Stock Market Video
Chinese Stocks Are Ready To Move
In Case You Missed It
In this week’s Stock Market Video I talk about the flatness of the markets, with the Dow and S&P 500 holding up pretty well, but the Nasdaq feeling the pressure of some big earnings misses. While markets are still in a technical uptrend, it’s a good time to be tightening your stops and looking for good setups before buying very selectively.
I also talk about the three top segments of the market: Finance/mortgage service, gold and silver mining and residential building. Stocks discussed: Ocwen Financial (OCN), Nationstar Mortgage (NSM), Yamana Gold (AUY), Silver Wheaton (SLW), Lennar (LEN) and Pulte (PHM). Click below to watch the video!
Chinese Stocks Are Ready To Move
I’m going to come out right up front and tell you that I think it’s time to consider putting a little of your money back into China and the emerging markets. You’ll find out why later, but I want to be open about this. So here goes.
Portfolio allocation decisions, even about something as basic as the balance between equities and bonds, are hellaciously difficult to make. That’s because—if you’re going to do it right, the way a financial advisor would—everything, and I do mean everything, has to be factored into your decisions about what you’re going to do with your money. The three big, obvious factors are:
1) How much you actually have on the incoming side of your ledger, which might include cash, salary, stocks, bonds, annuities, mutual funds, life insurance, real estate, personal property, coins, stamps, gold bullion … everything down to subway tokens
2) Everything on the negative side, including mortgages, car payments, loans, obligations to family, food, clothing, monthly bills, travel, medical bills, and anything else that you might need to write a check for or put on your plastic
3) When you plan (or would like) to retire and how much income you’ll need in retirement.
My wife and I generally handle our own finances (although not our own taxes, for Pete’s sake!). The one time I talked to a financial advisor I felt as though I’d been examined by a team that included everyone from a priest to a proctologist. And frankly, I didn’t have answers to many of the most important questions he asked.
I think I make my financial decisions the way most people do, which is to keep up with my bills, save up for bigger outlays (like a replacement for my Ford pickup, which has 172,000 miles on it) and invest what’s left over … if anything.
With all that said, I think that an investor who is willing to spend the time to monitor performance and stick to a disciplined loss-limit program can be much more aggressive than is usually advocated by investment professionals. The key is the ability to move into and out of individual stocks and asset classes (emerging markets among them) quickly as conditions improve or deteriorate.
I don't know what a financial professional would regard as a reasonable allocation to emerging markets stocks. Personally I think every portfolio should have at least 10% exposure to emerging markets. But whether this should be via ETFs, mutual funds or individual stocks is the kind of question that causes raised voices when investment advisors go to bars.
I’ve read lots of the literature about how individual investors go wrong when they buy and sell individual stocks. The pattern is incredibly consistent. Here’s how it goes.
1) Stocks (either individual stocks or the entire market) correct and hit bottom, and institutional investors, who are largely value investors, buy them because they’re cheap.
2) Stocks rise as more investors begin to appreciate both their value and the new appreciation reflected in their prices.
3) Stocks rally strongly and institutional investors begin to sell into the rally. This is the stage when individual investors smell blood in the water and start piling in.
4) Stocks go ballistic as more and more individuals (probably the same ones who sold just before the institutions did their buying) jump on the bandwagon.
5) Stocks top out and seasoned growth investors begin taking profits as the price begins to decline.
6) The investors who bought during step 4, unwilling to book a loss, ride the stock all the way to the bottom.
7) Back to step 1, as soon as the last of the herd-followers finally gives up and sells in disgust, swearing that they will never buy another stock.
That’s what the research has to say about why individual stock investors lose their shirts over and over again and year after year.
Here’s what I would like to say to these people: “Hey, stupid! Did you really think that you could just jump into this poker game with highly paid, experienced players who have enormous resources and just walk off with the pot? Have you done any research on this at all? Or did you just take it as gospel when your brother-in-law told you that it’s different this time and that you couldn’t miss with this stock?”
Fortunately, I’m a much more sympathetic and understanding person than that. Usually.
Right now, I think there are some very convincing signs that Chinese stocks, which have been about as popular as stinky cheese for a number of years, are about to turn around in a massive way.
You should have been feeling this too, because when just about everyone agrees that an asset class (like emerging market stocks) is total dog meat, and that only an idiot would put money there, that’s when savvy investors begin sidling in. As Baron Rothschild said in the 18th century, “the time to buy is when there is blood in the streets.” And the streets leading to China have been fairly sticky with red stuff lately.
I’ve been the editor of Cabot China & Emerging Markets Report for seven years, which means I’ve been both the editor of the hottest investing newsletter in the whole United States and the captain of the Titanic.
All I’ll say right now is that you should keep an eye on China. Maybe you can’t buy at the bottom like the institutions do. But you can certainly avoid being one of the brainless enthusiasts who jump on just as the train is running out of fuel.
For more on the Cabot China & Emerging Markets Report, click here.
Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
With Ease Investors Believe What Pleases
Tim’s comment: Successful investing is not easy. In fact, taking the easy route, the pleasant route, will, at best, provide only brief profits before it delivers painful losses. Far more profitable over the long run is the practice of taking the difficult route, the route that is contrary, the route where you’ll find little encouragement and even less company. And it will always be so.
Paul’s comment: It’s always easy for pessimists to believe the worst and for optimists to see nothing but clear skies ahead. It’s also easy to find people who will tell you exactly what you want to hear. But as I told my public speaking students, one person who will tell you about the spinach between your teeth is worth ten who will tell you that you look great. No matter what pleases you, the stock market is a reality that will push back.
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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 Stock of the Month editor Tim Lutts uses this issue to explain why we publish newsletters at all, then tells the story of investing legend Benjamin Graham, the father of value investing. Finally Tim looks at Roy Ward, whose Benjamin Graham Value Letter brings Graham’s insights to subscribers.
In this issue, I gave some basic background on quarterly reports and how to handle both beats and misses. I also observe that clichés have a place in both sports and investing, with Larry Bird a master of the art. Stock discussed: Qihoo 360 Technology (QIHU).
Editor Chloe Lutts of Dick Davis Dividend Digest looks at key evidence that can help you pick the best of dividend-paying stocks, including dividend history, free cash flow and payout ratio.
Have a great weekend,
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report
P.S. Since we began publishing Cabot Market Letter 42 years ago, we’ve never seen a larger convergence of fundamental and technical indicators flashing so many buy signals at one time. It is the same profit profile that led us to 1,290% gains in Amazon, 1,075% profits in American Power Conversion, and 746% returns in Apple over the past few years.
What makes this opportunity so incredibly rare is the fact that we aren’t seeing a combination of confirming data in just one or two stocks but in nearly a dozen of them. All at the same time!
The result could turn $5,000 into $7,500 by the end of the year and into as much as $15,000 by next year in as many as 10 stocks. But you’ll need to act quickly, as the window of opportunity to profit is closing fast.