A Ted Williams Approach To Value Investing

In his latest piece for Forbes.com, Validea CEO John Reese looks at how investors can learn from legendary Red Sox star Ted Williams.

Reese talks about Williams’ highly disciplined hitting approach, and his willingness to wait for a good pitch to hit. “Perhaps more than any player in history, Williams was a student of hitting–so much so that after retiring he wrote a book entitled The Science of Hitting, in which he broke down everything from the physical mechanics of the swing to the mental approach needed to be a good hitter,” writes Reese. “The book included a graphic in which Williams dissected the strike zone into 77 baseball-sized sections. Each section showed Williams’ estimate for his batting average when he swung at pitches in that particular area. On pitches right down the middle, Williams estimated that he hit .400; on pitches on the outside corner at the knees, his estimate was just .230.”

“The message is clear,” he adds. “No matter how much ability you have, you’ll flat-out stink if you swing at tough pitches to hit. If you’re patient and wait for a good pitch, however, you greatly increase your chances of success.”

Reese talks about how Warren Buffett has invoked Williams’ wisdom, and explains how it applies to his own portfolios as well. “Unless you have the size restrictions Buffett has, I believe that there are almost always enough individual stocks selling at attractive valuations to fill out your portfolio,” Reese says. “But you still need to make sure that you swing at good pitches–that is, you want to be sure that it meets the fundamental requirements of your strategy. That can be hard to do. Often, a flashy, glamour-type stock will come along that doesn’t quite fit your requirements. Perhaps it’s a bit pricey, or it has too much debt. But you’ll be tempted to buy it, especially if it has been red-hot and everyone is talking about it.”

Reese’s advice on such situations: Take the pitch and wait for a better one to hit. He looks at a handful of stocks that his Guru Strategies think look like good pitches to hit right now. Among them: Monster Beverage Company.