio management, have an extremely high bar for quality and investment ideas that you can understand, have a nuanced take, and have conviction to hold. Hold for a long time especially if the business and investment thesis remain compelling regardless of volatility.

The Buffett punch card analogy forces you to be selective.

When you only have 20 slots on your punch card or a select set of decisions you can make, it forces you to only focus on your very best ideas. Any newly generated ideas that are helpful but not amongst the highest hurdle rate for quality don’t need to be acted upon.

The Buffett punch card analogy additionally does 2 things very well:

  1. It stops you from overtrading. Lethargic activity level is typically a trait that most prolific investors possess.
  2. It forces you to build deep conviction.

This analogy is an excellent addition to 4 Lessons from Warren Buffett’s Shareholder Letter which you can read about here or listen to here.