Here’s 1 Factor Which Ultimately Restricts All Investors

It may sound absurd to say this, but mom-and-pop investors in Singapore – and elsewhere around the world – actually share a strong commonality with the octogenarian billionaire investor Warren Buffet. What’s that common thing? Money.

The dollar bills

As investors, we are not really restricted by the number of investment ideas we can find – ultimately, it is the amount of investment capital we have that limits us.

There will always be investing opportunities for us to buy in the market. But as investors, we need to ensure that our capital is deployed in the most efficient way possible so that we can get the most bang for our buck.

Whenever we invest in the shares of a company, we have to think about the opportunity cost involved. If I invested in Company ABC, it would mean that I would have missed out on other companies. Opportunity cost is something important to think about regardless of whether you have S$10,000 to invest or S$10 million.

In fact, Buffett also has to worry about opportunity costs even when he has hundreds of billions at his disposal. This is why you do not see him buying every good company or stock that comes his way.

This brings us to an important lesson that Buffett, who’s popularly known as the Oracle of Omaha, had given years ago. He mentioned that we should imagine ourselves having a punch-card with only 20 slots. The punch-card cannot be replaced and each time we make an investing decision, one punch is made.

In this scenario, we’d only be able to make 20 investing decisions within our lifetimes. The effect of this is that people will be very careful when making a decision. While the punch-card is purely imaginary, having limited capital is a very real thing for most investors. It pays to think carefully about our investing choices.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any company mentioned.