Babe Ruth is one of baseball’s greatest players, but he also led the league in strikeouts. Over his career, he walked back to the dugout about one in every eight times he stepped up to the plate.
And yet, he’s remembered as the GOAT. Why? Because when his bat did connect, it often left the park. 714 times, to be exact.
That’s what history remembers.
There’s an obvious parallel with investing. What matters more: a high strike rate (lots of good calls), or a high average return? They’re not mutually exclusive, of course, but if you had to pick one the choice is pretty clear.
Consider David Gardner, co-founder of The Motley Fool and arguably the Babe Ruth of stock picking. Over the past couple of decades, six out of ten of his ‘Rule Breaker’ picks lost to the market. And yet, he managed a ~32% CAGR over that time.
Like Ruth, there were plenty of misses. But when the bat connected, it really connected. His 2002 buy of Amazon — when it had a market cap of just US$7 billion — is probably the best example. But he was also early on Netflix, NVIDIA, Disney, and a bunch of other multi-decade compounders.
To me, finding those names early isn’t the impressive part. I doubt he foresaw the future in any detail. More likely, he just saw big potential.
The real magic was in holding on. He could’ve “taken profits” at plenty of points along the way, and no one would’ve blamed him. He also could’ve been shaken out during the sharp and brutal drawdowns each of these stocks went through.
That’s the bit most people miss.
Interestingly, the same hands-off approach applied to the losers. He held many of them far longer than seemed sensible.
I asked him about that years ago (as politely as I could), his view was that position sizing takes care of itself. The winners become dominant positions. The duds fade into irrelevance.
It’s not a view I fully share, but it’s hard to argue with the results.
Just to be clear, I’m not here to cheerlead for The Motley Fool. While I’m a regular on their Australian podcast, there’s no commercial relationship. I just think David’s approach is fascinating — and there’s a lesson in it.
If you want to beat the market, not just hug it, you have to be okay backing a few dogs. Because market-beating portfolios aren’t built by being right most of the time. They’re built by being spectacularly right every now and then.
To do that, you’ve got to swing for the fences. And have the stomach to hold on through thick and thin.
Of course, this approach only works if you’re backing companies with massive upside potential. We’re not talking about punting on moonshots or chasing SPACs with rocket emojis. The names you swing at should be ones with real optionality — founders with ambition, products that scale, evidence of commercial traction, and markets that have significant scope.
Yes, you’ll still strike out. Sometimes badly. But that’s okay. You don’t need to be right often.
You just need to be right big every now and then.
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