Warren Buffett's 20 Ticket Punch Card

[Ben Graham]

Warren Buffett has often said, "I could improve your ultimate financial welfare by giving you a ticket with only twenty 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. 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."

 

Why? Too often investors throw money around like scattering seed, saying to themselves, "I'll throw a little here and little there to see what happens." Instead, Buffett advocates a policy of finding the best and richest soil, planting substantial amount of seed in it, and protecting it. This policy may sound simple, and it is. It also can be life changing. Lou Simpson, one of the best investors in the world and head of GEICO's equity portfolio, once said that this particular Buffett strategy helped him enormously in his record of crushing the market over several decades.

 

I was down to my 19th punch on my card, so I looked for the best and  richest soil to plant my seed money. So, I asked Howie Buffett if I could plant my LVLT seeds on his farm. He said, "sure, Walter Scott and his friends O. Mason Hawkins and Prem Watsa have already planted their seeds and they are sprouting very well now. They will offer you a good row cover for protection. You are welcome Ben Graham to use (3) acres."

 

So, I went to Mr. Market and backed up my truck and loaded all I could. It was a very substantial amount. Then headed over to Howie Buffett's farm to plant my golden LVLT seeds. :)

 

Level 3 Communications ticker symbol is LVLT

[ubuy2wron]

I have tried to use the punch card anology but only on the use of leverage. I will only use leverage VERY sparingly when it appears that this is a 3 sigma opportunity. I bought stocks on margin for the 1st time in my life starting in Oct. of 2008 and purchased puts on silver recently.

[Guest ValueCarl]

Good God, Ben Graham! If only main stream investors along with the rest of the investment world understood the criminal forces and dubious Wall Street elements including certain monopolists for whom they worked for, and how they were only interested in killing this internet juggernaut video baby in its cradle; a baby who would bring peace, prosperity, and internet nirvana to the four corners of the globe.

 

If they understood that, and intervened with the filthy scum on Wall Street by keeping them in check, and preventing them from illegal actions, the globe would have experienced more beneficial results, sooner rather than later.

 

If they understood this today; however, they would be loading up their truck for a stake in one of the greatest internet stories this world will ever know!

 

I have once said on behalf of my US brothers and sisters that, if I could force them ALL to own shares in this bellwether, I would do so by "decree" in order that as Walter Scott once said to his flock, "you'll be happy."  ;)       

 

   

[Guest VAL9000]

So, I went to Mr. Market and backed up my truck and loaded all I could. It was a very substantial amount. Then headed over to Howie Buffett's farm to plant my golden LVLT seeds. :)

 

Level 3 Communications ticker symbol is LVLT

 

Ben, I don't know much about LVLT beyond the snippets I've read on this board, but I appreciate your conviction.  Putting a significant chunk of one's net worth in a single investment is a testament to one's belief in themselves and their ability to reason.  You have my respect for that.

[Liberty]

I'm 29 and I have 8 stocks in my portfolio. Only 12 punches left..  ;D

 

I'll probably go over 20 someday, but I intend to keep these 8 for a long time..

[eclecticvalue]

I am already in my early 20's and I am already close to 20 punches  :( . Aww shucks what will I do now? I am not too concerned and I think the whole point of the quote is to research your investment opportunities well. I think you could do it under 20 investments but that is only if you have a lot of money. Unlike me who runs only a few thousands of dollars.

[Ben Graham]

Diversity Protects Ignorance

 

Many people love to say “you need to diversify” to become successful, but it doesn’t make sense and Warren Buffett agrees. He said, “Diversity is protection against ignorance. It makes very little sense for those who know what they’re doing.”

 

 

 

                      Rule #1 can never be left out

 

 

The secret of Warren Buffett’s extraordinary success comes from his basic rule in investing:  never lose money. Despite the simplicity of this rule, many Warren Buffett followers still find themselves losing money year after year. The reason is that many of these followers have forgotten the magic words of capital preservation: Margin of Safety

 

By buying stocks that have an underlying value greater than their market price there is no way you can lose money if your research is accurate. Prices vary greatly in the short term based on factors you can not predict. As long as your valuation is correct, prices eventually reflect the true value of a stock and you will be rewarded for your diligence.

[arbitragr]

Graham's ghost has come back to haunt us on the principles of capital allocation ...

[JAllen]

Does anyone know when/where Buffett originally said this?  The twenty punch card quote that is?

 

 

Thanks.  I can only find references to it but I'd like to know exactly when and where he said it.  Maybe it's from an annual, not sure...

[Guest deepValue]

I don't really understand the original post, especially who is being quoted aside from Buffett at the beginning, but I can assure you that Buffett did not have a company like Level 3 in mind when he introduced the 20 punches analogy.

