The Moneyball approach made famous by General Manager Billy Beane and the Oakland Athletics’ can and should be translated into the stock market. Billy Beane took the lowest funded ball club and turned them into winners. While they didn’t win the chip they still became winners in their own right. Billy thought outside the box and sought to go after the more important statistic of getting singles over getting home runs.
Like baseball the stock market is filled with the excitement of big plays. It is that excitement that draws us in and it is that excitement that does not keep us in the game. In 2011, there was an average of 8.70 singles allowed each game and 1.78 double hits allowed, but there was only .94 home runs allowed per game. Do you see where the real game winners were? How can we use this same thinking in our every day investing?
By focusing on small consistent gains we can be winners over time. The home runs are great but they do not create long term growth. What are the way we can create our winning singles?
Some plays you should consider to achieve this singles are:
Dividend plays
Selling covered calls
Selling option credit spreads and naked calls/puts
None of these plays offer you a great deal of excitement or short term fame. Dividend plays will slowly build on themselves over the course of their life. Selling covered calls are great ways to offer return on existing positions. Credit spreads and naked options offer high probability returns for smaller premiums. All three of these plays should have a place in your investment portfolio. Understanding how to consistently extract profits, even if they are singles, will lead you to financial freedom. Step back from trying to hit home runs all the time and let’s take the easy score.
