The punchcard thought exercise

In investing, changing your mind involves frictional costs. Due to transaction fees and taxes on realized gains, the more you trade in and out of securities, the higher your costs are. The higher your costs are, the harder it will become for you to beat the market.

Charlie Munger observes that in pari-mutuel betting, such as race tracks, successful participants spend most of their time not betting. They would only participate in a race if they spot a significant mispricing in odds.

In the same vein, Warren Buffett has suggested, that in order to temper your urges to chase the market, you could adopt investing in stocks as if you had a punchcard with twenty slots. Accordingly, you would only be able to make twenty investments throughout your investment lifetime.

With a severely restricted number of trades available to you, this would force you to be much more selective and to adopt a longer-term mindset.