[jschembs]

I believe it was a Munger quote/philosophy about investing, but I don't have a source handy.

[JBird]

Does anyone know when/where Buffett originally said this?  The twenty punch card quote that is?

 

 

Thanks.  I can only find references to it but I'd like to know exactly when and where he said it.  Maybe it's from an annual, not sure...

 

He's said it many times. I don't have a source for the very first time he said it, but here's one instance:

 

http://buffettspeaks.blogspot.com/2007/01/permanent-value-teachings-of-warren.html

[Guest wellmont]

warren has only exceeded his 20 punches by a few thousand.  ::)

[wisdom]

He is speaking to the average individual and not investors.

[Guest deepValue]

He is speaking to the average individual and not investors.

 

It's the other way around. Average individuals should diversify; only full-time investors have the ability to select good companies trading at bargain prices and include them in a concentrated portfolio. Of course, Buffett was talking about great businesses with a long history of profitability and a similar future ahead of them -- not something that most people on this board buy.

[JBird]

In 1991, speaking with students from the University of Notre Dame, Buffett said,

 

"In that book Father, Son & Co. [subtitle: My Life at IBM and Beyond] you may have read, that Tom Watson Junior recently wrote, he quoted his father as saying “I’m no genius. I’m smart in spots but I stay around those spots.” And that’s all there is to it in investments – and business. I always tell the students in business school they’d be better off when they got out of business school to have a punch card with 20 punches on it. And every time they made an investment decision they used up one of those punches, because they aren’t going to get 20 great ideas in their lifetime. They’re going to get five, or three, or sever, and you can get rich off five, or three, or seven. But what you can’t get rich doing is trying to get one every day. The very fact that you have, in effect, an unlimited punch card, because that’s the way the system works, you can change your mind every hour or every minute in this business, and it’s kind of cheap and easy to do because we have markets with a lot of liquidity – you can’t do that if you own farms or [real estate] – and that very availability, that huge liquidity which people prize so much is, for most people, a curse, because it tends to make them want to do more things than they can intelligently do."

[JAllen]

In 1991, speaking with students from the University of Notre Dame, Buffett said,

 

"In that book Father, Son & Co. [subtitle: My Life at IBM and Beyond] you may have read, that Tom Watson Junior recently wrote, he quoted his father as saying “I’m no genius. I’m smart in spots but I stay around those spots.” And that’s all there is to it in investments – and business. I always tell the students in business school they’d be better off when they got out of business school to have a punch card with 20 punches on it. And every time they made an investment decision they used up one of those punches, because they aren’t going to get 20 great ideas in their lifetime. They’re going to get five, or three, or sever, and you can get rich off five, or three, or seven. But what you can’t get rich doing is trying to get one every day. The very fact that you have, in effect, an unlimited punch card, because that’s the way the system works, you can change your mind every hour or every minute in this business, and it’s kind of cheap and easy to do because we have markets with a lot of liquidity – you can’t do that if you own farms or [real estate] – and that very availability, that huge liquidity which people prize so much is, for most people, a curse, because it tends to make them want to do more things than they can intelligently do."

 

Thanks Jbird. What website did you find that on?

[eclecticvalue]

Take a look at http://buffettfaq.com/ it has a source for the punch cards.

Source- http://buffettspeaks.blogspot.com/2007/01/permanent-value-teachings-of-warren.html

[JBird]

In 1991, speaking with students from the University of Notre Dame, Buffett said,

 

"In that book Father, Son & Co. [subtitle: My Life at IBM and Beyond] you may have read, that Tom Watson Junior recently wrote, he quoted his father as saying “I’m no genius. I’m smart in spots but I stay around those spots.” And that’s all there is to it in investments – and business. I always tell the students in business school they’d be better off when they got out of business school to have a punch card with 20 punches on it. And every time they made an investment decision they used up one of those punches, because they aren’t going to get 20 great ideas in their lifetime. They’re going to get five, or three, or sever, and you can get rich off five, or three, or seven. But what you can’t get rich doing is trying to get one every day. The very fact that you have, in effect, an unlimited punch card, because that’s the way the system works, you can change your mind every hour or every minute in this business, and it’s kind of cheap and easy to do because we have markets with a lot of liquidity – you can’t do that if you own farms or [real estate] – and that very availability, that huge liquidity which people prize so much is, for most people, a curse, because it tends to make them want to do more things than they can intelligently do."

 

Thanks Jbird. What website did you find that on?

 

My pleasure.

 

http://www.tilsonfunds.com/BuffettNotreDame.pdf