The Fat Pitch Theory of Investing

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Warren Buffett is the most noted of the Fat Pitch theorists, and with good reason. He’s currently the second richest man in the world, and the richest one who did sheerly through investing. One of the main concepts he always espoused was waiting on the “fat pitch” before swinging, and making sure he swung for the fences when the time was right.

Let Buffett explain, as he did in his 1997 Letter to Berkshire Hathaway shareholders:

Under these circumstances, we try to exert a Ted Williams kind of discipline. In his book The Science of Hitting, Ted explains that he carved the strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his “best” cell, he knew, would allow him to bat .400; reaching for balls in his “worst” spot, the low outside corner of the strike zone, would reduce him to .230. In other words, waiting for the fat pitch would mean a trip to the Hall of Fame; swinging indiscriminately would mean a ticket to the minors

Warren Buffett never took that trip to the Minors, and you don’t need to either. When you’ve thoroughly researched a stock and you’re sure you’re making the right choice, bet heavily on it. This is one of the primary reasons Buffett is so rich and other people aren’t. People are able to pick winners on Wall Street all the time, but they rarely are invested in them with full commitment. A $10,000 investment may turn into $70,000, and that’s great. But if you were able to invest even more, the effect could be life-changing. If you’re too diversified, you run the risk of not being able to gain from a stock that does very well.

When the fat pitch comes, you’ll know. You need to be ready by hoarding your cash and closing out of losing positions. Put your money into one big position and you may come out a winner. This is especially true if your portfolio is very small, like most beginning investors.

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