Thursday, January 26, 2006

Investing and Baseball

I'm reading a whole bunch on value investing and Graham and Buffett and it's all very difficult to believe. That Wall Street and professional investor are "miscalculating" or overpaying for a business, when this is their job, is astounding.

To think that I, an individual investor, could do better seems a little ridiculous.

But read the literature, that's exactly what it says.

I wouldn't believe it either but I have experience with this phenomenon: baseball.

I follow baseball as religiously as Buffett followed companies' financial statements. I'm not exaggerating here, that's how absorbed I am in the whole process. And many times I've wondered to myself, "What is that GM thinking?"

I know this may come across as just another fan second-guessing management. I kook who thinks he can do better. A guy who knows nothing, claims to know everything, and demands a trade after every strikeout or homerun allowed. Basically, that I could come across as a Red Sox fan.

But I’m not, and on this you’ll just have to take my word.

I know this stuff, and a lot of the same things that happen in the market happen in baseball when GMs pick players for their team. Essentially, they’re trying to amass a portfolio that will yield high returns at the lowest possible cost (although some disregard cost, which isn’t always successful).

Some GMs just make plain mistakes. Mistakes that seem fat too egregious to fall under the category of “it happens to the best of them.” GMs are at the mercy of public opinion, of rabid fans, of their bosses.

The same can be said for the market and a company’s stockholders.

But as an individual investor, all you have to do is keep your emotions in check, do your homework, and be smart about it.

I believe what the investment literature says about me being able to beat the market. Being able to beat professional money managers. Why not? Once I get the knowledge and experience in the investment world, I’ll be on my way.

I’ve said this to myself countless times, but it merits saying again: Baseball has taught me a lot, it has allowed me to understand, via the creation of parallel situations, many of the things that are worth learning and believing in the real world.

Because of it I can and will do better than I would’ve otherwise.


Post a Comment

<< Home