You Might be a Growth Investor, If ...
An Asian Flyer Takes Off
So let's just suppose that you actually want to retire at some point in the future. If you're like most people, you're probably a little behind in funding that retirement--especially after the wealth-gutting market of the last year--and you're wondering if you can catch up.
It's important to know how this happened to so many people, and the answers are actually pretty simple. Most people in their twenties don't save; they're hormone-addled crazies who can spend half a decade or more just celebrating not being in school any more. (Yes, I miss those days!) There are bars and clubs to visit, clothes, electronics and cars to buy, apartments to furnish, maybe some travel and probably a wedding. Even if there weren't those college loans to pay off, there wouldn't be much excess income to be salted away.
In their thirties, people want to move out of that apartment into a house, which means a mortgage and more furniture. The relentless ticking of the biological clock usually militates the addition of small humans to the household of our rapidly maturing non-investors. Small people don't actually eat all that much, but their other needs are pricey and absolute. Any excess funds that the house doesn't eat will likely flow in Junior's direction. There is probably some investing going on in the form of an employer-matched 401(k) or an IRA and a college-directed 529 plan, but that's about it.
The fascinating forties find most people with a growing income that is more than matched by the requirements of a growing family. A move to a bigger house, family vacations and the beginning crunch of college costs keep the lid on any investing that isn't part of the work/match program.
By the time people reach their fifties, their costs are finally coming under control as earning power peaks, children graduate from college and expensive weddings are planned and survived. But just as people see the light at the end of the financial tunnel, they also see the freight train of retirement coming right at them. And it's a lot closer than they ever thought it would be.
All of us editors at Cabot get lots of inquiries from people who need to play catch-up with their retirement funds, and wonder if such a thing is possible.
Our response is that we give advice about investing in stocks, not in retirement planning or portfolio management. At the same time, we clearly believe that investors who are willing to invest the time, energy and (of course) money in a disciplined and systematic way can indeed make AND KEEP big money over time.
I work on the growth side of Cabot, writing the Cabot China & Emerging Markets Report. I have a lot of confidence in the ability of Cabot's growth disciplines to produce market-beating results. Partly this is because we have a system for selecting growth stocks that makes sense. But mostly, it's because the Cabot system of market timing requires us to exit the market and go to cash when the market is in a confirmed downtrend.
So, do you have the capital to invest, the discipline to follow the rules and a source of good advice to point you toward strong stocks at good technical buy points? If you do, you stand a good chance of being able to help yourself make up some ground on your retirement. Whether it will be enough to put you onto that 78-foot sailboat cruising the Caribbean is another matter.
(Editor's Note: Cabot China & Emerging Markets Report has just registered a new buy signal and is happily inching its way back into the market. Having protected subscribers' money by going to 90% cash for much of the 2008 Crash, the Report has two stocks on the buy list and will be increasing that stake as long as the market environment remains supportive. Like that idea? Click the link below to get started today.)
At the very least, becoming an active growth investor will get you off your financial duff, which is what your mutual fund managers have had you sitting on since the 20th century. The mutual fund industry has done a wonderful job of selling the notion that you can't time the market and that the only sensible strategy is to shovel money into your 401(k) and keep shoveling no matter what the market is doing or what the results are. Just keep shoveling, they say, and eventually the historical uptrend in the market will catch up with you and lift your little boat out of the mud.
The passive mindset engendered by that kind of self-serving advice makes investors vulnerable to the kind of bear-market damage that the 2008-09 slump inflicted. And it keeps investors from riding the bull market that follows.
If you've actually been investing since you were in your twenties, congratulations! You probably have a big enough account balance to actually retire, and even the Big Bull of 2008 didn't sink you.
For those who kept putting off investing until you could count the years until retirement on both hands, I say it's time to get active.
Back in the BC era (Before Cable), you would occasionally hear someone talking about "getting in touch with your inner child." This was no doubt a useful exercise for people who were stoic, taciturn, repressed and otherwise insensitive to their own emotional lives.
These days, there are entire bookstore sections devoted to self-help books. Plus we're blessed with Oprah, Dr. Phil and a combat-ready battalion of helpful TV hosts, shrinks, motivators and gurus who are helping us deal with our hunger, anger, boredom, regret, envy, ambition, lust, greed and any other toxic emotions that may be keeping us from fulfilling our potential, living the good life and buying our inner child a hot fudge sundae and a pony.
