The Darkest Hour Has Only Sixty Minutes
Stock Market Video
In Case You Missed It
October marks a special time for us at Cabot: The anniversary of the first issue of Cabot Market Letter, our flagship newsletter. In honor of this 41st anniversary, I've interviewed Cabot Market Letter's current steward, Michael Cintolo. I hope you enjoy it!
Question: How did you come to work at Cabot?
Answer: Interestingly enough, while I've been working for Cabot for more than 10 years now, I've actually been part of the Cabot family even longer. My Dad subscribed to Cabot Market Letter back when I was finishing high school; at the time, I was learning about mutual funds and such, as this was when the market was just beginning to heat up in the mid-1990s. And when I began reading the Market Letter, I became fascinated by the stock market.
I went to college as an engineering major, but I realized pretty quickly that it wasn't for me so I decided to focus on finance and economics, though my passion was stocks. I started a free, informal email newsletter for friends and family. And most important, I began to regularly email Timothy Lutts with questions and inquiries about this stock or that indicator. I actually visited the Cabot office one summer day, had lunch, and saw the operation.
When graduation time came, I wasn't totally sure what I was going to do. I remember having an interview with Goldman Sachs down in New York City--I think it was for an analyst position. Nothing against those guys, because I know it's good work, but I saw this fellow staring at his computer monitor, building a detailed model of Abercrombie's business and balance sheet. Meanwhile, this was the day Amazon.com was up 40 points on an upgrade--Cabot Market Letter owned it at the time--and all I could think about was, "How is that analyst's spreadsheet really going to help anyone make money?" I couldn't see myself doing that for years and years.
Just when I was trying to decide what my career path should be, Tim shot me an email and asked if I would come in for an interview. Cabot was starting a new publication (Internet Stock of the Week) and wanted to see whether I could help write it. Apparently I did well enough--I joined the team a couple of weeks later and the rest is history.
Incidentally, I think having been a subscriber, then an analyst here, and now editor of Cabot Market Letter, helps me relate well to what most subscribers feel throughout a market cycle and what they need to become better investors.
Question: How do you feel about being the current steward of Cabot Market Letter?
Answer: I have to say, to go from reading Cabot Market Letter just over a decade ago, to running it now, puts a smile on my face. It's really an honor. Obviously I'm biased, but I do believe our publications are the best out there, in terms of advice and relaying information in down-to-earth terms. So to be guiding the Market Letter is really a thrill.
As for the job itself, like any job that deals with the stock market every day, it's a huge challenge. There are countless days when you're frustrated and feel like you're out of sync with the market. But we have a great stock selection and market timing system at Cabot, so I'm always confident any dry spell will give way to sunnier days. Plus, the highs are much greater; helping subscribers make good money--and equally important, hold on to those profits--is very rewarding. I'm just trying to stay humble and keep picking some good stocks.
Question: What are some of the most important lessons Cabot's founder Carlton Lutts taught you?
Answer: I believe strongly that, while every person is unique, there are a few people you meet in your lifetime that are truly special. Carlton Lutts is one of those people.
He really taught me the value of optimism--we used to joke that his favorite phrase was "Frequently Wrong ... Never in Doubt!" But seriously, his optimism was really a confidence in the future, of our country, of our company and of the stock market. So I would say the biggest lesson he taught me was simply the value of staying positive and realizing that no matter how bad things may seem, there are brighter days ahead.
In terms of investing, Carlton had a great ability to think big. Whereas many investors, including myself from time to time, fall into the trap of putting limits on their successes (i.e., selling winning stocks for 10% or 15% gains), Carlton was always open to the possibility that a stock could double, triple, or more--after all, if you don't give a stock a chance to double, you'll never have one. That's the biggest reason he was able to uncover so many huge winners.
Question: What is your favorite investing story?
Answer: My favorite investment story was also from Carlton. This was back in the 1960s, I believe after the Cuban Missile Crisis, when he was living in France working as an engineer. He bought both Chrysler and a competitor's stock (I forget the name), and told his broker to buy a little more of each stock any time they rose a few points to a new high.
Of course, this was back in the days before online trading and email confirmations. After a couple of weeks, he got a confirmation in the mail that he bought some more Chrysler. Then he got another. And another! In all, over many months, he ended up buying Chrysler 22 different times as it worked its way up! It sounds risky, but this is really intelligently averaging up, and when it works, it works spectacularly. Chrysler was one of Carlton's all-time biggest winners.
Incidentally, I don't believe he ever bought any more of the competitor's stock because it didn't go anywhere! So Carlton was right to force-feed more money into his winner, while he soon got rid of the laggard.
Question: What improvements have occurred with Cabot Market Letter since you joined Cabot that you are most proud of?
Answer: I would say it involves our market timing system. Back in 1999 and 2000, like so many others, our market timing system had decayed; after all, for 20 years, any market pullback led relatively quickly to higher prices, so why did anyone need market timing? Thus, when the bear market hit, our indicators didn't do a good job, and most important, we didn't do a good job of listening to them.
After lots of research, we came up with Cabot Tides, which is now one of our key indicators. It simply measures the market's intermediate-term trend by monitoring five major indexes. It's simple, but we designed it that way--we wanted it to keep us on the right side of the market's major movements. That way, we'd never stay heavily invested in a sustained downturn.
