Buffett style 20 punches

Since this sub-forum is about the journey, let me start at the beginning.

A few months after I got my first job, I got a whiff of stock markets and started trading. I had no knowledge of finance at all. I did all possible mistakes a beginner does:

1). Quick trades

2). Acting on tips

3). Futures and Options

4). Technical Analysis (I swear… worst thing ever invented).

5). Day trading (On second thoughts, I think this is the worst thing ever invented).

Anwyay, I didn’t make much on a whole (if at all) and frustrated, I just ‘sealed’ up my position and quit. My portfolio had HDFCBank and Infosys and Reliance remaining which I’ve now held for 12+ years (and now I see the profits!).

In the meanwhile, I turned a Boglehead and put all my money in index funds. Again, it was a ‘buy and hold forever’ thing with a 20+ yr holding timeframe.

Lately, I have began reading more about investing and I’ve been struck by the following 2 quotes by Buffett

“Rule no 1. Never lose money. Rule no 2. Never forget rule no 1.”


“An investor should act as though he had a lifetime decision card with just twenty punches on it.”

When I combine this with value investing, it suddenly struck me how much sense it all makes.

Basically, if I make just a measly 20% on each of my 20 trades, I’ll get a 38xreturn so if this is doneover a period of 10 years, say, the CAGR is 40%+. I’m sure some esteemed investors here might be making more, but in my eyes, 40%+ is HUGE.

Mohnish Pabrai of Dhando investor also says that he makes only about 2investments in one year.

So, here’s my wealth allocation / investment strategy now.

50% of my investment is in index funds with a 20-30yr tie horizon.

25% of myinvestment is in debt funds.

I rebalance between these two yearly.

Remaining 25% is either in debt fund or in 1-3 stocks which I carefully choose. I believe 1-3 is enough,especially from a value investing point of view. “Bigger bets, fewer bets”.

I only invest in proven companies, where I can confidently say that the stock should go up around 50% (this is the margin of safety, if I can see a 50% upside, I can say that therisk of investing is minimal, and a 20% upside is nearly guaranteed). These situations are rare, but hey, I’m onlylooking for 2 on an average in a year. If I happen to find amultibagger obviously, I won’t even need that much. So thebottom-line is I’m a firmbeliever in the 20 punches quote by Buffett. It has taken many missteps on my behalf to firmly come to this conclusion, but I’m happy with this. I can sleep peacefully, and carry on with my life with no worries (Buffett manages $100B+ and still plays 16+ hours of bridge every week).

Recent investments have been RS Software and Mayur Uniquoters (won’t discuss those, find detailedanalysis elsewhere in the forum). Already these are up 50% in my portfolio and I expect RS to go up further.

Would love to hear thoughts and especially any experiences if someone has been practicing this.

Thanks for sharing.

What indicators do you look for?

I myself am struggling to narrow down my focus. I first check for the PE of the market, if too high, my urge is controlled, and then drill down into the companies looking at

  1. The PEG ratio
  2. The reputation of the mgmt. if i can find out or derive from the numbers (payout ratio being one and stock splits being 2 indicators)
    1: Interest coverage ratio being low or no debt
    2: The return on equity generally greater then 25
    3: A long term trend ( greater then 5 years )of the stock price moving up. Picking the young attractive companies is more difficult for me if they don’t have a compelling history.
    4: A high PE is not necessarily a hindrance to me unless it is prohibitively high (A Bakshi influence there). However the height of the market does influence me here … (not sure if this is correct though).

An additional note, based on 5 to 10 year review of stock price increase, A few years ago I picked up Eicher Motors, Ajantha Pharma, TTK Prestige. First two rewarded me very well, TTK didnt really perform. The Modi catalyst market has made it difficult for me to pick stocks due the increases we have seen. It has skewed the data for me. For example, the increase in Ashok Leyland I am unable to decipher fully. It is not a proven stock to me, but the increase in the valuations is deeply tempting.

Thoughts welcome.


The third thing i would say is if you really want to make it big in markets , in each of those punches you need to invest substantial amount of capital. Higher the base , higher the return. This will ensure the above the two rules , because you have invested substantial capital in your bet , it limits you from making more punches. It will also ensure since you are making substantial investment you really will make a safe bet .

How about the market cap to sales ratio which should be less than 1?
I read in the Forbes magazine this one was one point which one reputed investor suggested to look out for