Do you believe in experts? I do, although I think you have to choose them very carefully and take their advice with a grain (or a whole shaker-full) of salt. I like the idea that someone who is familiar with the history, dynamics or people of a country, market or conflict stands a better chance of giving good analysis and advice than some random guy on the street. Like most people, if I'm sick, I go looking for a doctor, not the next jogger who comes by.
You'd think everyone would believe in experts. Most of us do research before we make an important decision, so why wouldn't we listen to someone who's been doing research for months or years?
I have two thoughts about this. First, I know that there is a lot of skepticism about experts. And I can see why.
In a recent story I read on the Web, the writer was conducting a virtual face-off between Goldman Sachs economist Ed McKelvey and Morgan Stanley's co-chief global economist Joachim Fels. Fels has said that the U.S. Federal Reserve Board (the Fed) is endangering the U.S. economy by keeping interest rates low for too long. If the Fed keeps money loose for too long, he says, the result will be higher inflation, which nobody likes.
In the other corner, McKelvey opines that inflation isn't as big a threat as Fels seems to think. Rather, says McKelvey, the biggest potential problem is that the economy might slide into a deeper recession but the Fed wouldn't be able to use the means at its disposal to prop it up because of political pressure. In this scenario, the economy might continue to sputter along because the Fed lacked the political will to do the right thing to stimulate it.
So, who do you trust? When two highly qualified experts with apparent good will and no axe to grind are in total, 180-degree disagreement with one another, who can you turn to?
Darned if I know. The best thing I can think of to do is to find a way to invest (in this case) that doesn't depend on predicting the future. More on that later.
My second thought on the subject is that if you don't trust experts, but you want someone's opinion, you have to turn to ... non-experts. And there are plenty of them to choose from.
If you go to any big financial Web site (and I'm sticking to finance on this; pop culture sites are way too risky for me) and look up a stock, over to one side, you'll find tons of opinions about the stock from people with have no credentials, give no data, don't even post a name. They seem to specialize in strongly worded assertions--frequently with a heaping helping of attitude--and they're telling anyone who'll listen what's going to happen and what to do with their money!
Call me old-fashioned (guilty!), but I'd rather listen to the talking heads on a boring cable finance show than put a dime at risk on the say-so of someone who won't reveal his name.
The best choice of all, however, is to become your own expert. If the topic you're interested in is stocks, just go to your local bookstore or library and pick one of the dozens of "how to invest" books and read your fill; just make sure the book talks about what actually works in the market. (Be sure to check out our book recommendations here. Once you're done, pick another one and read it. Repeat until things start to make sense to you. Be sure to supplement your reading with visits to Yahoo! Finance or MarketWatch or your favorite browser's financial site and follow some charts, learn to take the pulse of the market and how to pick the kind of stocks that will make you some money and let you sleep at night.
Coming from the person who edits the Cabot China & Emerging Markets Report, this may sound a little strange. After all, I could just say, "Subscribe to my newsletter and make a ton of money and never have to make a decision of your own!"
But I don't think that's the best way to go about it.
If you don't have your own sense of the market and your own opinions of the kinds of stocks you're looking for, it will be hellishly hard for you to decide to trust my advice, or that of any of the other Cabot writers. Only when you have enough knowledge and enough confidence--in other words, enough expertise--to disagree with me can you ever decide to trust me.
Time to get to work. I look forward to talking to you, "expert to expert."
When you get there, you can make the informed decision to try a no-risk trial subscription to the Cabot China & Emerging Markets Report.
Editor's Note: Cabot China & Emerging Markets Report is the #1 rated newsletter for the last five years by Hulbert Financial Digest, leaving both the market and the competition in the dust! China's growth engine is chugging along much faster than that of the U.S., so if you're looking for the next hot stocks, this is the sector to be in. Let emerging markets investing expert Paul Goodwin be your guide to the enormous profit opportunities found in this fast-growing area! Click below to get started today.
Speaking of skepticism, I'd like to register a skeptical opinion of my own about the tide of recent stories about China that are painting the future global role of that country in apocalyptic terms.
I'm thinking specifically about one story that trumpeted "The Coming Trade War with China!" Another looked at the recent riots in Xinjiang province (and elsewhere) and wrote about the Chinese communist regime's lack of legitimacy and how China was going to fall apart and degenerate into chaos. Other stories have addressed the attempt by the Chinese to replace the U.S. dollar with the Chinese renminbi as the world's favored reserve currency and how the Chinese were going to bring the U.S. to its knees by selling off their enormous reserves of U.S. Treasuries. Oh, and did I mention that they were trying to buy up all the world's oil, iron ore, aluminum and strontium 90?
Part of the motivation behind these stories is just to sell papers or magazines, or to attract visitors to a Website. These screamers are about as substantial as the tabloid headline I saw the other day: "Who Killed Michael?" Words fail me.
Of course there will be crises and conflicts involving the U.S. and China ahead (and probably every other player in the global market). When nations compete for limited resources, for access to markets and for investment dollars, the competition will always be hard-nosed. The winners will use all the weapons in their arsenal--including bribes, subsidies, dumping, currency manipulation and tariffs--and the losers will cry "foul!"
One of the benefits of free trade (and I'm well aware that there are drawbacks, as well) is that countries that trade together have a harder time escalating conflicts out of proportion. So the kind of slap-fights that involves threats of tariffs and trips to the World Trade Organization are just par for the course. But a "trade war?" Please.
I'm not going to go ballistic and accuse the writers of these inflammatory and misleading stories and headlines of being inflammatory and misleading. Well, maybe I am.
My point really is that investors should take these stories as the kind of hysterical background noise that they are. Always stick to what's actually happening in the markets, which are the best news-discounting system in the world.
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My investment idea today is a company that's getting a boost from government healthcare policies. It's SXC Health Solutions (SXCI), an Illinois company that provides pharmacy benefit management (PBM) and healthcare IT software.
SXC Health Solutions' suite of prescription management programs includes software that smoothes claims management, speeds payment and billing, gives desktop access to patient information, and a wagon-load of other services to lower cost, speed processing and ensure accuracy and safety.
After years of steady but modest increases, the company's earnings growth has taken off, hitting 138% in Q1.
SXCI bottomed at 10 last October, and its rally to near 27 in recent trading has been accompanied by a huge increase in volume. Revenues have exploded, thanks to acquisitions.
Is it the right time to buy it? Well, the stock has spent more than five weeks tightening up under resistance at 27, with trading volume higher on advancing days than on declining days. The stock will remain sensitive to headlines, but it looks good right here.
You should note that SXC Health Solutions will be reporting Q2 results on August 6, which will set the stock's course for the next few months.
For Cabot Wealth Advisory