From MarketWatch July 5, 2012
Veteran ignores recession rumblings
Commentary: Cabot edging into stocks
By Peter Brimelow, MarketWatch
Crystallizing concern: Monday’s manufacturing report.But Cabot Market Letter editor Michael Cintolo responded: “Anecdotally, we think yesterday’s horrible manufacturing report (the first contraction in the sector since 2009) fits well with a bottoming market—you often will see these types of backward-looking indicators produce scary readings near turning points. That’s not a prediction, just an observation.”
Cintolo did caution: “All that said, we’re not ready to jump in with both feet quite yet.”
But his conclusion: “Sit tight with about half your portfolio in cash, and half in leading stocks. Last Friday’s huge market rally was very encouraging and puts our Cabot Tides back on steadier footing.
“We’re optimistic, but we’ll sit tight with our current crop of six stocks for now…watching them and many others closely; if the market’s recent upmove continues, we’ll likely extend our line in the days ahead.”
Cabot Market Letter has distinguished itself by being bullish through the last decade but anticipating the crash of 2008, catching the subsequent rebound and, somewhat more uncertainly, this year’s stall. Recently, it seems to be back on track. (See May 31 column).
Over the year to date through May, Cabot is up 5.1% by Hulbert Financial Digest count versus 5.08% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.
Over the past 12 months, reflecting its recent stumble, it is down negative 7.92% versus negative 1.75% for the dividend-reinvested Wilshire 5000.
But over the past five years, the letter was up an annualized 7.21% versus negative 0.66% annualized for the total return Wilshire 5000.
And that success is sustained: over the past fifteen years, Cabot has gained 6.94% annualized versus 5.25% annualized for the total return Wilshire. That’s an edge that adds up impressively, due to the power of compounding.
Michael Cintolo says he’s been writing the letter for 12 years and he has obviously thought very deeply about strategy and tactics in the stock market. It’s surprising that no publisher appears to have signed him up for a book (unless you know anything about the publishing business, in which case nothing surprises you).
Cintolo puts his approach in a nutshell at the beginning of his current monthly issue, when he summarizes the daunting problems facing markets right now and asks: should investors “hunker down”?
He answers himself: “Not us! Instead, our advice is to do what we always do ... follow the system. Today, that might feel more like riding a bucking bronco…but, while we’re all following the world’s news and rumors (and seeing the market react to them) on a daily basis, it’s a good time to remember the rubber-meets-the-road principle of growth investing — namely, that the big money is made in the big swing, by owning big positions in the best leading growth stocks during a major bull move.”
Cintolo’s system involves short, medium and long term market indicators and a disciplined approach to his portfolio, which never contains more than twelve stocks (hence is now 50% invested).
These indicators are moving average systems and the latest issue of Cabot contains a thoughtful discussion of the pros and cons of moving averages. Cabot picks stocks through a combination of fundamental and technical analysis.
One recent example perhaps suggests why it’s skeptical of recession rumors: “Housing stocks are on fire—it’s probably the top group in the market right now—and Lennar Corp. (LEN) remains our top pick in the sector.
“The company’s bullish quarterly report last Wednesday catapulted the stock to new highs on a big pickup in volume as big investors piled in. The stock has rallied five points in just a few days, so we can’t say this is an ideal buy point.
“But, when coming out of a market correction, it’s often the stocks that don’t let you in that are your leaders. We’ll go back to buy; look for any minor weakness (maybe down toward 30) as a chance to get in.”
Link to full story on MarketWatch: http://www.marketwatch.com/