Three hundred thirty-three years ago, a bunch of like-minded people gathered in a room in Salem, Massachusetts for an infamous cause. Thankfully, last week’s Cabot Investors Conference turned out a little better.
Cabot subscribers descended on the historic Hawthorne Hotel in downtown Salem, coming from as far as Alaska, Arizona, California, Texas and Florida, to get the latest investing advice in person from our experienced team of advisors. They were also there to mingle with their fellow individual investors, sharing investment ideas, triumphs and losses over a Sam Adams (or two) and a cup of clam chowdah.
The camaraderie was palpable, and the proceedings were lively. Plenty of good questions were asked of our experts, with scarcely a lull in the conversation from one presentation to the next.
There was plenty to digest for subscribers and (relatively) new Cabot employees like myself. While that information is still fresh, here are my top five takeaways from the third-annual Cabot Investors Conference.
1. The “Liquid Leaders” are holding up.
This market’s seesaw nature has been confusing to many, infuriating to some. With so many weekly, and often daily, ups and downs, it’s hard to know what stocks to buy—or if you should be buying at all.
Mike Cintolo, our resident growth expert, has a way to simplify things: pay attention to the “liquid leaders”–Facebook (FB), Netflix (NFLX), Amazon (AMZN), Celgene (CELG), etc. The better they hold up, the better the market will be, he said.
Fortunately, most of the liquid leaders are still intact. Facebook shares are up 20% year to date. CELG is up 17%; AMZN 72%; NFLX a whopping 156%. As long as those stocks don’t collapse—and, better yet, continue to thrive—plenty of growth opportunities will still be floating around out there amid the market’s choppy waters.
2. If history is any guide, 2016 could be a big year for the market.
Twenty-one years ago, in 1994, the market demonstrated the same kind of wishy-washy volatility that’s plaguing it now. That year, the S&P 500 started at 466, rose only as high as 480, dipped only as low as 438, and finished the year essentially flat (-1.5%). The 8.8% variance was fairly narrow—the kind of boring sideways activity we’ve seen this year (6.5%, the narrowest in 115 years).
As Mike pointed out, the following year, in 1995, the market was cured of its choppy malaise, advancing 34.1%—the best annual return for the S&P 500 in the last 40 years.
Could we see a similar run-up next year? The charts aren’t the only things that are alike.
In 1994, the Fed decided to raise interest rates for the first time in years, causing widespread uncertainty on Wall Street. Sound familiar? After seven whole years of near-zero interest rates, the Fed is supposedly on the cusp of raising them—perhaps next month, perhaps not until early next year. Until it happens, the suspense is killing investors.
Once the Fed does decide to take action, perhaps investors will eventually start buying again the way they did in 1995. Even if 2016 is only half as good as that banner year for the market, we should all be very happy.
3. Dividends are still the best way to earn income.
Speaking of the Fed, don’t be cowed by Janet Yellen and company’s latest vague promises to raise interest rates soon. Even if they do raise the rates, it probably won’t be enough to really move the needle.
“I’m convinced interest rates will stay low,” Tim Lutts, Cabot’s chief investment strategist and president, told the audience. “People will increasingly buy stocks for income.”
There’s a reason why: the numbers support buying dividend stocks, and not just in the last few years. According to Chloe Lutts Jensen, Cabot’s dividend specialist (and Tim’s daughter), the top 30% of dividend payers have posted the best returns dating all the way back to 1927.
Why? Because the companies that consistently grow their profits over the years can afford to keep increasing their dividends, and the more shareholder-friendly companies attract the most investors. Plus, the power of dividends is inarguable: since 2004, the Dow Industrials are up 65%. When you include the dividends the companies in the Dow paid out, the total return comes to 114%!
With bonds yielding very little these days, and CDs and money-market accounts yielding almost nothing, dividend stocks are the best way to generate income. And they will be for quite some time.
4. Emerging markets are struggling right now.
“It’s difficult to revive a hot romance after a punch in the nose.”
That’s how Paul Goodwin, Cabot’s emerging markets expert, described investors’ relationship with China right now after the Shanghai Stock Exchange’s recent nosedive. There are still a few opportunities in China if you look hard enough—its economy, after all, has still been growing at more than 9% a year on average for the last quarter century. But it might not be a bad idea to wait for the dust to settle before investing heavily in China again.
India—a country Paul referred to as the “giant-in-waiting”—might be the more intriguing buy right now. It’s the fastest-growing major economy in the world, the fourth-largest startup hub, and has been given a jolt of much-needed hope with the election of new pro-business Prime Minister Narendra Modi. Still, repairing India’s economy and confidence is no easy task, and Modi will have an uphill battle to help the world’s second-most populous country reach its full potential.
Mexico is another interesting emerging market, Paul said. Though, as he put it, Mexico isn’t so much an emerging market as an “aspirational” one.
All of that probably sounds like faint praise. And it is. Those three markets essentially have a yellow light, according to Paul. No emerging market has a full-fledged green light at the moment.
As for the red lights, Brazil is on the brink of recession after seven years of negative growth and 9.6% inflation, and Russia … well, all Paul needed to do was put up an image of Vladimir Putin’s face to explain his position.
“I wouldn’t touch Russia with an 11-foot pole,” he concluded.
5. “Bull markets never die from old age. There’s usually a cause.”
This is either the second- or third-longest bull market in history. But that doesn’t mean it has to end.
Despite sluggish earnings growth, rampant stock buybacks driving down the number of available shares, and all the problems in China and Europe, U.S. stocks have hung in there. And that leads Roy Ward (who uttered the above quote at the conference), Cabot’s value investing expert, to believe that this “bull-bear tug-of-war should go on,” and investors will continue to buy U.S. stocks.
Mike Cintolo speculated that the recent choppiness could simply be the first true consolidation phase of this secular bull market, which in his estimation began in 2013.
Where it goes from here is anyone’s guess. But as Mike said, if we see at least four straight weeks of positive action from the market, and growth stocks start to get going, then it’s a good bet that things are starting to trend upward again.