Yogi Berra and Investment Wisdom
By Christopher Chapman
Many of our clients remember when commentator Ted Koppel brought Kermit the Frog onto his otherwise serious TV show to explain the stock market’s 1987 crash on the day it unfolded. We figure that if Mr. Koppel could do that, we could draw upon Yogi Berra’s famous quotes to interpret investment management itself.
Yogi Berra was an outstanding baseball player, and he became a fine team manager and coach. However, we remember him most fondly for the mangled way he spoke of life. Let’s take a few minutes to unpack Yogi’s most famous sayings from an investment manager’s perspective.
But first, a disclosure: Like Yogi Berra, I am no one’s idea of an investment expert. However, after more than thirty years of working alongside skilled, disciplined, experienced and unflappable portfolio managers, I have picked up a few things worth sharing. After all, as the great catcher said, “You can observe a lot by just watching.”
“It’s tough to make predictions, especially about the future.”
This is the first thing one understands from listening to a manager who has analyzed the economy and the markets for decades. Knowing that there are a lot of knuckleballs flying unpredictably at the portfolio man- agement team leads to the hard and fast, self-imposed policy of building well-diversified portfolios with high- quality, readily marketable securities that have long- term promise.
“You’ve got to be very careful if you don’t know where you are going, because you might not get there.”
No two portfolios are alike, and that’s because no two clients are alike. Each of our clients has a different objective and a need for ready cash, co-existing with a long-term goal. Sometimes the idea is to save for retirement. For others, the long game includes caring for children and grandchildren. In every case, the portfolio is built on a plan. That plan follows accomplishing a good understanding of each client’s particular needs and wants.
“When you come to a fork in the road, take it.”
One of the big tests of a manager is the challenge of knowing when to hold and when to sell. It is tough enough to find the best buying opportunities, but the decision to sell can be much more difficult, especially when a company or industry has become famous for its spectacular competitive performance. But making no decision at all is unwise. It would be like taking one’s hands off the steering wheel of a crowded bus moving at cruising speed. Every asset in our clients’ portfolios sits in judgment. Having an excellent un- derstanding of each one helps our managers make good decisions about holding or selling. As Yogi said about his own team, “We have deep depth.”
“No one goes there nowadays, it’s too crowded.”
When the stock of a company or the companies in an industry are so popular that their values go up for no good reason beyond their frothy fame, it pays to think like a contrarian. Are underlying rates of earnings growth matching the prices of stocks being chased by a crowd? Is competition moving in and threatening to dilute those companies’ markets? Does the busi- ness model of a skyrocketing company still make good sense? We will never forget the lessons of history in this regard: Think of the tech froth of the late 1990’s and the real estate bubble that threatened the bank- ing system only ten years ago.
“Why buy good luggage? You only use it when you travel.”
Good, reliable assets are fundamental to portfolio suc- cess. And that kind of asset is often pedestrian. It’s the reliable ones with good dividends that help bal- ance a portfolio that also includes stocks in industries that are growing rapidly. Long-term growth results from managements that pay attention to the basics in addition to adapting to change. Having good value on hand in the portfolio ensures there will be cash available when it’s needed. It’s just like having good luggage in the closet, ready for a trip.
“He hits from both sides of the plate. He’s amphibious.”
In addition to reliable, steady-Eddy stocks that de- clare dividends from established lines of business, there is a good case to be made for holding stocks of companies that are growing so rapidly that they need to reinvest earnings at the expense of declaring divi- dends. Stocks of well-managed tech companies are classic examples. Our portfolio managers understand that growth stocks and value-type stocks should both be included in well-diversified portfolios because they often alternate as performance leaders. Our manag- ers bat left-handed, they bat right-handed – all in the name of accomplishing consistent returns.
And finally, “I never said most of the things I said.”
On the contrary, we stick by our long-held philosophy: Remember whose money it is we are investing. Hold a diverse portfolio of high-quality, readily marketable stocks and bonds. Stick to your discipline. But leave time to attend a baseball game. It helps keep things in perspective.