personal finance

Warren Buffett Loves Teaching This '20-Slot' Rule at Business Schools—and It's Not Just About Getting Rich

Adam Jeffery | CNBC

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."

Buffett's 20-slot rule isn't just about wealth

Buffett's 20-slot rule can be applied to all aspects of life, and not just money, because what it really drives at is the importance of focus. And the billionaire has hinted at this advice several times in the past.

In fact, there's a scene in the 2017 HBO documentary "Becoming Warren Buffett" in which the Berkshire Hathaway CEO and his longtime friend Bill Gates are asked to each write down what they felt most attributed to their success. Surely enough, both had written the same word on their respective papers: Focus.

We live in a world of constant distractions — of half-finished projects, ideas or commitments. Think about all the times you developed an interest in one pursuit, dabbled in it for a bit, and then, weeks later, chased after a new pursuit.

But your odds of success can improve drastically when you direct all your energy and attention to fewer tasks. And the key to doing that, according to Buffett, is to treat life as if you have a "20-slot" punch card. 

So don't waste your next slot. Spend time thinking about what pursuits you're truly passionate about. Ask yourself: How important is it to me? Does it motivate me? Will I benefit from it later in life? It might be learning how to code or developing a healthier diet.

Once you decide on something, don't stop focusing on it until you've truly mastered it. You'll soon discover that it's better to be a specialist, rather than a generalist.

Tom Popomaronis is a leadership researcher and Vice President of Innovation at Massive Alliance. His work has been featured in Forbes, Fast Company, Inc. and The Washington Post. In 2014, Tom was named one of the "40 Under 40" by the Baltimore Business Journal. Follow him on LinkedIn.

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