These days on Sony PIX channel in India, the movie Money Ball is being shown again and again. All investors in stock markets should either read this book or watch this movie. Brad Pitt, the hero is the coach of Oakland Athleticos, a baseball team. He has lost three of his best players to rival clubs who buy those players at a very high price. Some of you may see the similarities between IPL teams and players in India. But I am not too big a fan of IPL because I am not too sure whether I am seeing genuine matches or “fixed matches”. I’d rather read a book or watch a movie. But the point I was trying to make is why is it mandatory to watch Money Ball?
The answer is very simple. It tells you not to swing your bat at every silly pitch. It tells you to stay away from overpriced players. It tells you to play to your strengths. It tells you that with smaller players who have their competencies and kinks but have been overlooked by the markets, you can still build a team and win matches.
Now compare, it with Stock Markets. The pitcher is Mr Market. He throws a ball every minute at you , the batter. Reliance at 805, Nestle at 4000, KingFisher at 14, Suzlon at 150 ….and it goes on. The team is your portfolio. And your success rate depends on the kind of player (stock) you bought at a particular price.
It ain’t different. What you need to do is, have patience. Don’t try to swing at every ball and attempt to throw it out of the stadium. Be a Dravid and Gavaskar not a Sehwag in the stock market. End of day, you will accumulate runs(returns) slowly but with a higher degree of surety. You will end up with more runs when you retire than the Sehwags (day traders/speculators).
Cut back to the movie. Brad Pitt’s average cost per match is $260,000 vs the other top notch teams which spent approx $1.4 miilon, i.e 6 times more money to achieve a similar or lesser success. So, do not buy overpriced stocks. If you buy cheap you will always come out ahead.
I remember reading Ajai Piramal’s (I am an unabashed fan of his business acumen and ethics), interview in a business magazine, where he says “Businesses which have a problem are the ones I am interested in because they are available cheap. If they also fit into my strategy and line of business, I go a step further and examine them. Why will a business which has everything going right for it be selling cheap?”
Why will a business which has everything right for it be selling cheap? Cadbury has everything going for it today and today is not cheap. Remember Amitabh Bachhan and “Kuch Meetha Ho Jaye”. But a few years back, the same business had a problem in chocolate packing and a bad consignment. The stock took a hit and nose dived. The business developed a small problem and suddenly became cheap. If all else was fine, it was worth buying at that point. I am sure some of you would have bought it. I for one was not so wise at that time. But Mr Market keeps throwing such situations every now and then.
This time sure I followed what I preached, when a few months back, Indraprastha Gas suddenly nose dived by 50% due to some taxation/arrears issues. Mr Market had thrown a very juicy pitch and I did swing my bat. Keep looking for bad balls and then hit a sixer. Hasta La Vista !
Tailpeice: The idea of baseball and stock markets is also dealt by Warren Buffet in one of his famous letters to shareholders of Berkshire. To win a match watch the balls coming at you and not the scoreboard. As Buffet says, “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”