Ted Williams played major league baseball for the Boston Red Sox for 19 years between 1939 and 1960 and went on to manage the Washington Senators and the Texas Rangers. Nicknamed “The Greatest Hitter Who Ever Lived” by some, he was a true hitting analyst and was always seeking knowledge to help him become a better hitter. Williams came up with three rules to hit by that I think translate very well to value investing.
- Get a good ball to hit
- Proper thinking
- Be quick with the bat
1. Getting a good ball to hit
Ted Williams used his understanding of his strike zone to swing at balls in the areas where he hit the ball hard and had a higher average. In value investing, it’s very important to stack the odds in your favour and to swing only at the best pitches. We apply this in several ways in our investment process. We understand our own strike zone or circle of competence. There are companies that we understand better than others and by focusing on these opportunities we have a much higher probability of getting our investment thesis correct.
2. Proper Thinking
Williams talks about being prepared mentally when stepping into the batter’s box. Understanding the pitcher, what happened last time you were up and the stage of the game. For us, this translates into doing our homework and remaining rational when Mr. Market is exhibiting his more irrational side and a given stock trades at a large discount or premium to what our research has shown is intrinsic value.
3. Be Quick with the Bat
When opportunities present themselves, you need to act quickly and rationally. We strive to be highly opportunistic in our investing. The best way to do this is to be prepared for when investments present themselves. Investors frequently ask us how we come up with ideas. We usually track an idea for several years, collecting data and watching the business perform. These ideas only become investments when the market temporarily misprices them and give us the discount we want. When we get pitched the right price, we try to be quick with the bat!
David Barr, CFA
