Plate Discipline and Selectivity
I recently released a podcast episode on Ted Williams and the investment lessons that come out of his book, The Science of Hitting. It’s a framework worth revisiting.
“Getting a good ball to hit” doesn’t just mean a low price relative to historical earnings or book value. What we’re really after is asymmetry, which I would define as an imbalance between upside and downside, weighted in an investor’s favor. That’s why we wait for situations where the odds are clearly stacked in our favor before pulling the trigger, rather than swinging at anything reasonable.
Buffett’s use of the Ted Williams analogy is such a useful one. Williams broke the strike zone down into cells, each with its own batting average, and only swung at pitches in his best cells. An investor needs an equivalent strike zone. When a stock lands squarely in the sweet spot, it usually means it’s checked every box on the investment checklist. But that’s not always the case. Sometimes the valuation might not be as low as I’d like, but that gets more than offset by growth tailwinds, a strong management track record, or a clear runway for reinvesting earnings over a long period.
One metric I weigh heavily is return on capital employed. Pulak Prasad takes a strict approach here. His standard requires investment candidates to clear a well-above-average return on capital, and he screens candidates accordingly, almost without exception. I’m a bit more flexible; I’ll accept a metric that doesn’t look great on the surface, as long as I understand why. A high return on capital is a symptom, not the cause. The real cause is the moat sitting underneath it.
What makes the Ted Williams framework so useful is that it’s directly transferable to investing. It is fundamentally about training ourselves to be more selective, and being disciplined about when to buy. That said, investing has more moving parts than hitting. Portfolio management considerations sometimes justify buying a stock that isn’t the highest-return idea in isolation, but that adds real value as a diversifier within the strategy. Or a buy decision may be justified by factors that aren’t strictly quantifiable. It can make sense to pay a higher valuation for Company A over Company B if management’s capital allocation track record is clearly superior, or if the industry carries far better long-term growth tailwinds.
Selectivity isn’t about being right on every swing. It is about only swinging when convinced on your own terms that the odds are genuinely on your side, and fully accepting that you will miss out on market movements that don’t resonate with your selection criteria. It is that staunch selectivity, paired with patient acceptance, that I believe is necessary for long-term success.
