Strikes, Bubbles and Arches
Ted Williams and His Strike Zone
Patiently Waiting for the Right Pitch
As Warren Buffett once said, “We try to exert a Ted Williams kind of discipline.”
In his book, The Science of Hitting, Ted Williams explains that he carved the strike zone into 77 cells, each the size of a baseball. By swinging only at balls in his best cell, Ted knew he could bat .400. Reaching for balls in his worst cell—the low outside corner of the strike zone—would reduce his batting to .230. In other words, waiting for the fat pitch could result in a trip to the Hall of Fame and swinging indiscriminately could result in a ticket to the minors.
At Cruden Bay Investment Management, we try to take the Ted Williams approach; sit at the plate patiently waiting for a ball that is slow and straight down the middle. Since investing is a no called strike game, we don’t have to swing at every pitch. We can be patient and make recommendations to swing only at pitches that are in our clients’ best interest.
*No strategy ensures a profit or protects against loss.
Sir Isaac Newton
Sir Isaac and His Bubble
The Burst of the Bubble
Imagine an investor was told it was possible for him to be the smartest man in the world—so smart that he invented a new form of science and math. The investor may think, “Well if I could do that, I would be the greatest investor in history.” The problem with this story is that the inventor already existed and, as an investor, he ended up broke.
His name was Isaac Newton.
Yes, the man who invented physics and calculus—one of the smartest men in history—lost the majority of his wealth investing. The chart below shows how he lost his fortune.
Newton got lucky and was able to invest early in the South Sea Company, which held a monopoly on trading in Spanish Colonies in South America. He made a decent investment and a very quick killing. It was enough to count.
He took his profits and suffered as he watched all his friends get disgustingly rich when the South Sea Company continued to move up. He lost his cool and got back in. To make up for lost time, he got back in with a much larger investment (some of it borrowed), caught the decline and was totally wiped out. In response, he reportedly said something like, “I can calculate the movement of heavenly bodies but not the madness of men.”
At Cruden Bay Investment Management, we keep Newton’s experience in mind so that we can try to avoid the mistakes he made with his investments in the South Sea Company.
Why Do The Arches Stand?
Why do you think that most roman arches stand today while other ancient relics have fallen?
It turns out that the architects of the roman arches had to stand under them while the scaffolding was removed. So, if they made any errors the result could be quite painful.
At Cruden Bay Investment Management, just as a chef does, we generally eat our own cooking as we are the architects of portfolios for our clients that we often invest in ourselves. The thought of the scaffolding being removed makes us more cautious in our approach.