Essay #1 and Essay #4
In Case You Missed It
Recently, we held our very first Cabot essay contest and the response was incredible! We received lots of insightful, well-written essays from you, our readers, and after selecting four finalists, we asked you to choose your top pick. The final results were too close to call, resulting in a tie between Essay #1 and Essay #4. Congratulations to the two winners!
I've re-printed the two winners' essays below with some comments written by those of you who voted. I hope you enjoy reading them as much as we did. Thanks to everyone who submitted essays and voted for their favorites--you helped make this contest a great success!
Essay #1: Written by P.R. of Lakewood, Colorado, already a Cabot subscriber, who chose Cabot Green Investor as a prize because he wanted to try something new!
I did everything right--everything! Well, except for one small thing, but I'll come back to that later.
I only chose stocks of companies that had a great product or products. I chose stocks of companies that were playing in large, worldwide markets or in emerging technological or green markets. I chose stocks of companies that were making money, many at an exceptional rate and had a history of doing so. I chose stocks of companies that appeared to have strong management with relevant experience. I bought in rising, bullish markets and in countries with exciting future prospects. I sat back and looked at the way the world seemed to be going and made intuitive plays based on obvious trends. I bought some Cabot recommendations that I liked the sound of. I backed it all up with some solid mutual funds with no loads and good track records. I kept some cash in the impossibly unlikely event that the bull market underwent a protracted pullback or a leveling off. I even had some bonds but kept my investments low because I could make more money in stocks (did I say that I just made ONE error--ha!). I was smug. I was happy. I thought I was the bee's knees. I had made good money for a couple of years and was confident in my ability to recognize a star in the making and also a falling star.
Then the market changed and suddenly it no longer seemed so easy. But I had good, solid companies with great products--right? I loved those companies! They were my babies, my growing children and like all parents I thought they could do no wrong. Not my babies. Someone else's maybe, but not mine. So I failed to spot the downside, failed to use a systematic system of stop losses, believed my companies would always bounce back (they were GOOD companies!) and I watched them slide into obscurity, even buying a few more shares on the way down because these good companies seemed so cheap. When the dust finally settled many of my stocks had lost 80% or more. The good ones lost 50%.
Next time I'll be stronger. Next time I will NOT fall in love with the companies. Next time I will grit my teeth and sell at a 15% or 20% stop loss even though my heart tells me otherwise. It's hard to throw the cake away when it goes bad and the mold is spreading. The idea of its taste overwhelms our hatred of an upset stomach. But next time I WILL use those stop losses. I may have said the same thing back in 2000. Who can see that far back?
"Well-written; captured the experience countless investors had over the market downturn in a very clear and concise manner."
"It was honest, humorous and self-deprecating. I could empathize certainly, too."
"The incredible honesty of the writer and the seldom talked about emotional aspect of money."
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Essay #4: Written by D.S. of Sierra Vista, Arizona, a new Cabot subscriber, who chose Cabot Top Ten Report as a prize because he's an active trader and it sounded perfect for his investing style.
I would think that I'd have a sell-discipline by now. Sheesh, I've been investing for over 25 years-but too much time I was lolling, fat and sassy, in bull markets. Oh, I'd been burned in the past, but only mildly, and that due to stock selection. Being well diversified, I didn't fret much over market fluctuations.
Then came 2008, and the bull market turned into a huge and steaming cow pattie! ... Argggh!
YES! Let's start anew.
I need a sell discipline ... emphasizing the word "discipline." Any rule would do that involved a specific number, that's all I'd need, just a specific number.
Or, even 20.
Any specific percentage that would stop me out of a losing position.
Out. Machine-like in its predictability ... exit here, exit now. Period.
If I'd had a sell discipline, I would have sidelined much more money, and would not have joined the whining masses with a 40-plus percent loss.
That's my lesson. Two words: Sell. Discipline. But, like many personal investors, I'd been clinging to fleeting hope rather than simply taking my beating now and being done with it.
I hereby resolve, I shall set a fixed number, at whatever threshold I can stand-perhaps 10 or 12 or 15% would be good. Golly, with that loss-point I would have sold every one of my stocks and mutual funds. What's so wrong with that? I ask myself. Listening to my inner critic...my emotional distress over loss becomes very apparent to me. I've prided myself on being objective-hah, isn't self-deceit a wonder?
1. Set a stop-loss low enough to not fret overmuch about getting whip-sawed with general market fluctuations, but high enough to stop me from losing a lot. Duh.
2. Have a rubric, well-constructed, that will allow me to reset the stop-loss lower...once? Oh, listen to me-still loss-intolerant-how about NEVER!
3. Determine to adhere to this plan and stick with this price...and to adjust the stop-loss point higher if/when prices climb.
4. Keep a diary of my thoughts, feelings, wonders, and my specific intent for each buy and each sell decision I make.
"The writer did some serious analysis and reasonably well defined the lessons learned."
"For the simple list at the end of the essay. I think if more people followed this advice the market would be in better shape today as would everyone's portfolio. Like any partnership, you have to be prepared to dissolve it and have a plan in place that gives you an out with the least amount of damage."
"It shows logic, conviction and lots of thought."
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In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.
Cabot Wealth Advisory 7/6/09 - A Healthcare Stock for our Changing Times
On Monday, Timothy Lutts gave a detailed account of the history of politics in the United States. Tim wrote about the rise and fall of political parties and about one third party in particular that has a shot of making it to the big time. Tim concluded by discussing a healthcare stock for our changing times. Featured stock: Express Scripts (ESRX).
Cabot Wealth Advisory 7/7/09 - The Silver Lining to a Falling Dollar
On Tuesday, we brought you a special issue written by Carla Pasternak, Editor of High-Yield International at StreetAuthority. Carla wrote about the falling U.S. dollar and how investing abroad can increase your income.
Cabot Wealth Advisory 7/9/09 - Off the Bottom is a Tricky Game
On Thursday, Michael Cintolo wrote about why he thinks the economy is bound to recover in the next few months based on the Weekly Leading Index economic indicator. Mike also wrote about why it's tricky to pick stocks off the bottom because of overhead. Mike finished by writing about a stock that's still the strongest in the market. Featured stock: Green Mountain Coffee Roasters (GMCR).
Cabot Wealth Advisory 7/10/09 - Do You Believe in Experts?
On Friday, Paul Goodwin wrote about believing in experts and how to increase your stock investing expertise. He discussed the recent news about China, from the riots to trade wars and why it's best to ignore these sensational headlines. Paul finished by writing about a healthcare stock that looks good now. Featured stock: SXC Health Solutions (SXCI).
Until next time,
Editor of Cabot Wealth Advisory
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.