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Warren Buffett simplifies investing with a baseball analogy

Investing doesn't have to feel like facing down a Major League pitcher.

In HBO's new documentary, "Becoming Warren Buffett," the billionaire compares his investing strategy to America's favorite pastime, referencing baseball legend Ted Williams' book, "The Science of Hitting," in which the All-Star slugger emphasized the importance of knowing your sweet spot.

"If he waited for the pitch that was really in his sweet spot, he would bat .400," Buffett explains. "If he had to swing at something on the lower corner, he would probably bat .235."

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Mark Peterson | Getty Images

The lesson for investors, Buffett says, is that you don't have to swing at every pitch.

"The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, 'Swing, you bum!,' ignore them."

Just as Williams only swung at pitches in his sweet spot, Buffett only invests in companies that are within his "circle of competence," a concept he first described in his 1996 Shareholder Letter.

"You don't have to be an expert on every company, or even many," he says. "You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital."

Simply put, when it comes to investing, Buffett says to stick to what you know. "Defining what your game is — where you're going to have an edge — is enormously important."

Once you've done that, buy and hold.

"If you aren't willing to own a stock for 10 years," he says, "don't even think about owning it for 10 minutes."

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