Friday, September 19, 1997
The Best Game in
Town
By Dave Andrews
([email protected])
"It's not over 'til it's over," said the infamous Yogi Berra, surely a Foolish man. He was talking about baseball, of course, and the fact that you should keep playing until the umpire calls the last out. Many have adopted this saying as a metaphor for life -- and I imagine this is not the first time it's being quoted in the context of investing.
Warren Buffett, perhaps the preeminent Foolish investor of our time, has also applied a baseball metaphor to the world of investing. Investing, he says, is like being up at the plate in a game in which there are no called strikes. In other words, you can wait and wait until you find a pitch that is just perfect for your swing... and virtually guarantee getting a hit.
At first glance, this is a pretty simple concept, but it illustrates something very important about investing: the game isn't over 'til you want it to be. In fact, investing is the only structured national pastime that works this way. With baseball, each team gets three outs for nine innings. In football, it's exactly four quarters of fifteen minutes each. At the roulette table, it's a single spin of the wheel. Sure you can go into overtime, but there are strict limits to resolve the game. And when it's over, it's over. You have either won or lost.
Investing is entirely different. You can open an account with a broker without immediately making a trade. You don't have to pay an entry fee; you don't have to ante up. When you decide to buy and hold a stock, there are no time limits. Assuming the company you invested in doesn't completely fail, only you get to choose when to sell, and then chalk up your gains or losses. If you have chosen a company Foolishly, the chance of it going bankrupt are very small. Even the IRS recognizes this rule of the game -- until you sell, you are not liable for taxes on the gains.
In the game of investing there are no time limits, which means there are plenty of successful strategies for the patient investor. If a stock goes down after you buy it, no problem. Time is on your side. If you are patient and have chosen Foolishly, it may just end up a winner. After all, in the long run, the market has returned over 10% per year. Short-term swings are overtaken by the long-term trend of upward earnings produced by well-run, strong companies. You can buy and hold, dollar-cost average, whatever. With patience, you will almost certainly do well.
Among the public, investing in the stock market is widely regarded as a form of gambling. But no casino runs a game anything like it. In a casino, a few cards on the table, a silver ball drops into a metal pocket on the wheel, and the game is over. You win or you lose, but you are always playing by casino rules -- never your own. And the house percentage guarantees that the casino will win more often than their clientele. With investing, that 10% or so average annual return is just like a negative house percentage. Only a Wise man could lose!
Investing is and always will be the best game in town. But I keep thinking about Warren Buffett and baseball. If baseball were played by his rules, how much of the TV watching public would keep tuned in day after day? Maybe that is why there are so few true Fools.