If you want to be a long-term investment winner, try and imagine you have a punch card that only allows you to make 20 investments over your lifetime.
My biggest investment mistake has been to chop and change my portfolio far too much. Warren Buffett, perhaps the world's greatest investor, takes a very different approach. He's held some of his shares for thirty years or more.
If you want to try and develop a Buffett-style mindset, then why not follow this advice from the man himself:
"When making investments, pretend in life you have a punch-card with only 20 boxes, and every time you make an investment you punch a slot. It will discipline you to only make investments you have extreme confidence in."
It's brilliant advice. If I knew I could only buy 20 shares for the rest of my life, I'd be really careful before I bought a share. Sure, I do plenty of research now, but as a punch card investor I'd want to dig even deeper. In fact, I'd probably want to follow a company for at least two years before I bought shares. And I'd only buy if I thought the share was seriously undervalued.
What's more, I'd always be picking shares for the long-term. I can hold my 20 shares for as long as I like, so it makes sense to pick shares that will continue to perform for many years to come, preferably paying out significant dividends along the way.
Don't get me wrong, I'm not suggesting that you should rigidly restrict yourself to 20 shares until you die. Even Buffett has made more than 20 trades in his investment career! I'm just suggesting that you should take decisions as though you're a punch card investor.
I've been looking at my personal portfolio from a punch card perspective today, and I've realised that I own too many shares which I'm hope to sell in the next two or three years. Instead I should own clearly undervalued shares, which I believe will continue to prosper in the long-term.
I've got two shares on my watch list which I think might fit the bill.
The first is Next
(LSE: NXT)
, the high street retailer. It's trading on a price/earnings ratio of 12, is buying back shares, and has a consistent record of earnings growth going back to 2000.
I'm also tempted by BT Group
(LSE: BT.)
. I highlighted the company in this article -- amongst other virtues, I like its chunky 5.25% dividend yield. True, BT's traditional voice business is under threat, but the company appears to be growing a successful IT services division to replace it.
But am I going to rush out and buy these shares tomorrow?
No. If I'm going to become a true punch card investor, I need to do more plenty more watching and digging before I press the buy button.
More:Warren Buffett and His 20 Punches | The Bill & Warren Show
