How to Become a Growth Investor
The "Facebook of China"
I heard a statistic the other day that snapped my head back.
The speaker said that in the U.S., 8,000 Baby Boomers are turning 65 every day.
That's a lot of gray.
(It's also one reason there's likely to be so much resistance to any efforts to cut Medicare and Social Security benefits, but I digress.)
I also know from talking to people on our Client Service side that the average new subscriber to a Cabot investment newsletter tends to be between 55 and 60 years old.
That's a critical age range, in which significant changes abound.
By that age, people are more likely to have sufficient disposable income for investing. Typically, family expenses have tapered off, children have been out of college for a while, and even the boomerang kids are relieving pressure on the household budget by remaining off on their own.
At this stage, many Empty Nesters are either close to paying off their mortgage or are thinking about selling their oversized family homes, with their eye on a smaller and less expensive place (a domicile downsizing that's sardonically referred to as "boomerang proofing").
What's more, most people reach peak earning power in their fifties, finally giving them the free cash flow they've never had.
Perhaps most importantly, people in their fifties can hear footsteps. At age 55, Medicare is just ten years away, and the first full Social Security retirement date is only a year after that. And statistics tell us that at the end of the terrible market year of 2008, an average 401(k) participant had a balance of less than $46,000 in his or her account. (By the way, that was down about $20,000 from the end of 2007.)
There's nothing like a little calendar-based reality check to send people searching for ways to put some meat on the bones of their retirement accounts.
It does absolutely no good to tell someone in their late 50s that they should have started their augmented investment program sooner. In fact, it's almost an insult.
These investors have lived through two major market collapses, the result of the bursting of both the Tech Bubble and the Real Estate Bubble.
Needless to say, this makes them more than a little skeptical about investing in the stock market as a way to play catch-up in their retirement accounts. After being burned twice, the risk appears just too great.
The problem is that the other solutions to the retirement shortfall problem are also problematic. Making a huge increase in contributions to institutional accounts just reiterates the market risk that produced the losses from Bubble I and Bubble II.
Investing in undervalued real estate, ditto.
T-bill, bonds and notes, or even (heaven forbid) munis? DOA.
Las Vegas? I won't even dignify my own suggestion with a response.
You've probably already seen where I'm going with this, right?
I think there is only one way for an average person with an average amount of investable capital to make a run at big returns with controlled risk, and that's by taking on the job of investing personally.
That's right. You'll have to step back from the advice your company's plan sponsor and your full-service broker have been giving you for years. They've been telling you that "It's time, not timing," and that you can't beat the market and that your only salvation is in diversification, continuing investment and professional management.
And if you're not willing to take on the work of managing your own portfolio, they may be right.
But what about those people who are ready to step into the ring and go toe-to-toe with the market? The people who understand that the search for higher returns involves increased risk, and who enjoy the challenge of pursuing what professional advisors tell them isn't possible?
Those people need to become growth investors.
And the best way for a growth investing newbie to get from zero to 60 in the shortest possible time is to subscribe to the Cabot Market Letter, which has been getting stock investors up to speed for more than 40 years.
I know what you're thinking. If I'm the editor of the Cabot China & Emerging Markets Report, what am I doing sending people to the Cabot Market Letter?
The answer is that the Cabot Market Letter will teach you more about the Cabot approach to growth investing in a shorter time than my letter will. The Cabot Market Letter's portfolio is a little larger, which reduces risk slightly. But like my letter, it will fully advise subscribers of all buys and sells, and all significant shifts in market momentum, which is the crucial step in avoiding the kind of portfolio meltdown that results when Bubbles burst.
I would love to be able to get younger investors interested in Cabot Market Letter and Cabot China & Emerging Market Report.
But the demands of family, college and mortgage, combined with the temptations of vacations, cars, boats and the other wonders of the modern world make that much less likely.
We are all (myself included) playing catch-up with our retirement goals. I'm fortunate that I fell in with Cabot six years ago and began using the Cabot growth principles in my own portfolio.
I hope you will do the same.
If this sounds like a good idea (or even if it seems scary-but-attractive), you can get a no-risk trial subscription to the Cabot Market Letter by clicking right here.
My investment idea for today is really more of a research note than a stock recommendation. While the investment world is holding its breath during the run-up to the initial public offering of Facebook, the Chinese company Renren (RENN) (tagged with the catchy "Facebook of China" label) came public yesterday.
RENN made a nice debut, officially offered at 14, soaring as high as 24 in early trading, then settling down at 19 for most of the day before ticking lower to 18 near the close. Trading action during the stock's second day pulled it back to 16.
The numbers for Renren (which means "everyone" in Chinese) are compelling. Only about 35% of China's 1.3 billion people are on the Internet, and about half of them have some connection to online social networks.
So the upside potential for Renren (and RENN) is enormous.
The popularity of the Chinese Internet as an investment theme is evident from both the success of established companies (Baidu.com and Sina.com are both institutional-grade market leaders) and from other recent IPOs, like Qihoo, Youku.com and SouFun.
The Cabot growth disciplines don't have much of a place for brand-new stocks until they settle down a bit, including the frequent post-IPO droop that has hit many hot issues.
The technical analysis part of our analytical methods don't really kick in until a stock's chart has a few months of data to work with.
But RENN will be instructive to watch, and maybe, eventually, profitable to invest in.
For Cabot Wealth Advisory
Editor's Note: Paul Goodwin is the editor of Cabot China & Emerging Markets Report, which Hulbert Financial Digest ranked as the #1 newsletter for five years in 2009 and 2010) with a total return of 174% as of December 30 vs. the Wilshire 5000's 15.4% gain over the same period. Paul uses Cabot's time-tested growth investing system to help his subscribers profit from the hottest stocks in the world. Don't miss another high-potential recommendation ... subscribe today!