There are many comparisons, metaphors or analogies that people use to provide insight into different strategies of investing. “Thinking outside of the box” often allows me to look at investing in a very different way than most other people.
One of best hitters of any generation can arguably be given to the late Ted Williams. Someone once asked if he could see the seams on a baseball being thrown towards the plate and then off his bat. If he hadn’t missed five years in the military during the prime of his career, he could have potentially set records that might be untouchable in today’s modern day.
So what made Williams such a proficient and successful hitter? Williams once said, “Baseball is the only field of endeavour where a man can succeed three times out of ten and be considered a good performer.” When applied to investing; how many of us can admit that batting .300 is a goal or satisfactory level of achievement? How many times do we strikeout vs. hitting a home run or grand slam…or more importantly, how often do we expect to achieve those feats?
Another one of my favourite Williams quotes is, “Hitting is fifty percent above the shoulders.” Although some people interpret this quote to the physical strength of a hitter to over power the ball beyond 400 yards, Williams in fact was eluding to the mental stamina, knowledge and experience that successful hitters require. Think about that…
Put yourself in a manager’s shoes: if you were in the bottom of the ninth, one out and one man on third to tie the game, who in the history of the game would you choose to bat at the plate? Would you go for the game-winning home run with an Aaron, Ruth, Bonds or McGwire? Would you pick the most proficient bunter to advance the runner and possibly take the game to extra innings? Or would you pick your most reliable, competent and conservative hitter to simply pick a spot on the field to drop in a base hit?
Many people might pick the power hitters of the past or present in that situation, but how clutch are they? If you take the quote by Williams on the importance of what’s above the shoulders – does that mean the strength or smarts of the player?
Take the table as an example:
All of those players are impressive in their own right, but how do you judge the balance of those numbers to somehow achieve a clear winner? Bonds is the leader among the group for runners batted in, yet Molitor holds the lead in career hits. Everyone except McGuire have over 2500 career hits, yet on the list of all time homerun leaders, he’s right near the top.
Thinking back to my past posts on investing: what strategy best meets your objectives? Although the adrenaline, atmosphere and excitement of a home run may give you the best feeling, what are the odds that hitter will drive in both of the runs needed to win the game?
If you take each hitters career strikeouts as a percentage of career at bats, you get a very different picture:
Now, what were your initial thoughts on the odds that McGwire or Bonds were the favourite to take the spot at the plate for this specific at bat? If each were given the opportunity, the chances of them striking out are considerably higher than that of the other three (by as much as 21%). Do you go for the sure thing with boring & consistent or risk everything by going with your big guns?
Tying it all together…
“By the time you know what to do, you’re too old to do it.” – Ted Williams
Many of us investors fail to recognize the influence of emotions on our habits. Although we all love to watch the dramatic flare of the game winning home run, going with the steady, strong and true at times will produce dramatic results over other alternatives in the long run. Gwynn & Molitor rarely made the dramatic or exciting play, yet consistently produced over many years to get to where they were at retirement. They focused on the mechanics, intellect and consistency needed to achieve those results. Like investing, sometimes it’s the mechanics that make all the difference. Hitting the baseball on the right area of the bat with the right force and arch can launch the ball well over the confines of any fence – which requires less force than adding additional power to a swing when the ball hits the non-productive areas of the bat.
So what can we learn from this example?
As a manager of a baseball team or your own portfolio, your decisions need to meet the objectives for the intended goal. With nothing to lose, you risk little by allowing the heavy hitter to go to bat for you in the hopes of the potential payoff. Yet in a situation where percentages count, you may want to go with the proven and consistent performer that adds little or no flare to the situation. The results over a long period of time may show which tactic suits you best.
Finally, investing smartly doesn’t necessarily mean you need to maximize all your effort or force to hit the ball the distance you need. Taking the time to develop the swing of a Molitor or Gwynn may take effort and time, but you also know that consistency over the long term will drive results much higher than the emotional highs of an infrequent home run.
Remember what Williams said: most of the time we learn what we need when it’s too late to have made any dramatic difference in our lives. Taking the time to develop the patience, knowledge and expertise needed may get you ahead in the long run, even if you never make it onto the ESPN plays of the week.
While others are shooting for the monster homeruns, I’ll take the tactic of concentrating on Gwynn’s strikeout ratio. I’ll hit fewer home runs, but over time the consistency I’ll produce will easily justify my approach and those returns should take care of themselves.
*Oh, one small point *
Williams also was quoted once as saying, “All managers are losers, they are the most expendable pieces of furniture on the face of the Earth.”
I like to think that the quote can be directed more towards Mutual Fund Managers than those used in this post.