As the year draws to an end, I’d like to reflect on one of the biggest lessons I’ve learned during my investing journey. It seems that we make our biggest mistakes when we stray away from the fundamentals. Perhaps this is because fundamentals are boring and “common sense-y”. This post will introduce one of the most important investing mental models: the punch card.
The intelligent investor works through mental models and perhaps an additional checklist. While it may be impossible to remember a checklist of dozens of criteria (which is why you want a written checklist) over time, there are some checklist items that are part of a say “core five” or “core four” principals from which we do not stray.
No Punch? No Further Research
One of the first items on my checklist and mental models before making an investment decision is the punch card. Simple but powerful. I’ve quoted the punch card briefly in an earlier post, but I’ll put it here again. It deserves a dedicated blog post.
“Imagine you are given a punchcard with 20 slots in it. Every time you make an investment, a hole is punched. These 20 slots are all you are given in your entire lifetime, no more. If you are limited to making 20 investment decisions through an entire lifetime, you will think very hard before making a decision”
Following this mental model makes investment decisions so much easier. It amplifies your filter to an extent that you will most likely ignore 90% of possible ideas. This is great, since the game is not about winning but instead about not losing. If I’m not willing to use up a punch card slot for an idea, I move on. The punch card mental model also keeps your mind from straying outside your circle of competence. Keep it simple and don’t forget the fundamentals.
Merry Christmas!
-IGTSKasimir
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