Waiting for the Fat Pitch
Warren Buffett · 1997
"Investing has no called strikes. Buffett borrows Ted Williams' 77-cell strike zone to argue that returns come from swinging only at pitches in your best cell — and that the hardest discipline is standing at the plate for years with the bat on your shoulder while the crowd screams at you to swing."
In The Science of Hitting, Ted Williams carved the strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his best cells, he calculated, would let him bat .400; reaching for pitches in the worst spot, the low outside corner, would drop him to .230. Waiting for the fat pitch meant the Hall of Fame; swinging indiscriminately meant the minors. Buffett quoted this in his 1997 letter to explain why Berkshire, sitting on billions after a 34.1% gain in book value, was buying almost nothing: the business 'pitches' on offer were barely catching the lower outside corner, and swinging would lock in low returns. He added the twist that makes investing easier and harder than baseball at once — nobody can call you out for letting three good-looking pitches go by, but 'just standing there, day after day, with my bat on my shoulder is not my idea of fun'.
The letter pairs the strike zone with a quiz about hamburgers. If you plan to eat hamburgers for the rest of your life and do not raise cattle, should you want beef prices higher or lower? Obviously lower. Then the final exam: if you will be a net saver for the next five years, should you hope the stock market rises or falls? Most investors get this wrong — they cheer when prices rise for the very 'hamburgers' they are about to buy. Only someone who will soon sell should welcome higher prices; a net buyer should prefer sinking ones. Buffett points out that Berkshire shareholders are savers whether they know it or not, because the company retains every dollar and redeploys it, and that the buybacks at Coca-Cola, The Washington Post and Wells Fargo bought far more ownership per dollar in past years, when their shares were cheap, than today's repurchases at loftier prices. Read a headline that says 'investors lose as market falls' and edit it: disinvestors lose, investors gain. Together the two images define the temperament: a fixed idea of what a fat pitch looks like, patience measured in years, and a preference for falling prices in everything you intend to keep buying. The same letter also admits the discomfort of the stance, and reports what Berkshire did while waiting — short-term Treasuries, some silver, and a large position in zero-coupon bonds — commitments it expected to profit from but explicitly did not 'know' it would.
Why does Buffett say a net saver should hope for a falling stock market rather than a rising one?
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The explanation above is written with AI assistance. These are the originals — go to them to check it.
- Chairman's Letter — 1997: Waiting for the Fat PitchWarren Buffett / Berkshire Hathaway
Sit-on-Your-Ass Investing
"Outstanding investment returns are generated not through hyperactive trading, but by cultivating the extreme patience required to hold exceptional compounding machines for decades."