In Troubled Times, Don’t Lose Confidence, Just Re-evaluate

It's been a few weeks, but after the pre-wedding rush, a blur of a wedding day and an eight-day trip to Cabo, Mexico, for my honeymoon, I'm back in the office, getting reacquainted with the necessary evil we call work.  (Just kidding boss!  Sort of.) 

Actually, I'm a creature of habit and schedule, so it's good to get back in the flow of things; I've been back at work for about a week now, any jet lag is behind me, I'm all caught up on my emails ... and I've been watching the market fall apart.  More on that later.  If you're interested in a quick wedding and honeymoon summary, keep reading.  If not, no worries--just skip to the next section below.

Anyway, I have to say, the wedding went ridiculously smooth.  No big hiccups, which was a huge relief. 

Wedding Re-cap

For your reading pleasure, I've listed a handful of ups and downs of the wedding below (at least in my opinion):

Favorite Part of the Wedding Day:  For me, definitely the cocktail hour.  We made sure to carve out some time to enjoy it.  Having actually performed the ceremony, the rush you get from finally being able to relax a little and have a drink and a bite to eat with all your closest family and friends, shaking hands and seeing everyone having a great time ... that was really good stuff.  I will remember that 40-minute period for a loooooong time.

Worst Part of the Wedding Day:  The wait!  We took pictures before the ceremony, but even then, we didn't have to start getting ready until 2:30 p.m.-3 p.m.  I'm an early riser, so that left about six to seven hours of time to kill that day.  With the help of my groomsmen, I remained sane, but it would've been nice to just wake up, get ready and hit it.

Winner of the Silver Lining Award:  Having the ceremony inside.  It rained the night before and morning of the wedding, and we were told the grass would be too soft to have the ceremony outside.  As it turned out, we'd forgotten just how nice the main hall was (the place was an older inn, with beautiful wood beams, high ceilings and a cozy atmosphere), where the reception was going to be anyway.  Thus, we didn't have to worry about the weather all day, and still have an excellent ceremony.

The Thing that Surprised Me the Most was:  The food!  I think, for many guests, us getting married was certainly a highlight, but their filet mignon was even better.  Seriously, it was very good food--not just good wedding food, but legitimately good food.  That was unexpected.

My First Lessons Learned as a Married Man:  There are two answers here.  The first, of course, is that I've quickly learned to say "Yes, dear" to any question I am asked by the new Mrs. Cintolo.  Even if it doesn't make sense!  If she asks whether I want a turkey sandwich or a roast beef sandwich, my answer is now "Yes, dear."  Can't go wrong with that.

The other lesson--someone forgot to tell me the wedding band will come off in the shower.  Let's just say it's a good thing I have relatively quick reflexes, because I literally caught my wedding band in mid-air after it slipped off my finger.  Whew!

I'll touch on my honeymoon some other time, but I wanted to just wrap-up my Big Day.  It certainly was a blast, and for those that told me it would go by in a flash, they were correct.  But I wouldn't have changed a thing--it really did work out perfectly for us.

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Investment Black Dog

As for the honeymoon, I did plenty of reading, but I only brought one investment book. Thankfully, it was terrific.

It's called "Hedgehogging," by Barton Biggs, a Morgan Stanley veteran who teamed up with a couple others to start his own hedge fund back in 2003.  (The book is a couple of years old, available in paperback.)  Much of the book is indeed about his journey to starting a hedge fund, but really, to me, the first 100 pages or more were a bunch of two to four page short investment stories that related to people he knew in the business. 

To me, this is the best kind of investment book--while the top sellers are often titled "How to Get Rich in Options" or something like that, you can often gleam more lessons and insights from reading about others' investment troubles (and successes) than by learning a "secret" system from some author.  It didn't hurt that Biggs is masterful with the English language; I found myself intrigued 80% of the time, and chuckling the other 20%.

