Smart Investor Malaysia


How Warren Buffett’s 20-Slot rule can make you wealthy


Investing guru shares how making 20 good investment decisions in your lifetime can make you rich.

By KC Lau

Let me tell you a story about the time when a college student asked billionaire investor Warren Buffett for the #1 advice on how to get rich. 

I wish I heard about this story in my teenage years. 

Do you find that some successful people made a couple of choices in their lives that turned out to be the best decisions in their life? 

It is sort of like a golden opportunity meets preparation. For example, Elon Musk’s exceptional career can be summarised in a few turning points:

1988: Migrating to North America from South Africa for tertiary education;
1995: Dropping out of Stanford University to build Zip2, his first company;
1999: Selling Zip2 for US$22 mil, and immediately founding another company, (which became PayPal, and got acquired by eBay);
2002: Starting SpaceX;
2004: Investing in Tesla; and
2008: Becoming Tesla CEO.

These are the consequential decisions or the defining moments that Musk had to make which earned him the real-life Ironman-fame. 

Look back into your life. You will find some turning points in your life based on some pivot points. Are there any significant decisions that made you who you are today?

To explain my point, one of the decisive changes in my life was when my parents moved from a small village north of Baling to Sungai Petani in Kedah. As a result of their choice, I got to study in a good school and graduated with flying colours. 

When I received my engineering degree, I opted to be a self-employed musician thinking I can always fall back to be an engineer. But I would never go back after tasting the fruit of freedom. 

Now, when it comes to investment, I would like to share this wisdom I learned only in my 30s. I wish I had learnt this in my schooling years – the ‘20-Slot Rule’.

Buffett teaches college students how to invest

But it is never too late to discover this wisdom that is passed down by the greatest investor of all time. Warren Buffett frequently gives college students advice on how to get rich. He preaches that he could:

“Improve your ultimate financial welfare by giving you a ticket with only 20 slots so that you had 20 punches — representing all the investments that you got to make in a lifetime.”

If I tell you this, you don’t have to believe me. But if a person who no longer needs money, who is honest, famous, reputable, and is known as the number one stock investor of all time said this, you better listen.

Buffett said that “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.”

This ’20-Slot-Rule’ is a concept that doesn’t just apply to smart investments. It also fits other areas of life that demand us to be uncommonly selective.

Best time to invest without timing the market

I am already in my forties. And I had probably used up half of the punch card. Let’s look back in history for the best time to punch a hole: the dips.

In 2002 dot-com crash, I was broke. I just graduated from university with a student loan, and was jobless. I was making music and chasing my dream. I was not ready to punch the investment card.

During the 2008 subprime crisis, I was still early in my career. I didn’t invest in any stock. I missed the best timing to punch my card. What did you do then? 

Now the bull market is officially over after the Covid-19 pandemic pushed fear to every major economy. China, Europe, the US, Malaysia, and nobody is spared. 

Isn’t this one of the golden opportunities to throw the punches?

I have been buying my favourite stocks gradually. 

Overcoming your fear while the bottom is still unseen

I know it is scary for most people. We are not just afraid of the market tumbling, but we stay home now as much as possible for safety reasons. For most people, not only is their livelihood at stake, their lives are in danger to an invisible enemy. 

If you believe human beings as the most prominent virus breed, know that we are resilient. We will make a comeback. Life will resume, and the economy will get back stronger than ever.

Be prepared to use your punch card. I get it when people line up to stock up food and toilet paper. But when superb businesses are at a cheap sale and deep discount, there is no queue. 

Nobody is scrambling over in the stock market. It could be the best time to go on a shopping spree that might elevate your financial well-being to the next level. 

When is it the bottom?

I don’t know. Nobody knows. And don’t listen to anybody who tells you they know.

It is too hard for me to foretell where the Dow Jones or KLCI will be in the next six months, two years, or even five years. So I follow Buffett who said that he gave up predicting the market long ago.

But one thing I am pretty sure, when we win the war against the coronavirus pandemic, businesses will go back to usual. 

As my stock investment course partner Peter Lim said:

Set aside money equivalent to 3-12 months of your expenses as an emergency fund;
Set aside money for what you absolutely need within the next three years (such as your child’s education fee);
Invest the sum that you don’t feel regret about should the market rise 50%-100% when this is over, but not too much until you lose sleep at night.

That’s pretty sound advice.

KC Lau is a financial educator. He had published six books and co-created a dozen online financial courses. After conducting more than 472 hours of free webinars and 2,000 articles published online, he gives away his popular Money Tips ebook volumes absolutely free at his website: 

Read this article in the May/June issue of Smart Investor.  Download a free digital copy of Smart Investor below.    

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