Ted Williams was famous for “waiting for the fat pitch.” He would only look to swing at pitches in the part of the strike zone where he knew he had a higher probability of getting a hit. There were parts of his strike zone where he batted .230 and there were other parts of the strike zone where he batted .400. He knew that if he waited for a pitch over the heart of the plate and didn’t swing at pitches in the .230 part of the strike zone – even though they were strikes – he would improve his odds of getting a hit and increase his overall batting average.
Similarly, Buffett waits for the .400 pitches. And as he’s pointed out, the beautiful thing about the stock market is there are no called strikes. You can never get behind in the count while passing on the .230 pitches and waiting for the .400 pitches.
The concept of “waiting for the fat pitch” is one that is often talked about in investing. Despite the well-known baseball metaphor, it’s still one of the most valuable concepts in investing. “There are no called strikes on Wall Street” is something that is often stated but rarely practiced. Investment managers are paranoid about falling behind in the count. Part of this behavior is what leads to the various inefficiencies that occur in the market.
Here’s a clip that Farnam Street referenced from a 2011 interview with Buffett talking about this topic:
Warren: If you look at the typical
stock on the New York Stock Exchange, its high will be, perhaps, for the
last 12 months will be 150 percent of its low so they’re bobbing all
over the place. All you have to do is sit there and wait until something
is really attractive that you understand.
And you can forget about everything else. That is a wonderful
game to play in. There’s almost nothing where the game is stacked in
your favor like the stock market.
What happens is people start listening to everybody talk on
television or whatever it may be or read the paper, and they take what
is a fundamental advantage and turn it into a disadvantage. There’s no
easier game than stocks. You have to be sure you don’t play it too