My favorite passage from the book related a piece from Winston Churchill, who despite his great successes, was also a flawed man (who isn't, really?), subject to depression and other drawbacks.  Anyway, I'll quote Biggs' passage here:

"Winston Churchill, whose career had its ups and downs and also was plagued with bouts of depressions, spoke of the huge, foul-smelling black dog with breath like the sewer, which appeared uninvited and sat heavily on his chest, pinning him down.  There is an investment black dog, and when you are doing badly, it comes and sits on your chest in the middle of the night, and on Saturday mornings, and on sunny spring afternoons in the office.  It's almost impossible to banish the black dog when he gets on you.  He plagues your life.  We all have visits from the black dog from time to time."

I couldn't have said it better myself.  Just remember this passage if you're having a tough go of it, which I suspect many of you are in this market environment.  Even the best money managers suffer from the demon of poor performance every now and again, but that doesn't mean they're washed up.  If you're in a rut, take a step back and re-evaluate--but by no means should you lose your confidence.


Don't Lose Confidence

Right now, actually, I think it would be one of the worst times to lose your confidence.  My initial impression after returning from Mexico was that investors are very depressed, with most feeling the weight of the investment black dog.  Nothing unusual there.

But considering the action of the market indexes, I'm impressed with the number of decent-looking stocks and sectors out there.  In recent weeks, Cabot Top Ten Report has been able to find a good amount of good-looking set-ups. 

Moreover, the fact that we're seeing many more stocks acting well today, compared to the action of the prior market lows of January (when there were literally zero good-looking stocks) and March (when there were just a handful) seems to be a bullish sign.  Indeed, the market is tracing a pattern similar to the major bear market low seen in 2002-2003.

Back then, the market capitulated into a panicky July 2002 bottom.  After a few weeks of rallying--a rally that saw the Nasdaq lag badly, which we'll get back to in a second--the market then slid back to its July low in October.  During that re-test, the number of stocks hitting new lows dried up dramatically.

After that second re-test, there was a solid three-month rally ... but then the market began sliding again.  It wasn't until March 2003, a full eight months after the first bottom, that stocks entered into a true bull market.  Interestingly, the Nasdaq held well above its earlier lows in March, a sign that investors were becoming more risk tolerant, which is usually a good thing.

Market Update

This time around, of course, we're not in the midst of a mega-bear market, so the time periods and swings will be shorter and milder.  But the triple-bottom pattern may be occurring once again--we bottomed in January, then a few weeks later in March on Bear Stearns' demise. 

Now, after a two-month rally, the Dow and S&P 500 are re-testing their earlier two bottoms (the Dow actually hit a new low on Thursday) ... while the Nasdaq remains 9% above its low.  And, yes, the number of stocks hitting new lows is far fewer than we saw back in January or March.  Put that together with some horrid sentiment (which works as a contrary indicator), and you have a recipe for a major market bottom around here.

Even so, having a recipe is not like having the meal itself.  I remain cautious, holding plenty of cash while selling stocks that are showing decisive weakness.  The Model Portfolio in the Cabot Market Letter currently has 50% cash. 

Yet I have a hunch now is not the time to get pinned down by the black dog.  My sense is that too many investors are throwing in the towel here, so my advice is to, first, keep your powder dry here; make sure to enjoy the summer, and don't focus on everything that's going wrong.  That way, when the time comes, you'll be ready to buy, just when most investors have sworn off stocks for good.

Until next time,

Mike Cintolo
For Cabot Wealth Advisory

Editor's Note: How would you like to make more than the market during bull markets, while also holding on to most of your gains during bear markets?  Few advisors can do it, but that's exactly what the Cabot Market Letter's Model Portfolio, edited by Michael Cintolo, has done since the start of 2007.  The Portfolio outperformed the market on the way up in 2007, and has kept those gains during the 2008 downturn.  Net-net, Mike's subscribers have gained 33% in the last 18 months, while the S&P 500 is actually down more than 10%!  Hulbert Financial Digest has the letter ranked #3 in the country for trailing 12-month performance.  If you want to be on the right side of the market, and be invested in the biggest winners of the next bull market, give the Cabot Market Letter a try.


Michael Cintolo can be found on Google Plus.

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