Biz Dev in NYC by Rob Tsai

Peter Lynch, of Fidelity fame, counseled in his classic book One Up On Wall Street to “buy what you know.”  

Over beers and burgers at the Spotted Pig last night with an Emerging Markets structured products friend of mine, we both laughed at ourselves for missing opportunities that were staring us in the face.

If only we had bought Apple (AAPL), the stock, when we bought our first iPods (for me that would have been Christmas of 2004 or a cost basis around 10 - when they were pretty much sold out everywhere, and I was scouring the city for one).  That would have been a nice 20 bagger.

Or even as recently this fall, when my brother bought the Xbox 360 just for Guitar Hero 2 and 3, and the two guitars that came with them.   Jeff Macke at CNBC’s Mad Money had been pounding the table on Activision (ATVI), but oops - thinking like a consumer first, without putting on the investor hat, is a no no.   Probably could have made a 50% return in a few months, on the acquisition/merger with Vivendi Universal.

The list goes on - but the lesson is clear.

So 2008 will be the year that I promise to myself to buy the fat pitch stocks of things that I just KNOW will go up (or suspect with a high confidence level).  

Ok - so I haven’t seen that fat pitch yet - but I’m ready, this time, I swear.  And if any readers or friends want to drop a comment on good ideas, I’m all ears.

Sadly - this strategy probably wouldn’t have helped identify 2007 high fliers like Potash of Saskatchewan (POT) or First Solar (FSLR) - as I don’t think I’m their target customer segment.  Though you could have forseen the demand for fertilizers to feed the burgeoning global population or the demand for alternative energy.

As an aside - one of my favorite bloggers Trader Mark, was onto Potash quite early.  And now Goldman Sachs has joined the party with a $180 price target.

Sadly, my only Ag exposure today is Agrium (AGU) (which I wish I held more of) - but if I had to put any money to work in the sector today, I’d probably opt to go with the Powershares DB Agriculture ETF (DBA).   Whereas the other major agriculture ETF Marketvectors Agribusiness (MOO) owns stakes in the equity of leading agriculture businesses like Potash, Mosaic and Agrium, the Powershares DB Agriculture ETF invests in futures contracts in Wheat, Soybeans, Cotton and Sugar.   So it’s similar to investing in a gold ETF like GLD or IAU rather than owning the gold miners like Newmont Mining (NEM).

I know I’ve been hearing a lot of pundits talk about sector rotation to the consumer staples names like P&G or Unilever.   Still, I wonder how long these branded players will be able to pass along cost increases to the consumer without severely squeezing their margins. 

The Minyanville transcript of a recent General Mills conference call describing a interchange between an analyst and the company on passing along input costs to the consumer by “masking” the price increase by reducing the size of the box is hilarious and sad at the same time.

Notwithstanding the government’s core inflation statistics, or the savvy marketers attempts to fool us by making the box size smaller, we all know that food inflation is VERY real.  At some point, say $8 a box (I’d peg the NYC price at $6 to $7 today), I think the generic store brands become pretty attractive next to a Kellogg’s or General Mill’s brand.  I suspect that the only difference is the marketing spend and the box graphics.  It’s the same berries, wheat flakes, nuts.

So with that in mind - I think that the Agriculture Commodies are the best inflation hedge, even better than gold, because gold is pretty much useless.  You can’t eat gold, or turn it into ethanol.  You can melt it down and turn it into chains, or bracelets, or teeth.  And of the three transmogrifications  - I’d say only teeth have any real function whatsoever - as they can help you chew your $20 cereal in 2012, or meet fine ladies at the Spotted Pig who want to see ya grill.

The author has a long position in Agrium (AGU)