Understanding Warren Buffett’s “20-Punch Card” Principle

Years ago, I came across Warren Buffett’s concept of the “20-punch card” for investing, and it left a lasting impression on me. The idea is simple yet profound: Imagine you only have 20 opportunities to make investment decisions throughout your life. Each time you make a choice, you use up one punch, leaving you with only 19 more. This forces you to think very carefully before making any decision because every punch is precious.

The second key insight Buffett shared is the importance of making big bets. He emphasized that if you believe in a company’s potential to achieve significant growth, you shouldn’t take a half-hearted approach. In his view, making small investments in high-potential opportunities is almost as bad as not investing at all. If you find a company capable of a 10x return but only allocate a tiny portion of your portfolio to it, you miss the transformative potential of that opportunity. This perspective challenged me to make bold, focused investments rather than diversifying for the sake of it.

My Investment Journey: From Diversification to Focus

Before adopting this mindset, my investment strategy was scattered. Five or six years ago, I held a portfolio of 30 to 40 stocks, spread across different sectors in Singapore and the U.S. While some stocks performed well, many underperformed. It was overwhelming to monitor all these positions, especially with a busy career, and it diluted my returns.

During the COVID-19 pandemic, I realized that I needed a different approach. Inspired by the “20-punch card” principle, I decided to consolidate my portfolio, selling off stocks I lacked conviction in and focusing on a few high-potential companies. This strategic shift was crucial in aligning my investments with my goal of achieving financial independence and retiring early (FIRE) by 40.

How the 20-Punch Card Supports My FIRE Goal

The decision to adopt the 20-punch card mindset was driven by my desire to reach FIRE by 40. I realized that owning 30 or 40 stocks wasn’t going to get me there. Being overly diversified meant my returns were diluted, and I wasn’t maximizing the potential of my investments.

Instead, concentrating on a few high-conviction investments allows me to monitor them closely and act decisively. This approach requires deep research but offers the potential for significant returns. By investing heavily in companies I truly believe in, I can achieve the growth I need to reach my financial goals.

Building Conviction Through Immersive Understanding

One of the key benefits of focusing on fewer, high-conviction investments is the ability to develop a deeper understanding of the companies you invest in. For me, Tesla has been one of those high-conviction bets. My confidence in Tesla comes from years of immersing myself in the company’s story, innovations, and leadership.

Over the past few years, I’ve witnessed extreme volatility in Tesla’s stock, with swings ranging from $300 down to $100 in just a matter of months. There were challenging moments, particularly when Elon Musk acquired X (formerly Twitter) or during the infamous episode where he smoked weed on Joe Rogan’s podcast. Many investors lost confidence, believing that a CEO shouldn’t behave in such a way or make unconventional tweets.

However, my extensive research and continuous learning—watching countless interviews, reading books, and following Elon Musk’s vision closely—allowed me to see beneath the surface. I understood that these public missteps didn’t change the core of Tesla’s business. At that time, while many were distracted by the headlines, I knew that Elon was focused on scaling the Model 3 and pushing Tesla’s innovation forward.

By cutting through the noise, I could focus on the fundamentals: Tesla was executing its strategy effectively despite the external distractions. This level of understanding gave me the conviction not only to hold onto my shares during turbulent times but even to buy more when others were panic-selling. It’s this kind of immersive approach that has helped me stay grounded and confident in my investments, even when market sentiment was against me.

The Bright Future for Tesla and My Portfolio Performance

Looking ahead, I see 2025 as a pivotal year for Tesla. The expansion of the Tesla Semi, scaling production at the Shanghai Gigafactory, and the release of Full Self-Driving (FSD) version 13 are all on the horizon. I’m also excited about the potential mass production of Tesla’s low-cost vehicles, which could revolutionize the market.

This year, my overall portfolio delivered returns of over 50%—well above my goal of 25% per year. This is significant because my target is to achieve a 10x return over the remaining five years to reach my FIRE goal by 40.

However, I acknowledge that part of this year’s gains may have been driven by Tesla’s short squeeze, which could be temporary. As such, I’m prepared for potential corrections in the market, which would present opportunities to increase my positions, particularly in Tesla. My deep understanding of Tesla’s fundamentals and execution gives me the conviction to hold strong and even double down during dips.

Lessons Learned and Reflections Beyond Investing

The “20-punch card” principle has not only refined my investing strategy but also changed how I approach other areas of my life. By treating my time and energy like a limited punch card, I focus on the things that truly matter. In the past, I spread myself thin across hobbies like photography, badminton and learning new languages. Now, I concentrate on activities that bring me the most fulfillment and growth, like skiing.

Even Warren Buffett embodies this principle—he excels in investing and doesn’t try to be a master of everything. This has taught me that it’s perfectly fine to excel in one area rather than trying to be good at everything.

Final Thoughts: The Power of Focus and Deep Understanding

Adopting Warren Buffett’s “20-punch card” principle has transformed the way I think about investing and life. It has pushed me to focus on high-conviction investments, which in turn supports my goal of achieving FIRE by 40. Whether it’s making investment decisions or choosing how to spend my time, this principle reminds me to act with conviction, prioritize what truly matters, and avoid distractions.

By focusing on a few transformative companies like Tesla, I’ve been able to weather downturns, hold my ground, and even double down when the market provided opportunities. This focused approach has been instrumental in my journey toward achieving financial independence by 40.

If you’re struggling to decide where to allocate your time, energy, or capital, consider adopting a “20-punch card” approach. It might just change the way you see the world.