3 Tips for Investing Success from… Who?!

3 Tips for Investing Success from… Who?!

Dave Gilbert here, Editor of Smart Money.

For baseball fans (like Eric Fry… and me), it is hard to beat October when the playoffs are underway. There is always some sort of magic in the air with unexpected comebacks and late-inning heroics.

Baseball is the oldest of all American sports, and it has a rich history of unique and colorful wisdom. And just as sports teach us lessons about life, Eric and I thought it would be fun to take a look at some of that legendary baseball “wisdom” and what it teaches us about investing.

The undisputed champion of quirky, humorous, and yet somehow insightful baseball wisdom is Yogi Berra, the former New York Yankees catcher and 18-time All Star. A 10-time World Series winner, he received more championship rings than any other player in history.

His verbiage may not have been as refined as his skill on the diamond, but there is a common-sense wisdom in what he says – even if you sometimes need to think about it for a moment.

Eric has quoted him before…

“The only problem with market timing is getting the timing right,” the legendary investor Peter Lynch once remarked. Yogi Berra echoed that sentiment when he quipped, “It’s tough to make predictions, especially about the future.”

He’s certainly been right about that in this year’s stock market. And whether you’re enjoying the playoffs or not this weekend, here are three more Yogi-isms that can help boost your investing success…


Divergence Window Is Closing

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If you act quickly.


“Baseball is 90 percent mental. The other half is physical.”

Yogi obviously wasn’t a math major, but the idea is right – in baseball, investing, and many of life’s pursuits.

You can analyze a company and a stock chart from every possible angle, but once the detached analysis is done, emotions can wreak havoc on our minds when deciding to buy or sell. Those emotions are almost always fear or greed, and they can intensify based on past experiences.

We see a lot of this right now. Not only are investors afraid to buy at indisputably low prices, but they are also selling good stocks at these same irrationally low prices. It all goes back to the mental part of investing that is so hard to tame.

Back in April 2020, after the market’s pandemic-induced wipeout, Eric Fry wrote…

Buying into a chaotic stock market that’s littered with deeply discounted stocks can be a rough-and-tumble endeavor. But this sort of “crisis investing” can produce some of the greatest profits an investor could ever hope to capture.

That’s why almost every successful investor in history has practiced some version of crisis investing. But it isn’t psychologically easy to do.

This style of investing should probably come with a warning label: Common side effects include bouts of anxiety, fear, or depression. Nausea, cold sweats, and insomnia are also common. In some cases, crisis investing causes temporary, but severe, loss of capital.

But the risks are well worth the reward, as long as you understand and accept that the reward might not be immediate.

“We have deep depth.”

This one comes from the Department of Redundancy Department, but it works.

Teams that have a lot of talent through their rosters are considered “deep.” Even the so-called secondary players are good. That’s what Yogi was talking about – one of his teams had a lot of quality players on it.

We want that same “deep depth” in our portfolios as well. We want quality companies from top to bottom, and we want them to play different positions. In other words, diversify your portfolio among various long-term megatrends and types of companies. A good teammate can help make up for another player’s error, and we want that same balance in our portfolio.

This is part of a critical strategy called “asset allocation.” As Eric wrote in January of this year…

When I say “Intelligent Asset Allocation,” I’m referring to both the precise assets that make up a portfolio and to the weightings of each asset in that portfolio. Some portfolios might devote 60% of their allocation to stocks, whereas others might devote just 40% to stocks.

When it comes to the weightings in an asset allocation, there is no one-size-fits-all formula; each investor must determine the appropriate weighting of his portfolio assets, based on factors like age, risk tolerance, and investment objectives. A 55-year-old who is paying college tuition for three children would, of course, think about asset allocation much differently than a single 25-year-old.

A long-standing rule of thumb is that investors should subtract their age from 100 and commit that percentage of their portfolio to stocks. The remaining percentage should reside in relatively safe assets like cash, gold, and short-term Treasury securities.

For example, the portfolio of a 35-year-old investor would be 65% in stocks and 35% in safer investments. Whereas the portfolio of a 75-year-old would be 25% in stocks, with the remaining 75% in safer assets.

While each individual must determine his own allocations, this is a good starting point for most investors.

Stock picking gets most of the attention, but as InvestorPlace CEO Brian Hunt writes in How to Build a Crisis-Proof, Inflation-Proof Portfolio, “When it comes to successful investing and building wealth safely, asset allocation is 100 times more important than stock picking.”


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“No one goes there anymore. It’s too crowded.”

That doesn’t make sense… and yet it does (which also sounds like something Yogi himself would say).

He made this comment about a popular restaurant. Isn’t it true that we all hate to wait in line to eat, but there are always a ton of people willing to do it – and at the same restaurants?

Investments can also get too crowded. In fact, you’ll hear talk about a “crowded trade,” which means everybody is in on it, especially the “pros” on Wall Street… but probably also John and Jane Doe on Main Street.

You can do very well with a crowded trade if you’re there early, but if you’re later to the meal, you’ll have to wait a long time for your dinner, and your experience won’t be as good.

Wall Street usually exhibits a “herd mentality,” in which all the big firms invest in the same stocks. Eric Fry calls it “flock money,” and you often want to fly in the opposite direction of the flock. He wrote about it just recently when analyzing the price of oil…

According to Commitments of Traders (COT) reports, professional money managers have reduced their bullish bets on crude to the lowest levels in nearly a decade. In other words, these folks are turning their backs on the oil market.

Ironically, that’s a positive sign for oil prices. Whenever this particular group of investors is leaning hard to one side of a particular trade, it usually pays to take the other side of that trade.

As a group, these investors are not exactly the “dumb money,” but they are certainly not the “smart money.” I call them the “flock money” because they tend to act like sheep, especially at the extremes of a particular market.

They flock toward the identical trade at the identical time. When that happens, the trade becomes “crowded,” and there are very few investors left to buy into the trade and push its price higher. That’s when a reversal usually takes place.

So it may be noteworthy that this “flock money” is fleeing the oil market. Coincidentally, on June 16, money managers placed their largest bullish bet on crude in three years – the precise moment when the crude price topped out and began its recent correction.

You are not necessarily missing out if you skip an overcrowded restaurant or investment.

And we’ll leave you with a bonus bit of investing wisdom from Mr. Berra…

“If you don’t know where you’re going, you might end up someplace else.”

Pretty hard to argue with that.

Have a plan. Stay disciplined. Maybe follow an experienced and proven guide like Eric Fry to help with your analysis and managing your investing emotions.

And always keep your eye on the prize. There will be delays and speed bumps, but if you know where you’re going, have a plan to get there, and stick with that plan, you can endure the stops and starts and end up in the right place.

Regards,

Dave

P.S. Buying the best stocks is important, but selling the worst stocks is just as critical to your investing success. And Eric Fry has a list of 25 must-sell stocks to toss to the curb right now. It may be the most intelligent move you make for your money this year. Details here.

On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.


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