The “Fat Pitch” Myth

I was intrigued by comments in this interview with Marc Faber of the Gloom, Boom and Doom Report.  He said:

“I am hoping for the market to drop 40% so stocks will again become, from a value perspective, attractive again…I think stocks are, by and large, fully priced.”

I run into this sort of thinking quite a bit.  It’s the idea that you’re just going to sit on your cash and wait for the next fat pitch and then hit the big home run that sets you on the path to financial freedom.  After all, that’s what hot shot investors like Warren Buffett do, right?  Buffett famously talked about how he likes to wait for “fat pitches”:

“I call investing the greatest business in the world,” he says, “because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.”

“Wait for a fat pitch and then swing for the fences.”

I really don’t like this way of thinking about the world of asset management and I think it blurs the line between what someone like Buffett does and what most of the rest of us do when we allocate assets.  Most importantly, it distorts what we really should be trying to do. Here’s my reasoning:

    • Warren Buffett does not always engage in market transactions that resemble anything remotely close to what the rest of us do.  Buffett is a true “investor” in the sense that he is often fronting capital for future production.  And the process by which he does so generally involves a tremendous amount of information or competitive advantage that the rest of us simply don’t have.  Buffett is getting fat pitches thrown at him all the time.  For instance, he had General Electric and Goldman Sachs, two of the most prominent firms in history, banging down his door begging to give him high yielding warrants in 2008.  The rest of us couldn’t get that “fat pitch” in our wildest dreams.  It’s a pitch most of us will never even see because it doesn’t get thrown to the average person.


    • The “fat pitch” myth assumes that you actually know what a fat pitch is to begin with.  It assumes that the next time the markets slide you’ll be able to know when there are superior “values” in the market or that you’ll be able to control your emotions better than everyone else as you time the bottom of the market and ride it back up to riches.  Maybe you can do that.  But the odds are that you won’t know when the market is a good “value” any better than when your dog will know the market is a good “value”.


  • The “fat pitch” myth misses the way most of us get rich in markets.  Most people who make sizeable gains in the markets do not swing for the fences or try to hit home runs.  Sure, the home run hitters are always the people who garner the most attention.  But they’re also a fairly rare occurrence and the fact that someone hit a 800 foot home run in 2008 doesn’t mean that person was necessarily talented or doing something that can be replicated.  The thing is, most of us get wealthy in the markets by hitting lots of singles, doubles and just getting on base a lot.  The best part about the market is that you don’t have to swing a lot.  But that doesn’t mean you have to wait for fat pitches to try to hit out of the park.  In fact, a lot of the time the market will help you score runs by simply doing nothing (ie, walking a lot).  The key to success in this business isn’t about hitting home runs and swinging for the fences.  It’s about getting on base a lot and scoring runs efficiently and consistently over a long period of time.

The bottom line: don’t fall for the fat pitch myth.  It’s more likely to lead you astray as you try to maintain your portfolio over the long-term.



Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.
Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • BryanJ

    Common occurrence after a big market collapse like 2008. Everyone says to themselves “I will get the next one”.

  • ex1

    argument 1 is completely wrong.

  • Cullen Roche

    Would you care to elaborate? Or should we just take your word for it? :-)

  • Gloeschi

    Agree, but also:
    1) Most institutional investors cannot have more than 5% cash – you can’t charge 1% on AuM when 50% is in cash
    2) Buffet gets to do due dilligence before buying a company. Ordinary investors don’t get that deep look into the books.
    3) Buffet gets to do “sweet” deals like BAC convertible or GS; they gave him great conditions because they wanted to decorate themselves with his name (also not available for ordinary investor)

  • FXTrader

    Cullen, I know you don’t intend this, but this reads like a sales pitch for index fund investing.

  • ex1

    I thought you would figure it out by thinking about it. Im not dismissing the general opinion of the article (I think you have a valid point), but just saying that, of course you can make the same trades as warren buffet (at almost identical pricing). And most of his investing, if you take his career in general, is not fronting capital for production but buying shares in the secondary market.

  • Cullen Roche

    I don’t agree. I think Buffett is getting deals at prices and with certain arrangements that are often impossible for the average person to obtain. And no, reading a K-1 will not necessarily help you replicate what someone like Buffett is doing.

    I also don’t agree that Buffett has made most of his money from the secondary markets. Buffett got wealthy starting companies. He built a holding company that essentially housed a multi-strategy hedge fund. Berkshire in almost no way resembles what most of the rest of us do in our portfolios. It is infinitely more complex than anything the average person is going….

  • Nils

    Good thing then I’m not an institution, although I might end up in one.

  • Nils

    The average person also doesn’t have an insurance business and the capital / leverage that comes with it.

  • Cullen Roche

    No, the point is, be Ichiro Suzuki. Not the home run king….It’s a lot less glamorous, but the point of the game isn’t to look glamorous.

  • Johnny Evers

    The assumption here is that the stock market is either too complicated even for a smart person (but market pros know what they’re doing?) or else fairly priced at all times.
    I also suspect the suggestion is that you pick an asset allocation strategy and stick with it no matter what.
    Not sure I agree with either of those.
    If you want to be average, buy an index fund. The only way to be great is to buy low and sell high. Most good investors can do that if they avoid the noise and control their emotions.

  • ex1

    Im sure average investors shouldnt try to copy this, but you seemed misinformed regarding for how long they would be involved in pretty plain vanilla/secondary market deals before getting in to more complicated or preferential transactions.

    What perhaps the average investor could learn from this is, first of all, stop doing the exact opposite – say for instance be the most invested when buffet seems to be most active, and perhaps the least invested when it seems that he is the least active – and of course try to start to understand why.

    Most money (absolute and relative) is made in bear markets. This has always been true.

    Love the blog btw, good job

  • Cullen Roche

    The equivalent of hitting lots of singles & doubles doesn’t necessarily mean you have to index. It could mean that, but it doesn’t necessarily mean that.

    As for the concept of “value”…well, in my opinion, the concept of “value” is a psychological construct that changes and evolves over time depending on how people perceive “value” at any given time. It’s a lot like the concept of “beauty”. What’s beautiful to one person could be ugly to another person. I know that “value” investing is all the rage, but I just haven’t found a lot of value in it. Maybe I am engaging in the beauty contest in the wrong ways! :-)

  • indignado

    That was funny.

  • Cullen Roche

    I see your point.

    “Most money (absolute and relative) is made in bear markets. This has always been true.”