This may be a good thing for the emotional health of America, but it doesn't do squat for people who want to get in touch with their inner stock investor. Stock investors are people who are more interested in the market than in March Madness. They can be found in all social strata and in every kind of job from the CEO who runs the company to the janitor who sweeps it up. Here's a quick guide to identification.
You might be a stock investor if:
* At least once during every party, you bring the conversation around to a company you own or are following;
* The "Stocks" button on your iPhone gets more use than the "iTunes" button;
* Your sense of well-being depends more on the stock ticker than the bathroom scale;
* You can ignore the TV while the sports report is on, but not when they're talking about stocks;
* When someone mentions PE, you think price/earnings ratio, not Physical Education;
* You pick up the copy of Barron's magazine in the dentist's office, rather than People;
* Until 9:30 a.m., you're antsy; after 4:00 p.m., you're bored;
* Your friends read books about Abraham Lincoln; you prefer Peter Lynch;
* In your nightmares, voices taunt you by whispering, "You could have bought Cisco at 0.14 and ridden it to 82!;
There may be lots more (and I'd love to hear from you if you have any), but if any of these symptoms apply to you, welcome to the club!
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The Superior Investment Over Time
"Small-cap stocks will continue, in my view, to be the superior investment over time ... The markets may re-evaluate what financial metrics matter most for stock selection, but growth will always be in style."
That's Thomas Garrity, editor of Cabot Small-Cap Confidential, discussing the future of small-cap stocks. If you're ready to invest earlier in companies with revolutionary new products and services, Cabot Small-Cap Confidential is right for you. These stocks can explode once word gets out, but you can get in before anyone else even knows these investments exist. For instance, take Hansen Natural, which editor Thomas E. Garrity invested in when it was selling for a mere 1.71 in early 2004. The stock had rocketed up 2,338% by the time he sold some of his position in February 2008.
Subscriptions are strictly limited to 500, but the bear market has shaken some investors out, so we have a few spots open. Click the link below to ensure that you get a spot today.
One of our consistent themes on the growth side of Cabot is the concept that the chart is your best friend in picking stocks. It's great when a company has growing revenues and soaring earnings. It's also nice when management has great history and return on equity is consistently high. And I could go on with a list of everybody's favorite fundamental measure or quantitative benchmark.
The market, on the other hand, just wants to know one thing: who wants to buy this stock and how much are they willing to pay? And it tells that story every day in the stock's chart.
If people want to buy a stock, the chart will show a rising price line. If institutional investors want in, advancing volume will rise above its average and will stay there for a while. If a chart shows a sideways movement by a stock in a tight trading range, it means that every time the stock drops to the bottom of the range, someone buys it, and every time it rises to the top of its range they stop. Sounds like persistent accumulation again, which is another institutional fingerprint.
So one of the best screens you can use to locate strong growth stocks--that is, stocks that people really want to buy--is to search for stocks reaching new 52-week highs.
That's the screen that brought AsiaInfo Holdings (ASIA) back to my attention. AsiaInfo sells software and IT security products to the Chinese telecom industry, and there is an interesting combination of winds filling the stock's sales.
AsiaInfo has always had a big line of business with China Mobile, the largest cellular company in the world by subscribers. AsiaInfo helps the company bill customers, analyze usage patterns and fight viruses and malware. The company has also cut deals with China Unicom for the same services plus a new Business Support System and a Business Intelligence system. With China preparing (as it has been for years) to roll out its 3G phone system, the opportunity for AsiaInfo looks great.
The chart for ASIA shows a highly volatile stock--definitely not for the faint of heart--that has been in a long-term uptrend since late 2006. The most hopeful sign is that the stock has broken through its 2008 resistance level at 14 and is flying in clear skies. And yes, the days with the biggest volume have been up days. This is a hot stock in a hot market. It's worth checking out.
For Cabot Wealth Advisory
P.S. Cabot China & Emerging Markets Report Editor Paul Goodwin will be appearing in CNBC tomorrow around 2:30 p.m. Be sure to tune in to find out more about his current thoughts on the Chinese stock market!