Warren Buffett often uses baseball to describe investing concepts. His no called strikes analogy is a reminder that doing nothing is an important option. Of course, it’s more important than ever in a world dominated by noise, that drives actions, in an industry that profits from transactions.
Unlike baseball, there are no limits to the number of investment pitches you see. There’s no umpire judging the quality of the pitches you see and pass up either. But the peanut gallery still exists in some form — clients or the media — pressuring you to swing at anything.
Here’s the thing. If you don’t like the pitch, don’t swing. You can stand at the plate, with the bat on your shoulder, doing nothing but waiting…for the perfect pitch.
He used the analogy in a Fortune interview in 1974 to explain his style of investing. I can’t say if it was the first time he used it, but the timing was impeccable. He had walked away from his partnership in 1969 at the market peak, only to reappear at the ’74 bottom. Then he relayed a simple message of patience.
Buffett is like the legendary guy who sold his stocks in 1928 and went fishing until 1933. That guy didn’t exist. The stock market is habit-forming: You can always persuade yourself that there are bargains around. Even in 1929. Or 1970. But Buffett did kick the habit. He did “go fishing” from 1969 to 1974. If he had stuck around, he concedes, he would have had mediocre results. “I call investing the greatest business in the world,” he says, “because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like, then when the fielders are asleep, you step up and hit it.”
But pity the pros at the investment institutions. They’re the victims of impossible “performance” measurements. Says Buffett, continuing his baseball imagery, “It’s like Babe Ruth at bat with 50,000 fans and the club owner yelling, ‘Swing you bum!’ and some guy is trying to pitch him an intentional walk. They know if they don’t take a swing at the next pitch, the guy will say, “Turn in your uniform.” Buffett claims he set up his partnership to avoid these pressures.
Stay dispassionate and be patient, is Buffett’s message. “You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you stick with Pepsi, you should be okay.” First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression.
“Draw a circle around the business you understand and then eliminate those that fail to qualify on basis of value, good management and limited exposure to hard times.”…”Buy into a company because you want to own it, not because you want the stock to go up.”
Have faith in your judgment, your adviser’s judgment, Buffett advises. Don’t be swayed by every opinion you hear and every suggestion you read. Buffett recalls a favorite saying of Professor Benjamin Graham, the father of modern security analysis and Buffett’s teacher at Columbia Business School: “You are neither right nor wrong because people agree with you.” Another way of saying that wisdom, truth, lie elsewhere than in the moment’s moods.
What good, though, is a bargain if the market never recognizes it as a bargain? What if the stock market never comes back? Buffett replies: “When I worked for Graham-Newman, I asked Ben Graham, who then was my boss, about that. He shrugged and replied that the market always eventually does. He was right — in the short run it’s a voting machine, in the long run it’s a weighing machine. Today on Wall Street, they say, ‘Yes, it’s cheap, but it’s not going to go up.’ That’s silly. People have been successful investors because they’ve stuck with successful companies. Sooner or later the market mirrors the business.”
The Money Men, Nov. 1, 1974
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- Chaos at the Top of the World – GQ
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