Charlie Munger gave the students of the University of Southern California a thumb-rule for investing.
He asked them to imagine that they had a restaurant loyalty card – one of those cards that you can stamp 20 times to get a free meal. He then asked them to invest as if they could merely make one investment for every punch on that card in their entire lifetime.
A person who invests in this manner is likely to follow a radically different approach from the day trader. The day trader’s strategy is to spray and pray – to scatter his bets across several investments and stay in step with the daily movements of the market. An investor of Munger’s caliber does they opposite – they give daily market fluctuations a wide berth and pass up almost every opportunity. They hold back, thinking and analyzing, until they spot an opportunity that is worthy of their handful of chances. They then go all-in.
This approach of choosing depth over breadth applies more broadly than just investing. The jack-of-all-trades dabbles endlessly, hedging her bets and moving from one shiny thing to another. The master ignores almost everything but the path that he has carefully chosen. Mastery, by definition, is a punch-card with 20 holes or fewer.
Munger’s thought experiment harnesses the power of scarcity. When you think you have a million chances, you are likely to squander them by spreading yourself too thin. But when you realize that you have 20 good calls to make in your entire lifetime, it demands that you master something until you are ready to go all-in.