Is the metaphor-fest comparing investing to baseball overdone? Perhaps. But often the two seem to line up so darn well that it's tough to resist.
Case in point was an ESPN article about Los Angeles Angels' slugger Bobby Abreu. In the article, Abreu discusses his strategy at the plate:
Go in to every at-bat with a plan. See as many pitches as you can. Hit what you want to hit. Be comfortable with two strikes; the pitcher's still got to make a good pitch to get you out. The pressure is on him, not you. Foul it off if it's not what you want to hit. The more pitches you see, the more knowledge you have.
It's an approach that has obviously worked for Abreu: Over 14 seasons he's hit .299 and maintained an on-base percentage consistently at or above .369.
See as many pitches as you can
A key distinction between baseball and investing is that when it comes to investing the pitches don't normally come to you. However, there are more than 12,000 companies that are publicly traded on U.S. exchanges. To try and research every one of those you'd either have to have a lot of time on your hands or just be crazy.
So if you're not running a brute-force research campaign on the entire catalog of public companies, how do you see a lot of pitches? Here are a few suggestions to get you started:
Read, read, and read some more. Books on investing are certainly great, but investing websites, newspapers, and even general interest books and periodicals can put interesting investing ideas in front of you. A quick look at the Money and Investing section of today's The Wall Street Journal could have put J. Crew
(NYSE: JCG), Berkshire Hathaway (NYSE: BRK-B), and BP (NYSE: BP)on your radar.
Keep your eyes open. You're surrounded every day by investment ideas. Running down my day yesterday, I started the day off by grinding Starbucks
(Nasdaq: SBUX)coffee beans to make my morning coffee. For lunch, I had a peanut butter sandwich with Jif Peanut Butter (a J.M. Smucker product). In the evening I went to REI and bought a new Columbia (Nasdaq: COLM)ski jacket. The fact that I'm a customer of all three of these companies is reason enough to crack open some SEC filings to see whether any of them might be investment-worthy.
Screening. Technological advances have put a lot of information at our fingertips and a key advance for individual investors over the past decade has been easy access to screening tools. As useful as screeners are, though, they need to be used carefully. For example, if you had been screening for stocks back in 2000 and used price-to-earnings ratio as a criteria, you would have missed out on Panera Bread
(Nasdaq: PNRA)and Potash Corp (NYSE: POT)-- two of the decade's most successful investments -- because each was unprofitable due to one-time charges. These shortfalls aside, screening tools can get buckets of ideas in front of you in no time flat.
Reading the pitches
When Bobby Abreu stands at the plate trying to decide whether the pitch coming at him is one worth swinging at, he doesn't have a lot of time to dilly-dally making a decision -- the ball may be traveling the 60.5 feet at 90 miles per hour or more.
Fortunately for us, the time pressure to make decisions isn't quite that extreme. However, if the goal is to see a lot of pitches, then it's going to help to systematize how you look at each stock so that you can separate the wheat from the chaff fairly quickly.
Here are the most important things I ask when a new company crosses my path:
- Does the company have some sort of competitive advantage?
- Is there room for the company to grow?
- Is the stock reasonably priced?
If my answer is "yes, yes, and yes," then I queue up the company for further poking and prodding. If the answers aren't as promising, then I can quickly move on and look at some more pitches.
Battling at the plate
What makes Abreu a good hitter? He's patient and he's scrappy. He doesn't let the pitcher dictate what he's going to swing at, and he's willing to stand up there and hack foul balls if he's not getting pitches that he likes.
Look around at the best investors out there -- Buffett, Munger, Lynch, Klarman, Pabrai -- are they any different? I'd be surprised to see anyone that could be described as impulsive and lackadaisical become a particularly successful investor.
So get to it -- as Bobby Abreu so perfectly phrased it: "The more pitches you see, the more knowledge you have."