Warren Buffet used the following baseball analogy to explain the discipline of value investing. A value investor thinks of himself as a batter in a game in which no balls or strikes are called. The only strikes are the ones you swing at and miss. Hundreds of pitches can go by, including many that other batters might have swung at. Value investors are not influenced by how other batters are doing. They are motivated only by their own results. They are willing to wait until they get a pitch they understand, can handle and believe with confidence they can successfully hit.
Many value investors will not invest in bankrupt companies, not completely understanding the legal or procedural issues. Others won’t invest in large commercial banks, investment banks or insurance companies, believing their assets and liabilities are too difficult to analyze. Still others don’t invest in technology because the risk of dislocation is too great or uncertain.
Most individual investors cannot distinguish a good pitch from a wild one. Similarly most institutional investors feel compelled to remain fully invested at all times, as if the umpire were calling strikes and forcing them to swing at every pitch (trading frequency for selectivity.)
Also, when a value investor finds another pitch that is even better than the one he swung at before (when he finds an investment opportunity that looks even better than the one he may have just bought) he needs to be willing to trade the better opportunity for the prior one. No investment should be considered sacred when a better one comes along, even if it means realizing a loss on the sale of the first one.