I recently re-read Charlie Munger (Trades, Portfolio)'s great book, "Poor Charlie's Almanack," to remind myself of the mental models of one of the greatest investors of all time.
In his wonderful book, filled with knowledge and wisdom, it has a page entirely dedicated to baseball legend Ted Williams, his 77-cell strike zone and his incredible discipline and patience.
Williams played 19 seasons in the major leagues and was a 17-time all star, a two-time recipient of the American League MVP award, a six-time AL batting champion and in 1941 he hit .406 which is truly remarkable, a feat no other baseball player has been able to duplicate since.
In "Poor Charlie's Almanack," it says:
"In making investments, I have always believed that you must act with discipline whenever you see something you truly like. To explain this philosophy, Buffett/Munger like to use a baseball analogy that I find particularly illuminating, though I myself am not at all a baseball expert. Ted Williams is the only baseball player who had a .400 single-season hitting record in the last seven decades. In 'The Science of Hitting' he explained his technique. He divided the strike zone into 77 cells, each representing the size of a baseball. He would insist on swinging only at balls in his 'best' cells, even at the risk of striking out, because reaching for the 'worst' spots would seriously reduce his chances of success. As a securities investor, you can watch all sorts of business propositions in the form of security prices thrown at you all the time. For the most part, you donât have to do a thing other than be amused. Once in awhile, you will find a âfat pitchâ that is slow, straight and right in the middle of your sweet spot. Then you swing hard. This way, no matter what natural ability you start with, you will substantially increase your hitting average. One common problem for investors is that they tend to swing too often. This is true for both individuals and for professional investors operating under institutional imperatives, one version of which drove me out of the conventional long/short hedge fund operation. However, the opposite problem is equally harmful to long-term results: You discover a âfat pitchâ but are unable to swing with the full weight of your capital.âĂ â Li Lu of LL Investment Partners
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I thought that this was such a great way of looking at investing that I decided to go one step further, and I purchased a copy of "The Science of Hitting."
From the book, I learned that Williams was a deep thinker with an incredible memory who thrived by living in the moment. On page 18 of his book Williams says:
"In my 22 years of professional baseball, I went to bat almost 8,000 times, and every trip to the plate was an adventure, one that I could remember and store up as information. I honestly believe I can recall everything there was to know about my first 300 home runsĂ â who the pitcher was, the count, the pitch itself where the ball landed. I didnât have to keep a written book on pitchers âĂ I lived a book on pitchers."
Williams also had three rules for hitting. They also will improve mental models for investors.
Get a good ball to hit.
You must always take something up there with you: proper thinking. Have you done your homework?
Be quick with the bat.
This could be translated into finding a good company, doing due diligence on its financial statements as well as its management and waiting for an opportunity to invest in the company after it has reached a low in price. Guru David Swensen says that market timing is one of the most important aspects of portfolio management along with asset allocation and security selection.
Williams was a disciplined genius
Williams attributed much of his success to his incredible discipline and his ability to wait for a good pitch. Amazingly he only struck out once for every 11 at bats in the major leagues.
Williams simplified the strike zone into what he felt were areas where he could maximize his ability to make good contact. He divided the strike zone, calculating his personal hot zones, where he had his highest batting averages. He also determined the section of the strike zone where his batting average was much lower, and he would try to be patient and not swing for those pitches. All of these calculations occurred before the modern age of computers, which is part of the reason Williams had a tremendous edge against the competition he faced at the time.
Conclusion
Success leaves clues; intelligent people look for ways that they can improve their own mental models to increase their edge as well as the probability of achieving success. MungerĂ was able to learn from the legendary baseball player Ted Williams, an incredible genius. I love both books and will continue to re-read them.
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