If you were a baseball fan, you would know what "fat pitch" means. A fat pitch is when a baseball pitch appears so "fat" that you can't miss it and you can knock it out of the park. There is also a fat pitch approach to investment.
The theory goes like this. As a batter in baseball, you are under pressure to hit. You get only three strikes. Miss three opportunities on the trot and you are out. That's it. As a batter, you therefore have to hit at pitches that you would probably prefer not to hit. You can't wait for the "fat pitch", as you have to hit. Net result, you spend your innings trying to make the most of skinny pitches.
In the sharemarket, investors constantly take swings at stocks that should be left alone, because they put themselves under pressure. The pressure comes from wanting to make money more quickly than is likely. It comes from impatience and perhaps even a bit of delusion, encouraged sometimes by the industry itself, that there is money to be made and everyone is hitting fat pitches and all you have to do is step up to bat.
But the truth is that in the sharemarket there is no three-strikes rule and no pressure, other than the pressure you put on yourself. In this market you can relax, especially for those of you already in term deposits wondering whether to get back in.
You can stand in the market and watch pitch after pitch after pitch go by without hitting anything, just waiting for the "fat pitch".
Wait as long as you like. It will come. Many colleagues sit in this industry for just that. Patiently awaiting their opportunities. It is an environment full of them. The worst thing you can do, especially in this market, is need to hit.
So how do you relax? It's all about expectations and adopting realistic goals. This market is very unlikely to change your life at the moment or make you rich quick, and your best bet is probably to wind your expectations back completely and plan a life without any sharemarket income at all. From that base expectation, anything you make in the sharemarket is a bonus rather than a necessity. Now you're a batter without a three-strikes rule. Wait and watch. You'll still need to be vigilant, because fat pitches at the moment don't come often. You are going to have to look for it.
Identify what you consider to be a fat pitch There are still great companies around, they just have bad share-price trends. Look for the turn. Identify quality stocks.
Time when to hit Having identified a fat pitch, time the change in trend. You'll need a combination of technical and fundamental analysis. Use every tool you can get. The value guys on their own will get the shares right and the timing wrong. The technical guys will get the timing right and the shares wrong. You need both and the flat spot in this market is the perfect time to learn.
Look at the dogs Those "rubbish shares" are going to be opportunities once the glass becomes half-full again. Fat pitch stocks are right in front of you waiting for the market. Look for good stocks with temporary problems. The ASX, Computershare, Macquarie and Iress come to mind.
If you can't find a fat pitch, hold cash It gives you flexibility, the option to move quickly and buy. It is "The Bat". You can't hit without it. Cash is a powerful weapon. It focuses the mind on looking for a fat pitch. If you go and stick it in some skinny pitch, you will spend so long concentrating on that, you will be distracted from seeking out fat ones.
Don't trade a lot Using the fat pitch approach you don't need to trade (hit) a lot. You are looking for long-term opportunities, not day trades.
Right. Now wait for the pitch.