Swinging for the fences

Roger Montgomery

Trying to pick the next ‘home run’ stock can be hard to resist. In his 2015 annual report to shareholders, Jeff Bezos drew an analogy between Amazon’s business philosophy and baseball to illustrate his mentality of always swinging for the fences: “When you swing , no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.” Unlike baseball careers spanning thousands of innings, an investor might only strike out a handful of times before going broke. Like professional athletes, investors are affected by emotions and overconfidence that can lead them to overestimate the odds of success and/or the payoff if successful. Read more to find out how investors can participate in home runs while protecting their capital. (VIEW LINK) (Daniel Wu, Analyst)


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