How I invest, part 1: Find the sweet spots

***Note: I have been writing parts 2 and 3 of this series, which will show the specific, step-by-step processes I use to invest. But the video Matt shared at the Facebook page Friday with the various interviews of Warren Buffett led me to make this post to go right at the front of what is now a three part series about "how I invest."***

How I invest, part 1: Find your sweet spots

In a way, investing to me is finding great companies that I understand very well. I make better decisions about a company the more I know about it. In the image to the right, from Ted Williams's The Science of Hitting, I imagine the companies and sectors I have invested the most time learning about (my sweet spots) are what Ted Williams called his "happy spot" in the strike zone.

I might not hit the investing equivalent of .400, like Mr. Williams did in 1941, investing in the sectors I am most comfortable with, but those are my best shots. And Warren Buffett explained in the video Matt shared recently that our advantage in investing, that Williams never had hitting, is that for us there are "no called strikes."




We don't HAVE to be Ted Williams. We don't have to chase suboptimal pitches when the count is against us by investing in things we don't understand. So we can approach investing decisions, which are ultimately uncertain but hopefully highly educated guesses at which businesses and leaders are most likely to win in the long term, with enthusiasm and an intellectual curiosity that is every bit as stimulating and productive as any hobby. This tweet may say it better:

Start with curiosity about the world.
Use basic math.
Save more than you spend.
Have fun finding stocks & own them.
Diversify broadly.
Smile

— The Motley Fool (@themotleyfool) August 6, 2016

We don't have to be world class stock pickers with knowledge of every detail of every industry. We do have to stop ourselves from making harmful decisions like selling during a panic or not saving enough. But by simply saving early, often, and substantially, and staying in the market, you will have pretty much won the battle, as long as you don't get too far out of your strike zone in making decisions about things you don't really understand.

Source: "The Most Powerful Force in the Universe" at tonyisola.com

So as you start analyzing the "intrinsic value" of companies, remember that you have already won most of the battle. And that because you are only going to swing at good pitches, you will get hits far more often than you strike out.

Coming soon: 

How I invest, part 2: First the asset type, then the industry, then the company

Coming later:

How I invest, part 3: FB vs AAPL

Why both may be "good investments," but only one is in my strike zone