In baseball, a batter gets to watch two strikes come over home plate before the pressure really sets in. Does he swing at the next pitch? It might come right over home plate like the last two. But if it just grazes outside of the strike zone, would the umpire still call it out? How much risk is there in taking the next swing?
I feel for all the major league ball players out there. They’ve got a very tough job. When you only get three strikes, you have to swing at just about every pitch that gets thrown your way, regardless of quality.
But as investors, we do not.
For us, there’s no penalty in not swinging. In fact, it’s just the opposite. By only swinging at the fat pitch, regardless of how many come along, we reduce our mistakes and increase our chances of success. It’s only in swinging at the wrong pitches that an investor is called out.
In managing investments, fat pitches have a certain look to them, just like a clean pitch coming over home plate. They’re direct and leave little room for surprise. Cashflow, trend, volatility, and value line up in a pattern that’s unmistakeable. And when we see a fat pitch, our job is just the same as any batter. Swing and do not hold back. We don’t get a lot of fat pitches, so when we do see them it’s important to take full advantage.
Individual companies will give us fat pitches from time to time, as will whole markets. The key is patience. Resisting the temptation to swing at everything and saving it all for the best opportunities creates a winning team.
Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.