As I was Re-listening to the 1996 Berkshire Q&A, it struck me again how GOOD the idea to look for those fat pitches is. It resonates with the fact that an investor needs only a few great ideas to produce a great track record.
There is no need to swing on everything, but instead look for the things that are in your circle of competence, and then swing for the fences when such an idea shows itself.
The hard thing is also to know what to do when waiting for such opportunities. I think the most important thing is to KEEP LOOKING. It’s probably easy to just give up and buy whatever is popular at whatever valuation, because “everything is expensive” etc. I guess we as investors just have to keep looking. There is always money to be made somewhere, right?
A second question to answer is what to do with your money while you are looking for those fat pitches? Here I might be slightly hypocritical, because what I do is stick some of my excess cash into an index fund, so it earns at least market returns. In some sense this is doing what I just spoke of in the paragraph above, “buying whatever is popular at whatever price”. But I think putting some of my excess cash position in a broad low cost index fund isn’t a too bad idea for me. Since my alternative cost of capital is whatever return I would be getting on my money elsewhere, why not put some of my excess cash position into that? This also pushes me to always compare whatever case I’m looking at with the broader index. Is it of higher quality, is it cheaper, and do I think it will earn a higher return over time?
Remember that you need very few great hits to be a fantastic investor. The hard thing is not to act stupidly while waiting for such pitches, AND to correctly identify a stellar opportunity, AND not to forget to bring a washtub if such an opportunity arises!
Cheers, over and out!