Earlier this month, The Wall Street Journal ran a piece about America's favorite pastime: baseball. In its findings, the Journal determined that 90 percent of the game is spent standing around. While that may sound boring, and even illogical for a field full of highly trained, world-class athletes, it's actually a good metaphor for how to win at another of America's favorite pastimes: investing.
Investors often fall victim to the idea that they ought to be doing something active involving their money on a regular basis, which can frequently be to their detriment. That's because when played best, investing, like baseball, is a calm and quiet practice for long stretches of time, interspersed with a few crucial decision-making moments.
So, in the spirit of summer and, of course, the sport, here is why you should invest as if you're in the major leagues.
At an average of three hours a game, baseball is a sport of patiently and dutifully waiting for something to happen. Out of those three hours, according to the Journal, an estimated 17 minutes and 58 seconds is spent doing something -- a figure calculated to include even the most generous definitions of action.
All of that downtime is spent in varying degrees of preparation -- from the average 33 seconds it takes to get a new batter to the plate to the total of 75 minutes spent between pitches.
Surprisingly, the Journal noted that this number comes in ahead of NFL games, which average just 11 minutes of action. Sports aside, though, this is the kind of pacing you should strive for in your investing career.
Keep a Watchful Eye, Move Rarely
In investing, the more you trade, the more you pay in transaction fees. Depending on the size of capital you're dealing with, these $7 to $10 fees from online brokers can eat up your returns quickly. It's tough, because when you watch CNBC, for example, it is a constant flurry of news and action. It's easy to feel as if you're not doing enough to ensure your portfolio is successful.
For the long-term investor, this is just not true.
You don't have to keep your TV off, or actively avoid reading investment news (it is, after all, my livelihood), but it's wise to stay as passive as you can -- making trades infrequently and strategically.
As opposed to a day trader, who may be in and out of a stock several times in just a few hours, the long-term investor should aim low -- very low. Keep your trades to fewer than 20 per year, if you can. Even 20 trades will cost an average of $160 for the retail investor doing simple equity trades. It might not seem like a lot in the grand scheme of things, but it's the equivalent of raising the price you pay for each stock up a few pennies, depending on how much you invest.
Just as in baseball, watch what is going on. Follow your current picks and your wish list; don't be caught by surprise by the competition -- sellers, in this case, who will drive down the value of your investments. Overall, patience is one of your greatest advantages over institutional investors. AS a retail investor, you don't have shareholders, a board of directors, or other interested parties looking for answers from you about your bottom line on a daily basis. The ability to sit back and wait is of tremendous value in an increasingly volatile and short-term-oriented stock market.
Make Sure It Counts
Now, without the home runs, the unbelievable catches, or the slick base running, baseball's few minutes of movement would be hardly anything to watch on SportsCenter. The players may spend most of their high-earning hours chewing tobacco and getting a tan, but when they spring into action, they do it in a big way.
Likewise, the retail investor should not be afraid to back up the truck when fully confident about a stock pick. Since you don't need to satisfy any investment program but your own, feel free to hold just a handful of solid, risk-averse picks. This leaves larger positions in those carefully picked companies, and thus larger potential returns. Owning 50 stocks dilutes your ability to really benefit from any given position.
There is no off-season for investing. News constantly evolves, and investment opportunities are born (and die) every day. Need some help on where to start? Warm up with our Investor Summer School series -- a quick way to get a handle on the basics of the game.
After that, if you're looking to acquire the skills and conviction necessary to make the big plays, check out this summer reading list. These three books, for three different levels of investing, will get you up to speed in no time. Armed with a new bag of tricks and tools to find winning stocks, you can wade through the markets and, ever so carefully, find your home runs.
Michael Lewis is a contributor to The Motley Fool. You can follow him on Twitter @MikeyLewy. Try any of our Foolish newsletter services free for 30 days.