Like the baseball analogy used by Buffett, I often find myself comparing investing to cricket in certain ways as well. Whilst my comparison might not make as much sense as Buffett’s (Especially to those outside of cricket playing countries), nor will it be objectively as good as his, I originally wrote this in order to express my ideas more clearly whilst also being able to show my Aussie mother my understanding investment and cricket (as she doesn’t have a clue about baseball).
Now imagine you get to be a batsman. The goal is obviously to score runs (make money) and there will be no stumps to hit. So you can only get out by taking a swing and getting caught out.
HOW TO REACT?
In investing and in cricket, you are given a multitude of opportunities. How to react to these opportunities is completely up to you. You may decide to be a player who is aggressive, looking to score off every ball, but this comes with increased risk of getting yourself out of the game.
Play more defensively however, by choosing not to swing at balls that don’t provide a good chance to provide runs (risk vs reward) and simply waiting for a bad ball (a good investment opportunity) to come up, and you reduce your chances of getting out of the game. This is the way I want to play.
We are given a number of balls to face yet we don’t have to swing at any of them. We can leave all we want to wait for the half tracker to punched along the ground to the boundary.
I imagine batting against the opening fast bowler as investing in a frothy or at least fairly valued market. Whilst opportunities are there of course, they’re are hard to come by, require great consideration and run the larger risk of getting yourself out.
Whereas investing in the bottom of a market cycle would be the equivalent of waiting for that medium pacer to slow things down a bit and to provide more opportunities for runs and returns.
HAVING THE RIGHT MINDSET
While I consider myself as a defensive minded player, I don’t keep the same mindset 100% of the time, I (like to think I do anyway) patiently bide my time, effectively wait for the 2nd and 3rd string bowlers to come on and pick them off.
If you run and range of outcomes with a number of players, playing purely aggressive only, some might hit it out of the park and score insanely high, but at a higher risk of blowing up that which is a risk I’m not prepared to take.
And sure a defensive player might cop a few balls that don’t turn out anywhere near expected, but our aim is to at least be aware of these black swan events as Nassim Nicholas Taleb calls them, in order to mitigate any potential damage.
Whilst we might not know what bowlers are next to come (and what returns to expect in the future), as Howard Marks says:
“We might not know where we’re going , but we ought to have a fair idea of where we are”
I don’t think I’ve nailed this analogy 100%, but hopefully it makes at least some sense to you and the people I want to know what I’m doing and how I look at investing. If you want to know more about me, check my older post Who am I and What the Hell am I Doing?
*I orginally posted this on an older non-existant blog FYI*