    Amen. Just make sure you don’t lose too much money waiting for the bear market. :-)

  • Ansgar John

    Buffett’s company, Berkshire Hathaway, isn’t expensive at the moment. A 12% return from this point (1,25x book value) going forward would be reasonable. Read page 20

  • DK

    “Buffett is getting fat pitches thrown at him all the time.”

    What does “all the time” mean? You only cite 2 examples over the past 6 years (GS and GE), and off the top of my head, I can only think of a 3rd (BofA).

    I realize Buffett has gotten a few good deals that average investors don’t get (Goldman, GE, and BofA), but the very large majority of his returns haven’t come from these types of deals.

    I really don’t think you can attribute a big % of his historic returns to fat pitches that ins’t available to the average investor.

  • Ansgar John
  • ex1

    hihi, its more being mentally prepared, and/or having a game plan for markets being up and down.


  • Cullen Roche

    If only it was that easy! The market is a beauty contest that doesn’t always value the box at its “right” price. In fact, the market will almost always price the box incorrectly. Calculating that the box is worth $8.50 doesn’t mean anyone else agrees and if no one else agrees then that box is only worth what someone else is willing to purchase it for.

  • Johnny Evers

    Ichiro hits singles, but he still has the same philosophy as a good home run hitter — swing at pitches you can hit for singles.
    Maybe your comment about the ‘perception of beauty’ puts you in the large camp of investors trying to figure out what other people think is beautiful, or valuable, instead of trying to find it yourself.

  • Patrick Crook

    If everyone can replicate the same trades as Buffet, at the same prices, then why aren’t there a couple hundred other Buffet’s out there? If it’s just, you know, looking up p/e’s in Value Line and placing a limit order it seems like there should be at least a few dozen Buffet doppelgangers out there with similar track records and balance sheets.

  • Cullen Roche

    I don’t know. Lots of his early deals were pretty unusual. Geico and AmEx were distressed debt plays for instance. I am not saying that you can’t replicate anything Buffett does. But much of it is far more complex than many assume….

  • FXTrader

    I think the point behind “fat pitch” is to hit home runs, not singles. If you just want to hit singles you don’t always need to wait for perfect pitches. You just need pitches that are good enough. Or, in some cases, you don’t even need to swing to succeed.

    Cullen’s using a Money Ball concept. Just get on base and you’ll win more often than not.

  • LVG

    “There’s no penalty except opportunity lost”

    Buffett shouldn’t say things this stupid. Anyone sitting in cash is losing the rate of inflation every year. He knows this which is why his comments come across as disingenuous and misleading to begin with.

  • Ansgar John

    Yup, plenty of them read “Superinvestors of Graham and Doddsville”

  • LVG

    “value investors” are implementing a form of the efficient market hypothesis or rational expectations by assuming that the markets will become irrational for brief periods of time only to return to some equilibrium or “efficient” point where only they will be the ones who recognize that the market is now a good value at which to sell. It’s weak form EMH which implies that they know better than everyone else – usually using some backtested model that they think works just because it worked 25 years ago.

  • DK

    I’m definitely not downplaying any of the success that he and his team have had at Berkshire, and I’m also not downplaying the fact that he does get fat pitches thrown at him – from time to time. (if you want to bolster your first point, you’d also highlight the fact that he had – during the 70s and 80s – companies come to him asking to buy them, outright. As an average investor, I also don’t get those opportunities.).

    But with that being said, I’ve been re-reading his annual letters as of late, and much of what he does is just good-old stock picking, and good-old business acquiring. One of his biggest differences was understanding the difference between a good insurance company and a bad insurance company.

    Just to play devil’s advocate, I think that many people who throw stones at the “wait at the fat pitch” theory are simply people who need a cop out because they don’t know what a fat pitch is when they see it.

  • Ansgar John

    Price is what you pay, value is what you get. Eventually the box will be bought / taken private or will pay out dividends.

    Excerpt from Benjamin Graham’s last interview:

    (I recommend) buying groups of stocks at less than their current or intrinsic value as indicated by one or more simple criteria. The criterion I prefer is seven times the reported earnings for the past 12 months. You can use others–such as a current dividend return above seven per cent or book value more than 120 percent of price, etc. We are just finishing a performance study of these approaches over the past half-century–1925-1975. They consistently show results of 15 per cent or better per annum, or twice the record of the DJIA for this long period. I have every confidence in the threefold merit of this general method based on (a) sound logic, (b) simplicity of application, and (c) an excellent supporting record. At bottom it is a technique by which true investors can exploit the recurrent excessive optimism and excessive apprehension of the speculative public.

    See the success of the different (Graham) screens at AAII. It is that easy.

  • Nils

    Yeah I think most of the advice he gives out is more to cultivate an image than anything else.

  • LVG

    “Eventually the box will be bought / taken private or will pay out dividends. ”

    Dividends are only one part of the total return. And there’s no guarantee that the market will ever see the asset as being “worth” what you believe it’s worth.

    Value investors are just arrogant enough to dismiss the efficient market hypothesis while also engaging in a strategy that relies on the market viewing prices as “efficiently” as they view them.

  • DK

    It isn’t just Buffett who advocates sitting on a big pile of cash when investment opportunities aren’t good. James Monteir, who I believe has been praised right here on this very site, is also a big advocate of holding large chunks of cash. I think he wrote a white paper on it in 2011 titled “an ode to cash” or something along those lines…

  • DK
  • Ansgar John

    That’s true. Ben Graham said the stock owner should not be too concerned with erratic fluctuations in stock prices, since in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine (i.e. its true value will in the long run be reflected in its stock price).

  • Johnny Evers

    We really don’t know what his specific approach is, what his returns have been, etc. His portfolios and advice are proprietary (nothing wrong with that), but that leaves him open to criticism that if he’s criticizing other investors he should reveal more about his approach.

  • Cullen Roche

    It wasn’t my intention for this post to come across as sounding like an attack on value investing. Rather, I am attacking the idea that we need to wait for fat pitches to succeed. I would assume that value investors agree you can hit singles and doubles and that you don’t need to hit home runs all the time to succeed. No?

  • Alberto

    Cash is like an option with no expiry date which depreciates at the inflation rate. Sometimes it’s very cheap, sometimes is not. It depends on the market valuations. Being highly under weighted or even out of the market when valuations are in the highest percentile (using a Schiller or Easterlig metric) has been proved to be highly beneficial to wealth and health. Now, with an inflation rate at about 1% this option is cheap and you can avoid loosing money at all with some decent bonds.

