
Charlie Munger
The best way to learn is by studying the best. Experience has value as long as it also has a foundation in knowledge. Reinventing the wheel again and again is a fool’s errand and not conducive to personal development.
Studying the best takes many forms. Working for someone at the top of their game is the best way to learn, but the opportunities to do so are limited. Formalized education communicates facts without always presenting the best in your selected field. The number one way to learn from the masters is to study them through intense research of their work. The greatest minds are available like never before. YouTube videos of their speeches and books and news articles on their practices give us massive quantities of material to learn from.
Today we will focus on a simple story shared by Charlie Munger, Warren Buffett’s friend and right-hand man at Berkshire Hathaway.
Tell Me a Story
Munger gave a talk to the USC Business School in 1994 where he shared a story Buffett told when lecturing at business schools. Here are the exact words Munger used:
When Warren lectures at business schools, he says, “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.”
He says, “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.”
Buffett’s story is about more than investing; it’s about life. People buzz around trying to do everything and end up doing poorly in each endeavor. Investors trade stocks like baseball cards; people buy home after home believing they are moving up with each new personal residence; employees keep moving from job to job looking for more . . . ; business owners search for new clients endlessly.
Around here we encourage index fund investing. It’s a perfect way to set it and forget. That counts as one punch on the 20-slot card. I have a mad money account where I invest a small portion of my liquid net worth. The account only has a handful of stocks. By limiting how many companies I own I spend more time researching those companies and evaluating their prospects.
I also make incredibly stupid mistakes and pay the inevitable price for such mental lapses. In the late 80s and 90s I was in a partnership with my dad and brother. We bought real estate. A lot of real estate. By the time we were done we had 176 properties to consume our lives. Actually, my dad and brother were not involved so “I” had 176 properties to consume “my” life. I punched my 20-slot card 176 times!
Lack of focus hurt results. I had properties spread out over a 200 mile radius. Multiple property managers were involved. We had the money so we kept on buying. And selling.
Eventually I experienced burnout. The fun, even the desire for profit on it, was gone. The buying stopped and the selling accelerated until there were no more properties. The partnership was done. Countless hours yielded a good, but not great, return. The lust for more for more’s sake cost dearly. Lesson learned. Kind of.
What could I have done better? The money was there and so were the opportunities. Burnout could have been avoided. If I would have heard Buffett’s advice back then it would have saved me from plenty of pain.
The 20-slot rule applies to more than stock investing. Rather than buy so many single-family homes I should have bought fewer multi-unit properties. I toyed with the idea at the time. I reviewed a serious number of apartment complexes and commercial properties. The numbers were compelling. In many cases the profit potential was higher than anything I could earn with my current mix of investment properties. The reason why I decided to pass on multi-unit buildings was because it would be harder to sell such properties and would likely take longer as well since fewer buyers were in the multi-unit market.
If Munger were standing beside me he would have smacked me up behind the head. I can hear him say, “Idiot. Think like an accountant!”
Warren Buffet says you should buy a stock as if the stock market will be closed for five years. The point again is to focus on the investment and invest for the long haul. I didn’t buy fewer large value buildings because it would be harder to sell them. I acted like real estate should be day-traded. SMACK!
The missed opportunities are only talked about now. My choices when I ran LuK Enterprises cannot be changed. It’s in the history books. At least I learned my lesson. Right?
Thinking like an Accountant
This blog is about teaching people to think like an accountant. You would think an accountant with decades of experience could communicate such a message with clarity. You would also think said accountant would walk the talk. Welcome to my fantasy world.
I share my failures in business (and sometimes in life) because that is where the opportunities to learn exist. Plenty of successes brought me to this place. Bragging about the times I knocked it out of the park would waste both our times.
Sometimes a 20-slot card is too many slots and other times too few. For example: In my practice I have more than 20 clients. Most businesses require more than 20 clients to be viable and to reduce risk. One client should not determine the success of a company.
As my business has grown over the years and with this blog, I find myself saying “no” to new clients more often. My practice is small for a reason. I enjoy the work. Expanding to additional locations would not make me happier. Quite the opposite. More locations and more clients would reduce the relationships I have with my current clients. A thousand clients is too many at times already.
