ALEXANDRIA, VA (Sept. 30, 1998) --Well, it was only a matter of time until this column looked to the sporting event of the year for some inspiration. With Mark McGwire hitting his 70th dinger of the season last weekend, I just could not resist using his accomplishment as a crutch on which to rest a teetering investing/home run analogy. This is what some people would call "marginalizing the moment." However, I much prefer to call it "making the editor happy."
(If you are still reading this, I can probably assume that you are not the lucky person who caught McGwire's historic and highly lucrative 70th home run ball. But if your name happens to be Philip Ozersky, shame on you for not heeding our Foolish advice to give the ball back to Mac.)
Back to the column...
This is not the first baseball/investing analogy, and it certainly won't be the last. In his annual letter to shareholders of Berkshire Hathaway (NYSE: BRK.A and NYSE: BRK.B) a few years back, no less of a baseball fan than Warren Buffett used an excerpt from Red Sox slugger Ted Williams' autobiography to illustrate the parallels between his investing philosophy and Williams' views on hitting:
"My argument is, to be a good hitter, you've got to get a good ball to hit. It's the first rule in the book. If I have to bite at stuff that is out of my happy zone, I'm not a .344 hitter. I might only be a .250 hitter." --from Ted Williams, The Story of My Life.
The lesson was not lost on Mr. Buffett, nor should it be lost on DRP investors. One of the reasons why Williams was so successful as a hitter was because he had the patience to wait for the pitches he liked. If nothing interesting came his way, he would settle for a walk rather than striking out on something that wasn't in his happy zone. The same goes for Buffett. If there is not a compelling stock out there in his happy zone (or what he calls his "margin of safety"), he will sit on his investing money until one comes down the pike.
(It is instructive to note that Williams' season-high home run total came in 1949, when he knocked 43 balls out of the park. In that same season, however, Williams drew 162 walks, the second highest total in big league history. He knew how to wait for the right pitches. Coincidentally, McGwire tied that figure for walks this season during the same game in which he hit his 70th homer.)
This simple analogy should be tucked away in every DRP investor's mind. It's a great example of what long-term investing is all about. This is not to say that investors should stand forever at the stock market plate, accepting an endless number of investment pitches without swinging. And, more importantly, this analogy (as loose as it is) should not encourage the idea that investors must hit a home run every time they are served a pitch worth swinging at.
No, investing is not about hitting a home run every time, although that would be nice. Rather, investing is about consistency. Investors who have the patience to wait for the right pitch will go farther than speculators who try to swing for the fences every time, regardless of how many balls in the dirt (boneheaded companies) are tossed their way by Mr. Market. The Drip Portfolio aims to prove this investing truth, over and over again during the next 20 to 30 years, as the mutual fund managers continue attempting to knock the stuffing out of every stock pitch. Long-term DRP investors should be content to watch them go down swinging from the dugout.
Of course, it's one thing for a rookie investor like myself to stand in the on-deck circle and tell the big leaguers how to hit. It's another thing to actually go out and put the bat to the ball. But that's exactly what I will do with my first DRP, once I find a pitch from Mr. Market that I like. Remember, there's no rush here. In my case, the national anthem is still playing and there is plenty of time to learn the proper stock hitting technique from the consistent hitters out there. And when I strike out (and I fully expect to strike out sometimes), all of the Wise spectators sitting in the front row will have their opportunity to heckle and boo.
My portfolio will never be compared in the same home run breath as Ted Williams or Mark McGwire. Just for the record, Williams finished his career in 1960 with 521 home runs in 19 major league seasons. As a long-term investor, I'm hoping that half-a-dozen or so home run caliber investing opportunities will come my way over the course of my lifetime.
And when they do, this investor plans to have his bat on his shoulder, ready to swing away.