  • Alberto

    Exactly what I was saying in the previous comment; cash as an option is from Montier.

  • Johnny Evers

    Sure, but even if you want to hit singles you need ‘fat pitches’.

  • FXTrader

    A little sleuthing actually makes it easy to find some of his results.

  • Cullen Roche

    That’s what I am disagreeing with. You don’t need fat pitches. You just need decent pitches. And sometimes you just need a good eye and some patience. “Scoring runs” in this game doesn’t always mean hitting home runs.

  • RB

    Would that be such a bad thing?

  • Johnny Evers

    Did you find the strategies employed, the investments selected, turnover, etc?

  • Nils

    So, not like an option at all…

  • Cullen Roche

    I have no problem providing my personal account returns here:

    2006 40.24%
    2007 24.95%
    2008 20.47%
    2009 6.41%
    2010 2.72%
    2011 7.02%
    2012 11%
    2013 6.76%

    Just be sure to remember that those reflect strategies that I don’t discuss and that they don’t really reflect anything meaningful about this website, my knowledge or the services my firm provides. In fact, since they’re past results from my personal account they don’t really mean much of anything and you should pretty much ignore them entirely because they’re useless. Past performance is not indicative of future returns or really much of anything at all.

  • indignado

    I think the base hit analogy works. If you want to hit lots of singles and doubles then you need to have good timing and be very consistent. If you want home runs you depend on power and can expect to have many more strike outs. (unless you have the umpire in your pocket and you can change the rules of the game, but that is a different debate).

  • Alberto

    if you don’t buy bonds, your cash wroks like an option. If you consider to have a part of your wealth in some OECD gov bonds is still like an option. Of course if you don’t like the idea I’ve mentioned it’s not a big problem, its your way of thinking against mine. The sun will rise again tomorrow anyway.

  • Suvy

    What do you usually trade in your personal account? Do you try to pick stocks or speculate currencies or trade bonds or what?

  • 4whatitsworth

    Dow 7,000 and real estate off 50% sure seemed like a fat pitch that most could and should have understood. The best you are going to do right now is a base hit or another time at bat.

  • Johnny Evers

    If he was positive in 2008 he must have been swinging at the right pitches!
    Seriously, I would love to see a more detailed approach of the strategy. How about ‘The Little Book of Pragmatic Investing’?

  • Cullen Roche

    I actually got very lucky in 2008. That year I was running primarily an event driven multi-strategy that was based on law suits, earnings events and macroeconomic events. During the summer of 2008 the strategy stopped working because the number of companies that met my criteria collapsed to almost nothing. So I stopped participating in the market just before the crash (I’d already had a decent year by this point). Then things started to unravel and I basically just watched. The timing of it all was extremely lucky. I wish I could say it was just skills and all that, but that would be a big fat lie. Then, in the next 18-24 months I stayed overly bearish for too long and was frozen partially by the magnitude of the crash. That’s why my 2009 and 2010 were nothing to write home about. Lots of learning was done in the last 5 years. That’s for sure.

  • lessismore

    “Real estate off 50%” does not necessarily mean 50% off fair value. By definition, a bubble is inflated values. In my town, real estate never recovered down to fair value, and yet it became even harder to buy any house. My 25% down was worthless next to the 100% offers of the institutional investors. It is difficult to find a seller asking a fair price. They are all anchored to the inflated bubble price and considered anything less as x% off (even though the fair price may represent a huge gain relative to the seller’s cost basis). They resent their own asking price as a steep discount, and are offended by offers of even less. I feel very sorry for distressed owners whose buyer’s agents persuaded to offer too much (because of the broken system whereby BUYER’S agents are paid a percentage of the SELLING price.

  • lessismore

    Cullen, Even granting all your points, what is a person who sold at a market high to do now? Even if you are not waiting for a fat pitch, it seems silly to buy high and pray that it will not only go higher, but also you can get out in time. Such faith-based decisions seem destined to fail.

  • DK

    Montier wrote a white paper titled “The Seven Immutable Laws of Investing.”

    One of his 7 rules: Wait for the fat pitch.

    I don’t believe Montier included this rule with the assumption that readers of his paper, or investors with GMO, are going to be presented with any sweetheart deals.

  • wallyfurthermore

    The other side of the ‘fat pitch’ idea is that you MUST sell when you think the marking is rich or you won’t have that cash when the hoped-for opportunity comes. Problems is, once you sell, the market can just keep going right on up without you… and that is a loss, any way you try to spin it.

  • Cullen Roche

    Montiers point was to learn patience and dont feel like you need to swing constantly. He doesnt say anything about swinging for the fences in that piece. So I dont think he’d necessarily disagree with my point here even if he does approach markets with a value based approach….

  • http://None Pete

    Marc Faber is talking about business cycle. Every four to five years there is a short term business cycle, and stock market goes down, so he can buy stocks cheaper. Warren Buffett is buying businesses, and he believes capitalist system is really about businesses. Also our government and the rule of law will protect the businesses to prosper. He always talks about the hamburger example, ie, the hamburger today will cost more tomorrow. It’s the inflation and money printing thing you don’t really believe. The real wealth is created by the real innovators and entrepreneurs, like Bill Gates etc. Asset allocators don’t create anything, and if everyone is doing it, nobody will succeed. Stock market is really about beta. Alpha is zero sum. You always compare your machine with Dalio’s machine, I am sure you realize that Dalio’s machine is all about cycles. Let me ask you this, If you put your money in SPY, and get a day job since 2006, will it do better or worse?

  • lessismore

    For example, what do you think of this thesis for buying Tesla at its high? The author says he bought Tesla last month.

  • Cullen Roche

    I wouldn’t know. I personally don’t think I have any information that gives me a competitive advantage in understanding Tesla’s business or stock price better than, say, the army of analysts researching it at the big Ibanks. But stock picking with the intent to buy and hold isn’t my thing….And in my opinion, most people shouldn’t bother with it.

  • John Smith

    Gee, I was under the evidently erroneous opinion that Warren Buffett had 99% of his net worth in one stock called Berkshire Hathaway—- which of course he has held for many years outside of his charitable giving.

  • LVG

    Berkshire is not one company. It is a holding company which houses hundreds of companies.

