Investing Tips for 2010
In Case You Missed It
I recently read an article about how the last decade has made many of the 1980s' most popular objects obsolete. The author cited rolodexes, Polaroid photos and foldable road maps as things that were once ubiquitous and are now nearly nonexistent because of changes in technology and habits.
But there's one thing that was popular in the '80s that has had a recent resurgence: layaway.
For the first time in more than a decade, layaway signs graced the windows of many retailers this holiday shopping season. I noticed them on an Olympia Sports store in New Hampshire while I was visiting my family over the holidays, and many other large retailers, like Kmart, Sears and T.J. Maxx have gotten into the layaway game as well.
With the rise of credit cards and credit limits, layaway went the way of cassette tapes and floppy disks. But now, with many people on tighter budgets and with lower credit limits, the practice has had something of a resurgence.
Layaway brought in 600,000 new customers to Kmart in 2008, said spokesperson Shannelle Armstrong. And the company expects that the 2009 holiday shopping season will have brought even more as consumers exercise caution while the economy recovers.
But this time, layaway is not limited to bricks-and-mortar stores, as many retailers have introduced online layaway, which was a popular option among many holiday shoppers who have been squeezed by the credit crunch.
K-Mart reports the word "layaway" had more than double the interest among U.S. Web searchers in August of this year that it had in the same month one year earlier.
I take this change in shopping habits as a positive sign that people have learned some valuable lessons from the recession. Instead of rushing out to buy everything on credit the minute it arrives on the scene, consumers are weighing their desire for new stuff and purchasing what they want slowly.
It makes sense that after years of living on credit and not saving a dime, many American consumers would stop, take stock of things and realize that such a lifestyle can't be sustained indefinitely.
Delaying gratification is not something Americans are known for, but it may be in the future as more shoppers choose layaway or other similar payment methods when purchasing big-ticket items.
As painful as the recession was for many, I hope the lessons learned do not fade too quickly from our memories. In fact, that's one of my resolutions for 2010, to reflect more on what has happened and not make the same mistakes twice.
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In the spirit of New Year's resolutions, I'm going to share some of Cabot's top tips, tricks and tools that you can use in 2010 to become a better investor. These aren't resolutions exactly, but more like rules and tools to keep in mind when investing.
1. Cut losses short (definitely rule #1 for growth stock investing).
2. Search for strong sales and earnings growth (especially triple-digit sales growth).
3. Search for revolutionary products with major benefits. First Solar and Crocs filled the bill in 2007 and were our two biggest winners. This year we've benefited from Green Mountain Coffee Roasters' revolutionary Keurig single-cup brewer.
4. Heed the message of the overall market--never fight the main trend!
5. Never average down in growth stocks.
6. Be prepared for all contingencies (always have an exit plan ahead of time).
7. Never try to buy at the bottom or sell at the top (if you try, you'll just lose more money).
8. To avoid gut-wrenching volatility, stick with stocks that are liquid (at least 500,000 shares traded per day or more).
9. Only put more money to work after your past purchases are showing you a profit.
10. Be humble--making money in stocks is tough, so don't kill yourself over one or two bad trades. Be thankful when you hit a big winner.
11. Find an investing system that works for you. The best way to deal with stress from the market is to have a game plan ahead of time. If you wait until things are blowing up in your face, it's too late--by then, your emotions are out of control and you're likely to do the exact opposite of what's constructive.
12. "Markets are never wrong; opinions are," is a quote from Jesse L. Livermore, one of the most colorful, flamboyant, and respected market speculators of all time. At Cabot, we agree wholeheartedly with his comment and truly embrace this thinking. And you should, too, if you want to become a successful growth investor.
13. When looking for potential purchase candidates, examine both the company's fundamentals and its stock's technical performance. When analyzing the technicals, focus on the stock's momentum and price chart, along with its volume pattern and 50-day moving average.
14. Find a company that has a big idea ... one that leaves few if any limits on its future growth potential. It's these big ideas that create an atmosphere that can push a growth stock to dizzying heights!
15. Warren Buffett once said there were only two rules to follow with your investments: Rule #1: Don't lose money. Rule #2: Don't forget rule #1.
16. Our goal is to get you heavily invested while the market is trending higher. During those times, when investor perceptions are improving, investors are willing to pay more and more for stocks. This is when you can make big money! But, of course, no market moves in one direction forever. So, when the intermediate-term trend of stocks is down, your best move is to play defense. Easing up on new purchases, while building up cash by selling your weakest stocks, is a good idea.
17. Be an optimist. In our more than three decades of publishing investment advisories, we've seen many ups and downs for both the market and our country. But after every tough event our dynamic country and economy have eventually rebounded. So no matter how bleak the situation, always stay optimistic because our country and stock market will give you some dazzling opportunities!
18. Diversify your portfolio. For our Model Portfolio in Cabot Market Letter, 12 stocks provide plenty of diversification for your growth portfolio. Smaller investors can do well with as few as five stocks, but you should never have all your eggs in one basket.
19. Once you've invested in a stock, be patient. Recognize that time is your friend. Frequently stocks don't go up as fast as you might want them to. But if you can develop a persistent and tolerant attitude coupled with plenty of patience, you'll have a great advantage. We call this STAYING POWER! This was a particularly valuable lesson this year ... one which editor Mike Cintolo wrote about in this week's Cabot Market Letter.
20. Buy growth stocks with strong RP lines. Relative performance (RP) studies are a superb way to identify successful companies and to avoid problem companies. You should buy stocks that are consistently outperforming the market. This is a good indication that they are under accumulation, week after week, month after month, and that the companies are succeeding. The best investing tips come from the performance of the stocks themselves. So ignore hot tips!
Send me your tried and true investing rules and tools by replying to this email, on our blog at http://www.iconoclast-investor.com or by following me on Twitter and then sending me a message at http://twitter.com/IconoInvestor.
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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 12/28/09 - The Most Important Rule for Growth Stock Investors
On Monday, Timothy Lutts wrote about why the most important rule for growth investors is to keep your losses small. Tim also wrote about the second most important rule for growth stock investors: to respect strong charts. Tim finished by discussing a stock that broke out to new highs yesterday. Featured stock: Apple (AAPL).
Cabot Wealth Advisory 12/31/09 - Reading, 'Riting and 'Rithmatic
On Thursday, J. Royden Ward wrote about many of the declining schools in the U.S. and how we can help make the education system better for everyone. Roy also discussed why Bill Gates admires Warren Buffett. Roy finished by discussing two stocks in the education sector. Featured stocks: Apollo Group (APOL) and ITT Educational (ESI).
Until next time,
Editor of Cabot Wealth Advisory
Editor's Note: Cabot Green Investor is our newsletter that focuses on alternative energy, energy efficiency and Green lifestyle stocks. Cabot Green Investor subscribers have enjoyed double-digit gains on many companies ranging from Green Mountain Coffee Roasters to Telvent and Editor Brendan Coffey expects great things for 2010. He's just released a brand new Special Report chock full of stocks that can help you profit from the car of the future. Click below to get this hot-off-the-presses report!