My 20-slot card has only one slot when it comes to marriage. Two slots would be too many for me. Even my dating card had fewer than 20-slots. I dated fewer than five women in my life. Two received more than one date and only one became my wife.
I never understood the idea of dating a large number of people to find Mr. or Mrs. Right. The answer is obvious when speaking with a potential mate before it ever gets to the first date. If the answer is obvious, why invest the time? You are not dating to see if this person is right for you; you are dating for the opportunity for a piece of ass. Be honest. You know it’s true.
There is no guarantee a mate will work out. Divorce happens for a variety of reasons. If a young lady doesn’t fit my vision of a life mate we can still talk and be friends. All the emotional baggage is eliminated before it is ever created.
Most people take whatever comes their way in interpersonal relationships. I am no fan of luck. I actively sought out Mrs. Accountant. I would come to the table with a one-slot card and was darn careful about punching that slot.
None of this guarantees success. Limiting the number of stocks you buy, researching to the nth degree an investment does not guarantee it will work as planned. But you do increase the odds by magnitudes of order it will.
Buffett has owned more than 20 stocks in his life. The 20-slot rule is not hard and fast. It is a metaphor to remind you to spend more time focusing on fewer projects.

Iris in my flower garden in front of my home.
Focusing on a narrow group of projects is the only way to maximize profits or pleasure. When I find a good company I keep adding to it. Index funds should be the bulk of more people’s investments. It’s an awesome idea so you can comfortably keep adding to the pile whenever funds are available.
In my practice I add clients selectively. Opening new offices and expanding rapidly might work as long as I accept the greater risks of growing my type of company to such proportions. When there is room I add to an already successful business model. It works and it is profitable.
Even in my marriage I keep adding to the one investment I have made. Having an affair or spreading it around is of no interest to me. There is no doubt I would NOT be happier playing the field or searching for something better.
At the risk of sounding cold, I am not looking for the absolute best stock on the exchange; I’m looking for one I can live with for a lifetime.
My marriage is the same way. I never intended to find the perfect person I would be most compatible with. Heck, she probably lives in Timbuktu. It’s not going to happen. I found someone, Mrs. Accountant, who I knew I could enjoy a lifetime with. No need to punch 8,304 slots on the dating card to come to that conclusion.
Or you can keep chopping your 20-slot card to bits in an attempt to find the ultimate investment or mate. But be warned; you will not be happy with what you get.
Stalking the Future of The Wealthy Accountant | The Wealthy Accountant
Saturday 21st of April 2018
[…] Warren Buffett has a 20-slot punch card philosophy to investing. I will apply the same methodology to this blog. […]
Dr. MB
Thursday 15th of March 2018
Your blog is fascinating. You bring a lot of experience to the table. Hopefully people heed your advice. It is in sharing our past failures that others may learn. I have become a better investor due to all our past mistakes. Thank you for sharing, I am learning oodles.
mary
Monday 22nd of May 2017
Excellent, someone else does not scrape and bow to the Oracle. Buffett is a fake. He does not strictly buy-and-hold. He takes advantage of the tax code all day long, yet advocates for the rest of us to be taxed more. He uses derivatives, ooops, those weapons of mass destruction. And he's an inside operator, who got a helluva sweetheart deal with Goldman Sucks courtesy of the US taxpayer--that means YOU! http://www.mccchydc.com/news/nation-world/national/economy/article24532354.html
But, right, he's an avuncular, sweet guy, imparting his wisdom on us lowly retail investors. If i had the time, I'd start a blog called warrenbuffettisabigfatliar.com
Steve S.
Wednesday 17th of May 2017
Interesting -Wikipedia and Infogalactic list 66 major holdings of Berkshire and 42 partial holdings. So should he not follow his own advice? Maybe for everyone else that's a good idea, but Warren is special. Maybe the rule should be three a year intead? Not as cute as his punch card but better matching his performance.
Plus, to get good at something doing multiple iterations can be productive. Of course for some people - Steve Jobs, Bill Gates and Jeff Bezos maybe just a few things are good. For others like Richard Branson and Warren, more is better.
Your version of the punch card seems much better. Warrens has maybe two versions - one wait for big companies to need him then get a good deal, two leverage the issues caused by the death tax to buy $50-250 million dollar private companies when they are close to that transition to help manage the big tax bill.