  • Cullen Roche

    Don’t get me wrong. I am not saying you can’t get rich starting companies or trying to hit home runs. I just don’t think the best way to try to do that is by picking stocks on a secondary market. If you want to hit home runs I recommend investing in companies on primary markets or starting your own company. That’s what Buffett did. And it’s what most of the people on the Forbes 400 list did.

    Secondary markets are where people allocate their savings. Not where people get rich quick.

  • Johnny Evers

    That’s cool, but probably not what you recommend for clients? I guess I thought you had some sort of model asset allocation you recommended.

  • Cullen Roche

    Not really. I customize portfolios for people depending on their goals and risk tolerance. Basic financial advisory stuff using what I believe are pretty sound principles for financial management. My personal account is handled totally different.

  • Mark Caplan

    “The thing is, most of us get wealthy in the markets by hitting lots of singles, doubles and just getting on base a lot.”

    I can’t translate the Punch and Judy hitter analogy into practical investment advice. The analogy sounds like using some kind of quick in and out trading strategy with tight stops, which I doubt is what is meant.

    But I agree that the fat pitch analogy breaks down on reflection. The fat pitch won’t be obvious when it comes around. Compared to market valuations at the end of the tech bubble in 1999, the market is a fat pitch right now. But compared to market valuations at the end of 1986, the market today is way overvalued. If today’s market (meaning the S&P500) fell 40%, it would still be far overvalued compared to valuations that prevailed in the early 1980s.

  • JWG

    Many of the really fat pitches in the business world come from special knowledge (not inside information) held by individuals that can be exploited for rapid (sometimes exponential) gains due to changing circumstances. A recent example is oil and gas, where very old leases could be bought en masse for almost nothing due to exhaustion or non-development; and then hydraulic fracturing suddenly made those leases very valuable because what was once a dead or moribund property was now very hot. Similar arbitrage-type opportunities arose in medical services of various kinds (due to quirks in reimbursement) and energy brokering. If you have special knowledge and see the fat pitch, and have some appetite for risk, getting rich doesn’t take that long.

  • Nils

    If you’re a heavyweight like Buffet (now I left the baseball field and went right into to ring) you have a lot more option to get at that underlying value. You can make board appointments, get rid of the CEO, talk the stock up etc..

  • Nils

    I don’t know why you would want to over-complicate a thing that is so simple. Options have an expiration date, options have a strike price, options have some peculiar properties with regards to volatility. None of that applies to cash.

    Maybe that analogy is helpful to someone who doesn’t trade options, I don’t know.

  • Nils

    Are you moving billions around? Otherwise, unless you are in the really illiquid stocks you can usually get out in time, or even purchase protection.

  • Nils

    Starting companies is probably the better choice, compared to trying to trade the markets to get rich.

  • Notagain

    mentally prepared …for a fat pitch …lol ..
    Most investors panic after a 40% slide and the ones who dont get too scared to buy for all sorts of ‘rational’ reasons …Cullen makes the better point here ..if you don’t have a track record of bying after a 40% drop you won’t do it the next time ..but you can kid yourself all you want

  • JohnC

    You honesty is refreshing …. in my case I missed the 2008 crash as all I had was invested in my company…..I sold in 2009 and had I fully invested over the past 5 years could have more than doubled my capital….Plus! In 2013 I had a return of 17.5% being 40% invested and trading currencies.

    Keep up the great work – your balanced logic and investment approach perfectly concurs with mine ….. there are not “fat pitches” in our investment world…..rather anything above a 2% above inflation return should be gratefully received.

  • lessismore

    One of the frustrating features of this forum is the over-parsing of words and the veiled disdain for people who are apparently not “inside.” Plenty of little people lost their retirement savings (so savings is probably a misnomer) because they weren’t as LUCKY as Cullen says he was in getting out in time. This is a self-identified education forum. I ask questions all the time which are usually ignored I guess as beneath consideration. You ignored my main question to make a snide remark about liquidity. Even Cullen ignored my main question to say he has no opinion on Tesla.

    So I ask again, what is a person who sold at a market high to do now? Not waiting for at least chubby pitches right now would seem to imply buying high.

  • Nils

    A small player should be able to get in and out of positions rather quickly if need be, even automatically if he so chooses. I’m really curious why people are so overly concerned with getting out in time. It may be snide, but the question still remains. These are concerns for a guy like Buffet, not the “little guy”.

    So I ask again, what is a person who sold at a market high to do now? Not waiting for at least chubby pitches right now would seem to imply buying high.

    There is always the short side. It’s hard to answer because everybody has their own style, and most of us aren’t comfortable sharing. If you sold at the high, the question you could ask yourself is why didn’t you go short? And then again, you only know you sold at the high with the benefit of hindsight.

    I can tell you that right now I’m mostly looking to collect credit from trading option spreads. Last year I was basically just buying calls and rolling them up until the market dipped, then bought new calls on that dip. No idea what the appropriate sports metaphor for that is. That strategy may change at any moment.

    Trading the market doesn’t lend itself to oversimplification such as “swing at the fat pitch”. I think most of this advice is dangerous. If it’s any other sufficiently complicated activity people probably wouldn’t accept such simplifications.

    If you want to be a world class surgeon, be sure not to miss my seven rules for successful surgery.

    This is part of the reason why the little guy gets screwed.

  • Nils

    To Bill Ackman short HLF and long JCP probably looked like fat pitches.

  • Cullen Roche


    You’re asking for personal investment advice. It’s nothing personal, but it would be totally irresponsible for me to give you advice in this forum based on such a vague question. I could have said “email me and pay me a fee for my advice”, but I didn’t think that was appropriate either! Hope you understand.


  • HankB

    If your strategy had no buys then there had to be some skill involved in what your model was recommending, no?

  • Suvy

    Boy was that a stupid decision. When he was short HLF, he shouldn’t have came out and said he was short. In the case of JC Penny, no one actually goes there any more. If I want clothes, I just go to the outlet malls and get whatever I want or I just order it online. Ackman doesn’t seem to really have a lot of common sense.

  • Suvy

    By me, I mean everyone my age. No one my age goes to department stores to get clothing. Why would you go to a department store when I can get it straight from the manufacturer at an outlet mall. It’s cheaper and I don’t have to dig through an entire store full of bullshit to get what I want. There’s also more options and it’s always much cheaper to go to outlet malls.

  • wallyfurthermore

    Nobody goes to outlet malls anymore, We all just shop online.