The big test of that theory came in late 2007 and 2008. Happily, the Cabot Tides, along with our other indicators, flashed red starting in November 2007, and we remained mostly defensive for all of the bear market. In particular, we were in a 90% cash position in early September 2008--so we avoided the crash of the next two months. And we received a new buy signal in late March 2009, catching the new bull move. All of us here are proud of that achievement.
Question: What are your top investing rules?
Answer: Well, my top investing rules are rules that work for me--everybody has their own style, so some of the things I practice may not produce the best results for others.
With that said, cutting losses short is, by far, the #1 rule of investing in growth stocks. Doing this will always keep you in the ballgame, and if you cut them short enough, it will always make sure you never fall too deep into any hole.
Another rule I try to preach is to do some offensive selling--i.e., selling on the way up. When I was learning about the market, I thought that most people liked to sell their winners while holding their losers, a bad idea. But my experience has been a bit different--investors don't like to sell anything, because doing so means you're giving up hope of higher prices in the future. And that's psychologically hard for most investors.
Thus, I like to take a few chips off the table when I have a good profit and things look overheated. That way, I'm acting, instead of re-acting, like most do by selling after a sharp market correction. But I will hold most of my shares of a winner, giving me a chance to benefit from the occasional homerun.
Other rules I believe in: Confine your purchases to the true leading stocks of the day (not low priced, speculative junk), don't invest too much (risky) or too little (what's the point?), try to raise your stops to breakeven as soon as you have a decent profit, and, importantly, keep an eye on your portfolio's total value--you don't want to track it minute by minute, but too many investors fail to take action when things go awry.
Question: Any final words?
Answer: Well, I just want to emphasize to everyone the importance of staying positive when it comes to the stock market. That doesn't mean staying bullish--being in cash while the market is falling is great--I'm talking about keeping your eyes open for potential big winning stocks.
Too many investors get too pessimistic about the long-term for one reason or another; I'm still seeing a lot of that these days. But the fact is that this country and our market has come through all sorts of challenges in the past 100 years, and in each crisis it seemed like "this time is different." But it wasn't, and as a student of history, I can tell you that there have been big winning stocks in every market cycle going back decades.
Thus, simply put, stay positive, think big and keep your eyes open for new, exciting, revolutionary ideas. In time, some of these companies will blossom into stock market superstars.
Want more of Mike's advice? Well you're in luck, because for a limited time, we're giving you the rest of the year free when you subscribe to Cabot Market Letter. That's right, place your order by Monday, October 31, and the clock on your subscription won't start ticking until January 2012. Click here to learn more now!
Now for this week's Contrary Opinion Button. You can view all the buttons by clicking here.
The Darkest Hour Has Only Sixty Minutes
By Morris Mandel, an American Jewish educator, this button reminds us that troubles pass. As an investor, trouble for you may be a big bear market or a tiny news items that causes your stock to crater. Your job is to look beyond the trouble, remember that good times lie ahead, and take the actions to position yourself to benefit from them.
In this week's Stock Market Video, Cabot China & Emerging Markets Report Editor Paul Goodwin says it's good to have some good news after what seems like an extremely long period of counseling people to be patient. The major indexes look much better, which has given Cabot's market timing indicators a buy signal. It's time to put some money to work, but don't jump in with both feet, instead, let the market pull you in. Stocks discussed: Express (EXPR), SanDisk (SNDK), Select Comfort (SCSS) and Sally Beauty (SBH). Click below to watch the video!
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, there are links below to each issue.
Cabot Wealth Advisory 10/24/11 - The Warren Buffett Approach
On Monday, Cabot Benjamin Graham Value Letter Editor Roy Ward wrote about why he's not a big fan of politics and proposed a potential long-term solution to the nation's political infighting. Roy also discussed another battle, that between growth and value investors, and why it's high time it stopped. Roy finished by discussing Benjamin Graham and Warren Buffett's approach to investing and two stocks that fit their criteria. Featured stocks: Coach (COH) and Ross Stores (ROST).
Cabot Wealth Advisory 10/25/11 - Buy Buffett's Favorite Energy Stock ... For Less Than He Paid
On Tuesday, you heard from Nathan Slaughter, editor of StreetAuthority's Scarcity & Real Wealth. Nathan discussed Warren Buffett's favorite energy stock and how you can buy it for less than he paid. Featured stock: ConocoPhillips (COP).
Cabot Wealth Advisory 10/27/11 - The Market Teaches Bad Behavior
On Tuesday, Cabot Market Letter Editor Mike Cintolo discussed how the market is like a tutor teaching poor trading techniques and why you shouldn't alter your investing system too much based on just one time period. Mike also discussed how a stock can fall for far longer than most investors suspect and a stock with a good set-up. Featured stock: Ulta Salon (ULTA).
Until next time,
Editor of Cabot Wealth Advisory
P.S. Don't forget to take advantage of our special anniversary offer. Subscribe to Cabot Market Letter by Monday, October 31, and receive the rest of the year free! That's right, the clock on your subscription won't start ticking until January 2012. Click here to take advantage of this exclusive offer before it's too late.