I came across a surprising statistic in some of Mohnish Pabrai’s interviews regarding his hero and role model, Warren Buffett. According to Buffett’s 2023 letter to shareholders, only 12 investment decisions have truly mattered in the long run. Almost all of Berkshire Hathaway’s growth over the past nearly six decades has come from these 12 deals. Based on Mohnish's estimate, Buffett’s hit rate is just 4%. If investing were like baseball, the greatest investor would be left struggling on the field with such a low success rate.

But how is it possible to achieve such impressive investment results with such a low hit rate? The key is holding on to great compounders—forever. Letting go of one of these rare "home runs" too early would result in mediocre long-term performance at best. That’s why many billionaires didn’t become super rich by just starting great companies—they became wealthy by owning these companies all the way until they became great.

A highly concentrated investment strategy is only for those with exceptional valuation skills and rare temperament. This approach is reserved for a select few, which is why John Bogle is a hero for most of us.

Index funds work.

1. They include almost everything that holds value, so the hit rate is not going to be spectacular.

2. An index fund won’t sell a potential great compounder unless it's delisted or goes private.

3. For each buy, the position is allocated based on market cap, so you participate in the growth while putting less money into companies that prove to be mediocre compounders. Either way, you're still betting on all the candidates.

The catch is that it’s a very long game. Money needed for living expenses or debt repayment should not be used for this game, as interruptions can derail the plan.

Indexing is for the patient investor: either someone with a bit of money who doesn’t want the stress, or an intelligent person with enough money who would rather spend their time elsewhere than actively managing a portfolio. If you’re relatively smart and eager to make more money, chances are you won’t have the patience to watch paint dry on the wall.

Maybe I’m just clever enough to realize I’m not so smart after all.