  • Suvy

    “If I want clothes, I just go to the outlet malls and get whatever I want or I just order it online”

  • BatterUp

    Remember too that individual stocks can offer a fat-pitch, the market as a whole doesn’t have to recede. Value is just ‘easier to spot’ when the whole market is down. You could buy a basket of stocks and generally do ok.

  • JLM

    Always wait for the fat pitch. The bottoms are obvious. Take gold miners. 9 times since 1939 they have sold them off for a 70% write down top to bottom. That is their natural bottom! Guess where we are these last few months. Right at the bottom a once in a decade or twice a decade opportunity!

    There is no intrinsic value in any stock at any time. Just what a greater fool will pay for it. So wait for the blow out bottoms and you will do well. This is a rigged game! So follow the slime trail of the big boys.

  • lessismore

    You are right. It’s complicated—too complicated. I am an IRS enrolled agent. I have dealt with the college kids (why aren’t they studying) who bring in the 500-page Schedule D. They spent hours moving $millions (actually it’s only the same $20K) and maybe broke even for the year. I have seen the lost retirement “savings.” I have seen the strange real estate deals. I have dealt with lots K1s and 1099Bs.

    I have written permission to talk to the my clients’ financial advisers. Very interesting. There is no such thing as customized advice, even though all claim to offer it. Each adviser has a few favorite stocks or bonds or funds (you can count them on your fingers and maybe your toes) and every client gets essentially the same advice because, as one adviser said, “I don’t have time to follow more than 10 or 20 stocks.” Nearly all advisers are essentially salesmen, regardless of the alphabet letters after their name.

    And nearly none of them understand the tax consequences of their advice. In fact, they specifically tell their clients they do not offer tax advice, and refuse to have an in-house tax adviser for their clients, even though a thorough consideration of tax consequences should be an integral part of every financial recommendation. Most people come to a tax adviser during tax season when it is too late. The results of a bad decision are baked in by then.

    Nearly everyone posted negative returns in 2008. Cullen says it was only by luck he had positive returns that year, and despite his skill, “2009 and 2010 were nothing to write home about.” So I guess it is not true that everyone should have no trouble getting out in time.

    Advisers take their 1% “of funds under advisement” regardless of performance. And most advisers require a minimum of $100k (although a few will accept $50K). I would like to see a fee schedule based on the realized gain, so that client interests and the adviser interest are more closely aligned. Once, after interviewing 50 advisers, I tried to make such a deal with the one I thought might be the best, most honest, etc. No way, Jose. Why not? Too risky for the adviser! That’s telling.

    As a tax adviser, I end up giving financial advice all the time. It’s actually inseparable. I deal with the little guys who do not have a spare $100K for a “real” adviser, as well as bigger guys with plenty of money for advisers. I do not customize my advice either. It is pretty much the same for everyone: Get debt-free, have an emergency fund, be well insured but not over insured. THEN we can talk about what to do with spare funds. Most of my clients have no business playing with shorting or options or spreads, nor do they have the time.

    I also agree the problem with fat pitches is recognizing them. A few years ago, one came my way when HSBC announced a couple months before tax season that it would no longer fund HRB’s refund anticipation loans (RALs). People thought that was a death knell to HRB. However, since RALs are not all that important to HRB, I knew it was a fabulous buying opportunity. I loaded up and eventually doubled my money AND got a 4% dividend along the way. Nevertheless, with most fat pitches, by the time you see them they are gone.

    Sorry, but I knew I was selling at a high when I sold. True, I was surprised when my former positions went even higher (although some went down). Why did I not short? Because I am a saver, not a gambler. Sitting on cash right now does not seem like such a bad thing. Better than buying high and selling low. As Josh Brown says, “Anyone who wants to buy should be hoping the stock market goes down.”

  • Ron Taylor

    Cullen Roche Throws a Wild Pitch

    The Psychological advantages of “The Fat Pitch” strategy are substantial and not a myth!

    The wisdom of the “Fat pitch” is it forces you to consider what your circle of competence is. To investigate, and value the company because after all you have to define what a “Fat Pitch” is first.

    Applying the “Fat Pitch” strategy demands patience, discipline, and investigation into the intrinsic value of the business.

    The “Fat Pitch” strategy forces investors to be selective and to think as long term business owners.

    The “Fat Pitch” implies that you know what you are looking for and why.

    With the average position apparently being held for only 9 months on the New York Stock exchange it is quite clear investors do not know what they own or why and take positions impulsively and invest based on momentum not value.

    Focusing on “home runs” forces the investor to select only their very best ideas which may only turn out to be doubles or singles as Warren Buffett will readily admit.

    Mr Roche’s definition of “Fat Pitch” is reckless to say the least as we do not have to wait for a financial crisis like 2008 to take advantage of this strategy due to regular corrections on a micro or macro level.

    What is more important than the “home run” is the process. Thank you

  • DanH

    You make it sound so simple. All we need is a process and a set of criteria for managing that process. Well, if it’s so simple then why don’t you provide us with your criteria so we can all know when these fat pitches are in front of us? Then we can all become just like Warren Buffett by picking stocks. This sort of stuff sounds great in theory and it sells lots of books, but in reality it just doesn’t work.

  • Ron Taylor

    For most investors the problem is impatience and impulsive behavior.
    We would all be a lot wiser if we applied the wisdom of the “The Fat Pitch”strategy

  • John Smith

    Again I was under the impression that Buffett has 99% of his stock in one company called Berkshire Hathaway. Like most business it does do things including buying other businesses.

    But I assure you Buffett isn’t a stockholder of Burlington Northern because it is owned by Berkshire. He has 99% of his net worth in one, and only one, stock.

  • Ron Taylor

    But it does work and no it isn’t easy because this is hard work and demands a professional attitude.

    The fact is most investors will not put in the time required and so they don’t know what they own or why.

    These same people sell when a correction occurs because they instantly realize they don’t understand what they own and panic.

    Investors who own the same company but understand it will buy more during corrections and certainly not sell.

    My criteria

    I know what I own and why using fundamental analysis and hours upon hours of research using a Value investors strategy.
    I read books every day.
    I keep a diary.
    I have my own checklist
    and on and on

    Dan H many investors use this approach not just the great Mr. Buffett.

    Bottom line this is hard work which is why real value investors in the minority. The casino is much more exciting and requires no effort just hope.

