Buffett, Investing & Baseball

By Jae Jun

www.oldschoolvalue.com

What You Will Learn

● Why Buffett loves baseball● What investing has to do with baseball● Tips you can learn from baseball● How to become an investing homerun hero

Foreword

What do all these things have in common? Buffett and investing definitely go together, but how does baseball fit in? Buffett, a fan of baseball, regularly uses baseball analogies to compare his investment methods.

In the investment world, where Mr Market is the pitcher, Buffett is one of the best batters in the world.

As always, Buffett is kind enough to share his techniques and strategy to all those that listen.

Marks of a truly great sportsman.

Player, Manager, Coach, Spectator

To a lot of people, especially to those starting out, investing is considered daunting, time intensive and difficult. True.

Not everyone is capable of saying they were born with natural investing talent, and not everyone is capable of saying they were born to play baseball.

Some are better at managing and some are better at coaching.

First you have to figure out what type of player you are. If you get giddy with losing even a couple of dollars, constantly fret over the market fluctuations or just blindly follow the herd, investing in index funds will do you more good.

However, I think most of the people reading this would be players.

Slugger

Sluggers are great fun to watch. They bring in crowds, create noise in the stadium and they carry aura and a sense of expectation.

Now sluggers are huge crowd pleasers, but I believe they fail to create that return to the spectators more often than they do.

It seems to be the same with investors.

Ever heard the phrase “I just need to find the next Microsoft or Google”?

I too was subject to this type of thinking until Buffett kindly intervened.

A majority of people look for and chase opportunities just because they think it has potential.

All pitches have the potential to be a homer, but actually getting a homer off it is a different story.

Home Run Hero

I define slugger and home run hitters a bit differently.

Sluggers will mostly swing at anything.

Home Run hitters wait patiently for the perfect fat pitch to swing at.

To me Buffett is a Home Run Hero. Much like Babe Ruth.

Buffett told CNBC

“What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel and you don’t have to swing. No umpire is going to call you out. You can wait for the pitch you want.”

This quote reflects the style of Ted Williams, whom Buffett refers to quite frequently.

The reason behind Williams success is that he had the discipline and patience to wait for the pitches that were exactly in his hitting zone.

Williams divided his strike zone into 77 cells and swung at only the pitches that flew through his best hitting cells.

Betting On A Sure Thing

Buffett himself only waits for the “straight fat pitch”, and when he gets it, he bets big. Wall Street thinks otherwise.

If you bet 10 times at a casino table where the odds are 10-1 for you, obviously you will bet huge each time.

The final result will have you win handsomely and with little risk.

This seems to be a concept people find hard to comprehend.

Buffett has the conviction and was able to bet 40% of his capital in his purchase of AMEX during the whole salad dressing debacle.

However, a lot of people think that was risky and a big gamble.

That is understandable. What Buffett did took a lot of guts.

“I didn’t become a billionaire by chasing after mediocre opportunities.”

Charlie Munger

Single Hitter

● Many people succeed in the market by constantly hitting singles.

● What I mean by single hitting is going after the sure opportunities more frequently.

● Accumulating these singles win the game.

● In the game of baseball, constant singles win the game, the division championship and the world series.

Taking singles also requires strict discipline.

As an investor, we must always work within our circle of competence and do it the right way over and over again. We don’t want our emotions or minds to become clouded.

All Star

Whether you are a home run hitter or single hitter, discipline is required in order to succeed.

As long as you maintain discipline, go after the sure hits and don’t do a lot of things wrong, you will ultimately end up as an All-Star elite.

“Investors should be more like pilots; always checking their checklist prior to taking off.”

Charlie Munger

Jae Jun (jae.jun@oldschoolvalue.com)http://www.oldschoolvalue.com

Old School Value improves your investment decisions and performs deep fundamental analysis

and valuation for you. Just like a personal stock analyst.