To See the Market Turn, Open Your Eyes

But don't stop there. Ask investigative questions to the insiders. When visiting your bank, ask the loan officer about his business volume. I did this a few weeks ago when mortgage rates began to decline, and indeed business had picked up dramatically -- but for refinancing, not new purchases.

You might think all of this sounds silly and basic, but where do you think all the data about consumer spending, mortgage applications and so forth comes from?

In the early 1960s, before taking over Berkshire Hathaway, Warren Buffett invested over 30% of his partnership's assets into American Express. After the salad oil scandal that had tarnished American Express' reputation, he spent weeks at his local restaurants, standing next to the cash register, observing how many customers still used the card.

I have always been a big fan of Whole Foods, and I often visit the store and observe and talk with customers and employees, to get a sense of the business.

While shares in Chipotle were getting hammered last quarter on fears of rising food costs, every time I ate there the lines were just as long as they ever were. The stock has since rebounded by 50% from the lows set a few months ago.

I visit my local AutoZone to keep up with news on how customers are behaving and what that means for the auto industry.

Knowledge like this is invaluable because it solidifies that fact that it's a matter of when, not if, shares in such businesses will recover. Naturally, you can't base your investment outlook solely on the economic activity in your hometown, and such scuttlebutt should always be supplemental to your specific equity research.

If you wait for the official word that the economy is no longer in a recession, you will likely miss out on some double-digit returns. Remember that the market collapsed 40% before we got the "official" word that we are now in a recession.

By keeping your eyes open to the economic activity around you, the patterns and trends that you observe can prove to be a valuable pre-indicator to the economic reports that the market and analysts rely on. The markets have just about discounted that fact that 2009 could be a year of further economic decline. But we know that equity prices rise in anticipation of an economic recovery.

Just look at what has happened to infrastructure plays such as Fluor, Vulcan Materials and Manitowoc on news that the U.S. may embark on the greatest infrastructure build in decades.

Scuttlebutt works. If it's good enough for Peter Lynch and Warren Buffett, then it's certainly not too silly a notion for the rest of us.