  • Cullen Roche

    I am 100% in favor of having a structured process. In fact, I think that’s what good portfolio management is mostly about. What I am criticizing here is the idea that you should try to hit home runs in your portfolio. I just don’t think that’s a prudent way to approach portfolio management. It doesn’t mean value investing doesn’t work. In fact, I am not criticizing any specific strategy here. I am simply pointing out that it’s very destructive to think that you can sit in cash and wait for the fat pitch that you will then hit out of the park….

  • Ron Taylor

    I agree that one shouldn’t try for the “hail mary” type home runs. Thanks for the reply

  • Herbert

    Right – everybody is too scared to swing when the market is actually bottoming. It’s just after it bottoms people start to regret not swinging.

  • Herbert

    Index investing does alleviate a lot of the problems discussed above… I am always intrigued as I read this blog and others that delve into analysis on certain subjects, but when they zoom out we see that the principals of investing espoused really align more squarely with passive investing.

  • Guruprasad V

    One of the most realistic article which wont be accepted by most of the guys. It simply hurts the ego. I believe none of us could do the deals that has been done by Mr.Buffett. He treats GS and GE as a SME during 2008 and did a deal that could be made with SME which normally has hell lot of conditions. This is not for kids. I believe Trend Following guys hit home runs and there are lot of examples of Trend Following guys doing those things. But all the strategies have their own negatives and can’t be replicated all the time.

  • Ron Taylor

    The “Fat Pitch” strategy has nothing to do with these special deals Warren Buffett gets.

    Warren Buffett gets these special deals because of his reputation and are very rare for even Mr. Buffett who does not rely on these to create value.

    Getting Mr. Buffett to buy into BAC was a vote of confidence for BAC.

    How many investors are sitting around for Fat pitches almost Zero.

    How many investors buy on impulse and lack patience just about 99%

    To compare a few deals such as BAC and GS with the “Fat Pitch strategy misses the wisdom and practicality behind real investing which is why most investors would be wiser to be in low cost index funds.

    Is Warren Buffett the only Value Investor who applies the “Fat Pitch” strategy?

    Come on our problem is not that we are too patient waiting for Fat pitches.

  • David Tan

    I think Buffett meant that you don’t have to swing at every pitch–i.e. invest in everything. Buy things you understand, where you have an edge, when the stock is undervalued because it is misunderstood, or because of general market/industry weakness. That’s his definition of “fat pitch.”

  • GLG34

    Buffett says:

    “Wait for a fat pitch and then swing for the fences.”

    I don’t know what you think that means, but it sounds like you should try to hit home runs.

  • Billie Jones


    You nailed it. I think a person always has to keep in mind the source and incentives of the narratives we here from “advisors”. After all, its awfully difficult to justify 1%-2% in wrap fees or even a flat fee for planning just to advocate sitting in cash.

  • John Daschbach

    Not only is the Fat Pitch strategy statistically not a good idea, it’s not good for the macro economy. You can choose to relatively accept or reject aspects of equilibrium models (e.g. DSGE) but there is always a kernel of truth in macro models. Although equilibrium doesn’t strictly obtain in economics (at least over time frames we have any understanding of [ca. 5000 years]) the Central Limit Theorem which underlies our understanding of many things requires that there are agents (people) who will swing for the fences on the perfect pitch and those who swing at the first pitch on average. My lifelong team, the Giants, has many times been a perfect example of this. Pablo is going to both swing on a 1st pitch and swing for the fences. Marco is going to wait for the pitch he can hit for a single. Posey and Belt are less likely to swing on a first pitch than Pablo, but far more likely to swing for the fence than Marco.

    There are many reasons Baseball is so ingrained in US culture, but it is a very good fit for much of it, not the least economics in the US.

  • Gary UK

    Roche has to disagree with the fat pitch thesis, as his advisory business wouldn’t exist otherwise.
    Permabullish is the default for guys like him in that industry.

  • Conscience of a Conservative

    I have a harder and harder time considering Buffet a true value investor, considering his ever increasing reliance on esoteric swap trades (which he values as level 3 assets), and his jumping into IBM after several quarters of earnings driven up by financial engineering(Jim Chanos has commented) amongst other things. It seems to me Buffet’s reputation is more legend than recent performance.

    As far as waiting for the market to fall before buying. Mixed feelings here. Agree with your sentiments, with one exception. If the market as a whole is not providing value, perhaps it’s better to stay liquid in cash, maintain optionality in the hopes of buying at better values. I can’t see the benefit of ignoring research such as that put out by GMO and Hussman that show sup-par and perhaps negative 3-7 year returns from investing in stocks at this juncture.

  • grizzly92

    To me a “fat pitch” was Ford under $2 and BOA under $3. I loaded up and got back in the “retirement game” after 2008. Watch out….even fat pitches can be missed.

  • Hans

    Funny indeed, as I am spitting coffee out of my nose
    and mouth!

  • Hans

    Excellent point, Mr Roche.

  • Conscience of a Conservative

    Agree that many of Buffett’s investments are not open to the general public or investor’s in general. He gets access to many sweet heart deals simply because who he is or based on his reputation, such as those high yielding preferred stocks he gets to keep on buying. If the playing field were more level , and the options available to him the same as everyone else(such as when he first started out), not sure he would do so well.

  • Hans

    17% return per year, this is most excellent indeed.

    My total returns on investments do not exceed 2%!

    It is a good thing I am not working for Mr Roche or The Donald!

  • Hans

    Good point, DK, as the retention of the principal is every bit
    as important as annul returns.

  • Hans

    You are a wise man, Mr Taylor!

  • Hans

    There many more theorist hear, on this website,
    than investors based on all the posts I have read.

  • AmericanFool

    Ok, this comment piqued my interest, expecially the part about ‘most investors’. The data I’ve read pretty much contradicts that statement head on. So, I’m a reasonably smart guy, with a full time job, so index investing makes a ton of sense to me. Over 20 years of investing I have an avg annual return of 10.2% (validated, with no rookie errors in that number, like counting your contributions in your return – but it does include dividends, 100% reinvested). I’ve not always maintained a static asset allocation (see below). So anyways, we’re talking a healthy 5 x earnings put away.

    So If I had $ and time, I think I would enjoy investing in a more targeted manner, understanding that everyone has to find their niche, their process, stick to it, & plenty more that take years to learn. And yes in 2007 I was slowly backing out of equities, and in 2009 was slowly buying back in, so I’ve navigated one of these crashes with equanimity and a reasonably aggressive approach rather than running to the hills, & did so while limiting my risk as well. So what kind of returns are you talking about, on a complete portfolio? Sure you get a Buffet or a Lynch now and then, but we’re talking about the rest of us. So what might be reasonable to expect? Are you talking 12% returns? 15%? Most people who try do not succeed for a variety of reasons, so I’m wondering what tool is available to normal investers that makes beating the indexes a reasonable thing to assume?

