Active Investment Management


Stock Market Video Pumpkin Season, and Thoughts on Active Management
They May Be Right But That’s My Opinion

Stock Market Video

Pumpkin Season, and Thoughts on Active Management

They May Be Right But That’s My Opinion

In Case You Missed It


In this week's Stock Market Video, Mike Cintolo discusses how this week's sharp pullback could have some short-term reverberations, but so far, the intermediate-term trend of the indexes and all liquid leading stocks remains up. Stocks mentioned include: Regeneron Pharmaceuticals (REGN), Lululemon (LULU), (CRM) and Agrium (AGU). Click below to watch the video!

Stock Market Video Screenshot

Pumpkin Season, and Thoughts on Active Management

September is fast disappearing, bringing us face to face with October.

October means lots of different things to different people, of course. Here in New England, it signals the start of leaf-peeping season, a period when the flatlanders who were at the beaches in August return to inch their way through our scenic highways and byways.

In addition to red and yellow leaves, pumpkins are a scenic feature, and money is expected to flow into the local economy in exchange for the obstruction of traffic.

For most retailers, October is the beginning of the edible and drinkable pumpkin season, signaling the arrival of an avalanche of baked goods, beers and candies. Myself, I like beer that tastes like beer and coffee that tastes like coffee, but I have a high tolerance for pumpkin breads, muffins and pies.


For investors, the Almanac tells us that October is the start of the period of the year that has historically had the best performance in the stock market. In other words, it’s when the “sell in May and go away” crowd decides it’s safe to go back in the water.

I’ve never really understood why any reasonable investor would pay more attention to a historical average than to what’s actually happening with market conditions, but the quest for a “set it and forget it” investing system that never requires active management has been going on for a long time.

The idea is a powerful one, I’ll admit. In one simple form, investors just set an automatic allocation to an index fund—the S&P 500 Index is a popular choice—then just keep ladling money in, month after month and year after year, through bull and bear. Then they retire and start taking money out.

I have one friend who has been doing this on an even simpler basis, putting a set amount of money into a program that accumulates it, then buying a share of Walt Disney (DIS) when his balance gets to the stock’s current price. And generally, he’s been pretty lucky in his choice of stocks.

But aside from stating the obvious, which is that just about any investment program is better than no program at all, I have a real problem with the passive, constant ladling strategy. And that is that it leaves the investor at the mercy of the market.

Yes, the long-term direction of the market is up, and if you have enough time, you’ll come out ahead.

But if two major market bubbles bursting aren’t enough to convince you that being more active is a good idea, I don’t know what will.

For people my age, the calamity of the Tech Bubble and the Housing Bubble drawdowns means that lots and lots of people are working longer than they wanted to and will retire with much less money than they expected to.

Much of this personal disaster could have been avoided if people had been willing to take some responsibility for managing their own retirement accounts, especially with regard to exiting their equity funds and going to cash when markets turn sour.

I’ll write more next week about how you can stop acting like a boat with no motor when a storm is coming. Between now and then, maybe you can be thinking about what your retirement account balance might look like if you had known when to hop off the market rather than riding it all the way to the bottom.


Here's this week's Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

They-May-Be-Right2They may be right But that’s my opinion

This may be the most difficult button to interpret. One explanation is that by starting with the common phrase "They may be right" but then undermining that already-weak statement with the qualifying, "But that's my opinion," the button simply says, "Who knows?" If you've got a better explanation, I'd love to hear it.

[Editor’s note: Leaving out the problem of the non-existent punctuation, this looks to me like either a version of “My mind is made up; don’t confuse me with facts,” or a simple assertion that “If I have to take responsibility for it, I’m going to pay attention to what I think, not what everyone else thinks.” But I’m with Tim; I’d enjoy hearing your interpretations.

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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, there are links below to each issue.

Cabot Wealth Advisory 9/24/12 — The ONE Stock to Buy Right Now?

In this issue I tried to explain why neither I, nor any other Cabot editor, can tell you what’s the absolute best stock to own; better to own a small herd and keep your sell disciplines sharp. Stocks discussed: Royal Gold (RGLD and Silver Wheaton (SLW).

Cabot Wealth Advisory 9/25/12 — Taming the Volatility Beast

In this issue, Rick Lehman of Cabot Option Trader discusses how options can be used to take the sting out of the volatility that afflicts all individual stocks.

Cabot Wealth Advisory 9/27/12 — Now’s the Time to Buy Undervalued Canadian Stocks

Roy Ward, the value expert behind Cabot Benjamin Graham Value Letter, looks at the attractive valuations of Canadian companies. Stocks discussed: Dollarama (TSX: DOL) and Valeant Pharmaceuticals (VRX).


Paul Goodwin
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report

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Paul Goodwin can be found on Google Plus.

Stock Picks


This stock could rise 50% before becoming fairly valued.

This hot technology company is growing like a weed, thanks to products that speed up cloud communications.

This stock is somewhat well known, but far from well loved.

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