Out of Left Field: Adapting Yogi Berra’s Wisdom to Investing

It’s that time of year when investors start to ponder what the future may hold. And since we live in uncertain times, careful thought is required.

Over the years, I’ve found that just going back to basics is the best approach to take.

In fact, sometimes the best investing advice can be found off Wall Street.

Legendary New York Yankee catcher Yogi Berra was known just as much for his pithy comments — termed “Yogi-isms” — as he was for his pitching career. Here are three Yogi Berra quotes that offer excellent guidance, especially when applied to formulating a basic investment plan:

  1. “You can observe a lot just by watching.”
  2. “No one goes there nowadays, it’s too crowded.”
  3. “When you come to a fork in the road, take it!” (Perhaps my favorite)

In this article, I will explore the message of these sayings and how they can be applied to your investment decisions.

You can observe a lot just by watching.

Frequent readers know that I apply a great deal of what I see as I go about my daily life to my investing approach. And while that may sound simplistic, it’s a perfect application of our first Yogi quote.

Of course, it’s not just a Yogi-ism. Investing greats like legendary Fidelity fund manager Peter Lynch made fortunes by going out and “kicking the tires.”

I spend a lot of time driving on freeways lined with tall buildings emblazoned with corporate logos. When one catches my eye, I do some research. More often than not, the company makes my “shopping list,” and when the time is right, I invest in it.

I’ve also written a lot lately about the bullish outlook for homebuilders in the Sun Belt, as well as infrastructure investments. Many of those ideas have come from my travels.

Subscribers to my premium service, Profit Catalyst Alert, have received some excellent returns on companies I’ve recommended based on this approach to investing.

In other words, just by keeping tabs on what’s going on in the world around us, we can often get investment ideas.

No one goes there nowadays, it’s too crowded.

This one’s a gem. Yogi’s wisdom tells us that sometimes it’s best to go against the grain. After all, guys like Warren Buffett have made literal fortunes by being contrarians.

Buffett’s recent move into the semiconductor sector via Taiwan Semiconductor (NYSE: TSM) is a perfect example of how this works.

In 2020, the COVID pandemic affected the global supply chain. As a result, shares of companies like TSM fell.

But even as signs of at least a partial recovery emerged — and even as these companies’ management told investors that improvements were on the horizon — chip stocks continued to fall.

Investors were betting that the supply-chain problems would remain in place indefinitely. They ignored the fact that complex systems adjust and that semiconductor manufacturers would find a way to alleviate the situation.

But on the other hand, Warren Buffett recognized the value and started buying TSM shares.

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My point is that if no one wants to be in a particular investment, it’s often a sign that there are no sellers left. And that is often a great time to start nibbling.

I’ve been nibbling at homebuilders for some time, both in PCA and in my personal account. And the worse the news gets about housing, the more I nibble.

I recently recommended shares in Sun Belt homebuilder Taylor Morrison Homes (NSDQ: TMHC). Although its shares are very unloved, the company keeps making money and the stock is well off its worst levels.

And yes, I drive by Taylor Morrison’s corporate offices fairly regularly.

When you come to a fork in the road, take it!

Perhaps where investors run into trouble is in not recognizing the proverbial fork in the road and the need to, as Yogi told us, “take it.”

Of course, there is no need to rush into anything. But over the years, I’ve found that if I see something interesting in the stock market, it’s worth following it until it shows me that it’s worth putting my money to work in it.

So my fork in the road is when I see something in the real world that looks interesting. At that point, I “take” it by researching its investment potential.

And if what I see in the real world and from my research jibe, I make my investment in that particular sector.

The lumber story

Here is a perfect example of what I mean. The lumber market has been a money loser ever since the housing market topped out in early to mid-2022. In fact, there are almost no buyers for lumber in the futures market at the moment.

There’s that contrarian thing again.

Things are so bad in lumber futures-land that, in hopes of juicing up interest in the sector, the Chicago Mercantile Exchange (CME) has added a new futures contract that offers a smaller amount of lumber to be delivered when the contract expires. The volume and the interest in the new contract are even lower than in the old contract.

Moreover, spot lumber prices are trading at nearly 66% of the price they were trading at in March 2022, when they topped out just before the housing market topped out.

But everywhere I go, I see wooden frames going up in new housing developments. And now there is a new environmentally friendly push toward using lumber in commercial buildings in order to reduce the use of steel.

Nobody wants lumber. Yet there is lumber in use everywhere. That doesn’t add up — which means it’s worth researching.

Interestingly, lumber stocks have followed the rebound in homebuilders. You can see that in the price of the iShares Global Timber and Forestry ETF (NYSE: WOOD), which closely follows the action in TMHC, which I featured in the above section.

Certainly, the price of WOOD (pun intended) is well off its earlier 2022 highs. But it is also well off its recent lows. And that means somebody is buying lumber stocks.

But that’s not all.

The $13 billion factor

In my opinion, lumber for construction purposes is in a stealth mini bull market. But the key to what happens next may be the way money is flowing out of Washington.

The White House is asking Congress to pony up $13 billion to upgrade the U.S. electrical grid. This is on top of the money that’s already rolling out to increase green-energy infrastructure and the U.S. highway system.

What brings all of this together is lumber. Lumber is the framework for road building — especially overpasses and bridges — as well as being the key component in electric poles.

Sure, that sounds simplistic. I mean, electric poles and bridges aren’t sexy. But just because they aren’t sexy, that doesn’t mean that they are not needed or that money isn’t moving in their direction.

All of this brings me back to what Yogi said:

  • “You can observe a lot just by watching.” What I see is that somebody is building all kinds of things and lumber stocks are rallying.
  • “No one goes there nowadays, it’s too crowded.” Lumber isn’t sexy, but someone’s buying lumber stocks. That means the bearish side of the trade is too crowded.
  • “When you come to a fork in the road, take it!” I’m seeing that fork in the road, and it’s leading me to the lumber sector.

Bottom Line

For investors, Job No. 1 is to stay in tune with what’s happening in the real world. The next step is to compare what you see in the real world to the action in the corresponding stock sectors.

The final step is to discern whether the stock market is right or wrong about valuing the profit potential of what’s happening in the real world and how to participate.

And if you can’t make up your mind when you hit that fork in the road, consider this final Yogi-ism:

“It gets late early out here.”

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As with any tool, options can be abused. But the problem is not with the options tool itself, but in its application.

Which brings me to our colleague, the renowned options trader Jim Fink.

Jim Fink is chief investment strategist of Options for Income, Velocity Trader, and Jim Fink’s Inner Circle. Jim’s investment methods have enabled him to take his life’s savings of $50,000, turn the amount into $5 million, and retire early at age 37.

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