  • lessismore

    Studies have shown that while the average market returns are 6%, 10%, or 12% (depending on the study), individual investor returns are 1% or 2% again depending on the study, making Social Security’s 3% and index funds look pretty good for most investors. My efforts tend to average around 6%, so I should probably just get an index fund and call it a day.

    My difficulty in 2008 was I had been advised to be in trailing stops as protection against the volatility of that year. I discovered that no matter where I put the trailing stop, I would wake up a day or two later to find my position had gapped down at market open and sold out from under me. Often the trade was in error (9 documentable times and perhaps more, a faulty trade following a gap down after market open was harder to document) , and a call to my discount broker would get the trade reversed .

    At one point, a customer service rep from the discount broker, sympathetic to my frustration, called me off the record to educate me about market makers/specialists and their shenanigans, and why they love trailing stops, and why discount brokers love the transaction fees trailing stops generate.

  • Gary

    I don’t believe that there is any such thing as investing anymore. Nothing I learned in B School years ago is true today. Given market manipulation by Central Banks, Big investment banks, hedge funds and others, it’s a joke. My world really changed when Pres Obama screwed GM bondholders. And the flash crash a few years ago? All this recent wealth is merely the effect of massive central bank money injections. Had the Fed stayed away, insurance companies and banks would have probably been all wiped out, Buffet included. Anyone who thinks that they are really making money over the last few years is delusional. It will all evaporate one of these days. hope I’m wrong but again, nothing I learned in B School (supply and demand and such) is not true anymore.

  • Geoff

    Gary, I agree that the GM bailout was a game changer. So is this new so-called “bail-in” bank debt in which senior debt can apparently be written down at the whim of regulators/politicians. When I went to school, I learned that senior debt holders were supposed to rank pretty highly in a traditional bankruptcy court. Things have changed, I guess. :(

  • Johnny Evers

    With GM, it was a question of who took the losses.
    Would you have preferred the pensioners took the loss?
    Come to think of it, why did the bond holders get some, when the stock holders got nothing. The stock holders supposedly owned the company. Last I looked, the company was still intact and now profitable. Why do people who lend money to a company have more rights than those who supposedly own the company? I have never understood that. I guess it’s because otherwise it would be harder to get loans.
    The GM bondholders didn’t get screwed. They made a bad loan, suffered a bad break. They still got something.

  • Geoff

    JE, stockholders get all the profits. You appear to be saying that they shouldn’t suffer the losses, which sounds like a one way street to me.

  • Nils

    Get debt-free, have an emergency fund, be well insured but not over insured. THEN we can talk about what to do with spare funds. Most of my clients have no business playing with shorting or options or spreads, nor do they have the time.

    I agree, I didn’t want to suggest anyone else do what I do. It’s more of an example why there is so little advice shared here, because I doubt anyone could make use of my particular strategy.

    I would go even further and say that unless you’re willing to put in the time and money to learn the ropes you should just keep out of the markets completely.

    It’s far smarter to invest into thinks you can control and understand rather than trade on a secondary market. Acquire skills (but don’t overpay, college is too expensive ROI wise), maybe buy into or start companies, get rental properties etc..

    But somehow people feel like they’re missing out if they’re not in the market. You don’t have to be in the market at all.

    “Anyone who wants to buy should be hoping the stock market goes down.”

    I would always suggest buying in the way up instead of trying to nail the bottom ;)

  • Boston_AL

    From a Value perspective, it is far more important to make a wonderful purchase than a great sale.

    Why? Because by making a wonderful purchase, you can make an average sale provide a fair return. And a wonderful sale can be a triple or home run.

    What I am basically trying to say, Cullen, is that you are partially right, but not fully accurate.

    You are right that making lots of singles and doubles will provide good returns.

    However, when that ‘fat pitch’ does cross the plate you’d be a darn fool to watch it pass by with swinging for the fence.

    As you aptly point out, Value has multiple forms, and these apply to various factors of time horizon and market conditions.

    Example: If the market is becoming over-priced, then a value investor will demand a larger ‘margin of safety’ to off-set that expanding downside risk.

    Then there is the question of “What will make it move?” Answer: There has to be a perceived and measureable ‘catalyst’. (e.g. Next quarter’s earnings release results? Completion of a new factory?)

    If the value investor assigned appropriate margin of safety cannot be found, then perhaps simply holding on to the stocks one already owns and not risking new money to buy over-priced new stocks in a heady market might be just the right strategy. (At least for a while.)

    One does not have to wait for a 3 Sigma market crash to invest.

    But if a crash did happen again, and you kept some powder dry for the right opportunity, then you’d be a fool not to back up the truck and load up!

    Personal Results:

    2008 -16.8%
    2009 46.4%
    2010 12.9%
    2011 17.9%
    2012 0.7%
    2013 50.5%

    Total Return 108.5%
    S&P500 40.7%

    Relative Results vs. S&P500 = + 67.8%

  • Anonymous

    Boston AL is there somewhere I can follow you/ learn more? My site and email

  • Ron Taylor


    You nailed it very few know what a “Fat Pitch” is
    why? because they don’t know what they are looking for.

    It is much easier not to do the research and just walk into the casino.

    The “Fat Pitch” strategy requires a lot of work so that you can recognize a “Fat Pitch”

    Much of the dialogue implies it will be so easy or that we will have to wait for a once in a lifetime opportunity which in both cases is wrong.

  • Cullen Roche

    Aside from assuming we know what a fat pitch is, the other problem is that we assume we’ll even get the fat pitch. I mean let’s be honest here. A secondary market like the stocks listed on the S&P 500 are analyzed daily by the smartest people on the planet. And before these companies even go public you have the best analysts in the world scouring them, talking to management, turning over every stone in the business and trying to decide whether they want first dibs at the firm. If you think you’re finding “value” in your free time by putting together some amateurish stock screener with some basic Buffet criteria as the parameters then you’re playing tee ball and telling everyone that you’re swinging at “fat pitches”….So the real problem is the assumption that you’ll even get a chance to swing at fat pitches on a secondary market.

