One of the things that I’ve learned over the years in this business is to be patient. Some of the most productive days while managing a portfolio can actually be days where you don’t do a thing. Sitting there not doing anything can sometimes be the hardest thing for a human to do. It goes against everything we’re taught throughout our lives. When all these flashing lights and noises are going off all day, our bodies are built to go and do something about it. But that’s not always the smartest things to do. In fact, it’s often the wrong thing.
Ted Williams went down as one of the greatest hitters in baseball history. As market participants, I think the most important observation we can make is how much better of a hitter he was when he swung at good pitches. The chart below shows his career batting average based on the location of each pitch. When he swung at pitches low and away, he was hitting down near the Mendoza Line. When he waited for pitches right down the middle of the plate, he was the best hitter of all time.
Imagine if he only swung at pitches down the middle up by his belly? His career batting average would have been that much better. Unfortunately the game of baseball doesn’t work this way. Often times with runners on base, hitters need to hit behind the runners to move them over or sacrifice fly to bring them home. There are different reasons why a hitter would swing at a pitch in a less than optimal location.
As market participants, however, we don’t need to make these sacrifices. We have a huge advantage over Ted Williams and other hitters around the world. We can sit there being as patient as possible waiting for only the best possible pitches to swing at. There is no reason to put on a trade other than to make money. Now, one of the most important parts about making money consistently is risk management. Remember, that it’s not about being right, it’s about making money. So if we only wait for the best risk/reward opportunities that are skewed in our favor, we have that much more of an advantage over everyone else.
I make this sound easy, and I’m sorry for that. It’s not. Waiting around for your perfect pitch while everyone is making money trading other securities or strategies that you don’t incorporate is hard. It’s really hard. TSLA is an example that I like to use as one that I never made any money on and a lot of my friends did. Back in 2013, this thing was a monster. But I could never figure out the price where I would be wrong if I got in. The risk, to me, was too difficult to define. And if you can’t define the risk, how can you calculate the risk/reward ratio to see if it meets your parameters? You can’t. So I didn’t.
This is how I look at markets. Ted Williams may not have been a market observer or trader, but he taught me more about managing money than almost anyone else in history. I hope this chart above adds some value to your strategy and helps you remember that it’s not about making trades, it’s about being patient and only putting on the best ones. It’s not easy. This is something I battle with every day. And I will continue to fight this battle for the rest of my career.
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