The Fat Pitch – The Cure for Impatient Investing

Thanks to our member who sent us a photocopy of an article I first wrote in 2007 – bear that in mind as you read about the Fat Pitch.

If you were a baseball fan, you would know what a Fat Pitch means. A fat pitch is a baseball pitch that is perfect for hitting. So "fat" you can't miss it. There is also a fat pitch approach to investment.

The theory goes like this. As a batsman in baseball, you are under pressure to hit. You only get three strikes. Miss three opportunities on the trot and you are out. That's it. As a batter, you therefore have to hit at pitches that you would probably prefer not to hit. You cannot wait for the "Fat Pitch" because you have to hit.

In investment, investors constantly take swings at stocks that should be left alone because they put themselves under pressure. The pressure comes from wanting to make money more quickly than the average, from impatience. But impatience doesn't work in the stock market; in the stock market, impatience is your enemy.

There is a cure however.

Take the pressure off yourself. Relax about your expectations, relax about the share market, and adopt realistic goals rather than "get rich quick" goals. Without pressure, you become a batsman without a three-strikes rule. You can relax.

Without pressure, you can stand in the investment market and watch pitch after pitch after pitch go by with no pressure to hit. You can wait for the "Fat Pitch".

Ask any fund manager, trader, or successful retiree investor – patience and a long-term investment horizon are the key to success. No one cares if you win suddenly; the only thing that matters is if you can do it again and again. Consistent long-term returns are the Holy Grail.

The Fat Pitch Approach

• Identify what you consider to be a fat pitch. In the Strategy Portfolio, we consider that to be a reliable risk-appropriate thematic uptrend available to us through Australian-listed ETFs.
• Timing when to hit. Timing is everything. "What" is easy. "When" is harder. The main point is that "when" is not "all the time" and "trust in the long term", which is core to Matrix brainwashing.
• Respect the trend. The market can be wrong longer than you can remain solvent, so buy on the upticks, not in the downtrends. If it really is a good stock or theme, it'll trend up again sometime; no need to buy it now.
• Look at the dogs. It is worth looking at stocks that have fallen over. All long-term themes have temporary problems, sentiment issues. That's the time to look. Big Tech, for instance, is having a moment now. It doesn't mean you write it off forever. Most long-term themes come again and again, and it's a lot easier to blow up a balloon that's been blown up before. 
• If you can't find a fat pitch, hold cash. Cash is very powerful. It gives you flexibility, the option to move quickly and buy. It is 'The Bat'. You can't hit without it. It's why we cash up sometimes. To give us something to hit with at the right time. 
• Only hold a few stocks. One idea a year makes for a good year. If that's the case, it's perfectly OK to hold one stock, one theme. The average market watcher might have 5 or 6 good ideas a year.  So maybe hold 5 or 6 stocks. Holding 20-30 stocks admits an inability to find good stocks, an admission of failure; holding a diversified portfolio is not the fat pitch approach. The need to diversify is for the theory books.
• Don't trade a lot. You want long-term winning stocks and themes bought or 'hit' at the right time. We are not after short-term killings. You go broke in the long term doing things in the short term. 
• Adopt an absolute return strategy – your goal is to produce positive returns, not relative returns. So many people, fund managers mostly, are focused on beating the average return. It forces you into mediocrity.
• Don't worry about missing a huge opportunity in speculative stocks. Events that turn Holdens into Lamborghinis are not your goal, and in case you ever have to put up with a nouveau riche dinner party guest waving it in your face, don't sweat it; if they get rich quickly, they'll get poor quickly too. Wish them well. You should hope other people make money, even if they make more than you. You take the risk, you take the consequences. You have to choose a level of risk that does not disturb you. Let others win. They deserve it if they took the risk. 

And that's it... the Fat Pitch approach. The embodiment of the Fat Pitch approach is now our MT20 Portfolio – which you can invest in – click here.