    My thinking is that it’s becoming increasingly difficult to find these fat value pitches because the information is disseminated so widely and so quickly these days. Buffett may have had a competitive advantage in the 1960s when the times were totally different, but his firm and stock picking sure is appearing to lag in the last 10 years….And if the greatest home run hitter of all time is having trouble finding fat pitches (aside from the Goldman Sachs pitches that get dropped off on his doorstep like in 2008) then the rest of us need to start playing a different type of game. This doesn’t mean value approaches don’t work. It just means that they’re becoming increasingly competitive so finding alpha in the markets requires an alternative approach…

  • Ron Taylor

    I can’t believe what I’m reading and it only emphasizes you do not understand
    “The Fat Pitch”

    Cullen you have transformed “The Fat Pitch” strategy to suit your own narrative.

    You should have titled this “Don’t even try” (which most follow)

    Remember Mr. Buffett uses the example of Ted Williams who broke the strike zone into
    77 cells to study and isolate where the highest percentages lie.

    Not just to hit home runs but to spot light his circle of competence. (The Fat Pitch”

    Mr. Buffett’s message is you are not forced to swing at anything until you see exactly what you are looking for.

    Cullen Investors would be much smarter and richer if they spent more time on research and defining their circle of competence. (The Fat Pitch)

    Investors who do this are not in and out of stocks and usually have a concentrated portfolio.

    Seth Klarman is a great example of someone who waits for the “Fat Pitch”

    As you mention there’re some very smart people each and every day looking for great opportunities but they do not put in the time I do when it comes to investigating a business.

    These smart guys have to produce results in a very short time frame and then move on to the next company. I have no doubt they are smarter but my edge is I know and monitor my businesses. (The Fat Pitch”)

    These smart guys have no time to spend as much time as I do and my time frame isn’t
    based on quarterly results.

    Where were the smartest guys who scour the companies when I bought HIG warrants
    over a year ago? In 2013 they rose over 100% The common over 40% and yet they get
    hardly any coverage. And by the way there is even more upside now and yet it gets little attention.

    Thank you Cullen I wish you my very best.

  • Cullen Roche

    Hi Ron. That’s not what Buffett says though. He says “swing for the fences”. That implies you must try to hit home runs. Or get “ten baggers” as Peter Lynch would say. I am saying that this approach can lead you astray. The Splendid Splinter wasn’t famous for hitting home runs. He was famous for hitting lots of singles and doubles.


  • Ron Taylor

    Ted Williams was also famous for taking a scientific approach to batting and identifying his areas of high percentage.

    Warren Buffett uses Ted Williams not because of home runs but because of the research he did.

    You are taking one sentence “swing for the fences” and calling “The Fat Pitch” a myth which it clearly isn’t. Remember Warren Buffett has said we should insist on a Margin of safety.

    So the Fat pitch involves margin of safety, circle of competence, a concentrated portfolio,
    Fundamental analysis and on and on

    Warren Buffett does not mention “ten baggers” or what is a home run is?
    If I invest in a company that turns out to be a 10 bagger in ten years is that a home run?

    A “home run” is subjective.

    Thank you

  • Cullen Roche

    That’s a nice clarification. Thanks.

  • Boston_AL

    Cullen you wrote {A secondary market like the stocks listed on the S&P 500 are analyzed daily by the smartest people on the planet.}

    So please explain how so many of these market geniuses missed loading up on MA (MasterCard) in early to mid- 2011 when it was selling at a price that gave an investor a 20% ROI on the day it could be purchased!? (Assuming Zero Growth)

    And this stock was growing revenues at 30% annually!

    History shows that an intelligent investor would have a 170% – 200% ROI today just on this one (MA) investment had they seen this opportunity and bought and held it.

    As Ron Taylor aptly points out [The “Fat Pitch” strategy requires a lot of work so that you can recognize a “Fat Pitch.] And most people will not invest the time to find them, or learn how to value a business.

    Even the professions fail to turn over enough stones over, or to study what’s under each stone they turn. MA was a boulder – a Fat Pitch – yet many professionals missed it, or didn’t back up the truck.

    Another example was YHOO (Yahoo!) in the summer of 2012 when it was selling for $14.50 to $15.50/share.

    At that price the intrinsic value of the stock was estimated to be at least $19.50/share based solely on the value of the impending $4B payout due from Alibaba. And you were getting Yahoo! USA and Yahoo! Japan for FREE. Plus the remaining value of Yahoo! Investment in Alibaba that (at hat time) could be released if Alibaba went IPO. My personal estimate with Zero growth was $26.00/share.

    Another Fat Pitch missed by amateurs and experts alike.

  • Cullen Roche

    I’m not saying it’s impossible to find unturned stones. Just that you’re playing in a pool that is extremely full….That’s my opinion anyhow. Who knows if it’s right.

  • Anonymous

    Turning over stones is very time consuming. Most people are not willing to put in the time and effort required. You have to like to read a lot.

    Plus you need to know how to value a company. If you don’t know how to do that you cannot be successful.

    The major differences between an MPT and Value investor are:

    RISK: MPT’ers view price ‘volatility’ as risk. Value investor view ‘loss of invested principal’ as risk.

    VALUE: Invest from a ‘business perspective'; not speculatiion (gambler). They weigh the odds and only invest when the probability for success is in their favor. They would much rather pla y the role of the ‘house’ (casino) than the role of the gambler.

    As for who knows if it’s right? That’s easy. All you have to do is measure historical results. Do they beat the market over the long run or not?

    As you well know, the statistics show that ~70% of asset managers never outperform the benchmarks during their careers. In most MPT investment houses, success is based on ‘survivorship bias'; luck not investment skill (in the short run). As soon as the current fund manager stops performing they are replaced with a new upcoming investment ‘guru’ – who will very likely be replaced In 3-5 years.

  • Boston_AL

    LVG, you wrote {“There’s no penalty except opportunity lost”. Buffett shouldn’t say things this stupid.}

    Buffett did not say… “Never” invest. He simply refers to NOT investing in “over-priced” stocks!

    If you find a great company that is creating value and then see that this company’s stock price verses its value is over-priced. Don’t buy it. Move on. Or come back when Mr. Market is selling it for a bargain price.

    Would you overpay for your car? (eg: Buy a $25K car for $35K?) I don’t think so. I believe you would seek out another car dealer or another alternative and equal value car selling for $25K or less.)

    It’s actually common sense advice. Nothing stupid about it in the least.