Stock Market Video
The Wisdom of Not Asking “Why?”
Character is Destiny
In Case You Missed It
In this week's Stock Market Video, I look at the varying fortunes of different parts of the market. U.S. stocks are in a confirmed downtrend, but emerging market stocks are hanging in a trading range. It’s a good time for caution, and the defensive action you take now will save your principal, allowing you to make more money when the inevitable recovery arrives. Stocks discussed include: Affiliated Managers (AMG), America Online (AOL), Cabot Oil & Gas (COG), Mellanox (MLNX) and Baidu (BIDU). Click below to watch the video!
The Wisdom of Not Asking “Why?”
One of the great joys of being a human being (a species with a brain that’s much bigger than it absolutely has to be) is that we are constantly trying to figure out the “why” of things. We can spend hours, days and months digging into the causes of wins and losses in sports and politics, how disasters happened and how we responded, even the whys and wherefores of celebrity behavior.
But, as editor Mike Cintolo reminds us in this Thursday’s Cabot Wealth Advisory, asking “why?” in growth investing can sometimes be hazardous to your economic health. That’s because we sometimes substitute analysis for action, trying for a deeper understanding of a big move from the market or an individual stock rather than just taking action and moving on.
When a particular stock falls off the end of the dock, the most common question Cabot’s analysts get is about why the drop happened. Sometimes we can say (in recent weeks, it’s usually it’s a disappointing earnings report), and sometimes we can’t.
But the questions we get from our savvier subscribers have to do with the nuts-and-bolts questions of what to do now. Should the stock be sold? Is the dip a buying opportunity? Are the market timing indicators positive or negative?
In the same way that a sea captain in the age of sail wouldn’t spend a lot of time pondering the vagaries of meteorology in the middle of a storm, veteran growth investors know that the important information is limited to what you can act on. Which way is the wind blowing? Where are the reefs and the coastline? What shape is the ship in? The other questions can wait until you’re sitting by the fire in your living room.
So don’t let yourself be trapped by the “why” behind the movement of stocks. And right now, with the market in a very touchy state, don’t worry too much about who’s doing the selling or even when it might end. The more you stick to the basics—buy, sell or hold—the better off you’re likely to be when markets find their footing and start advancing again.
And that’s when asking “why?” makes sense.
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Here’s this week's Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
Character is Destiny
Tim’s Comment: Attributed to the Greek philosopher Heraclitus. Maybe your mother taught you this … or maybe your priest, minister, rabbi, etc. Character refers to those moral qualities, ethical standards and principles that “ideally” guide our decisions. Most of us have room for improvement.
Paul’s Comment: I’ve also heard social scientists say that “Demography is destiny.” That’s very natural for people who want to understand collective behavior. But Heraclitus hits the nail on the head for the actions of individuals. In the long run, it’s our human differences, our “character,” that makes legends of some people and cautionary tales of others.
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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.
I used this issue to talk about the intense research that leads to buying a growth stock and how you should let that research go once you have made the buy (obsess before the trade, not after!). Stock discussed: HDFC Bank (HDB).
In this issue, I wrote about going through the household of departed loved ones, what to do with the stuff left behind, and how life goes on after a death … or an election. Stocks discussed: Mindray Medical (MR) and Nam Tai Electronics (NTE).
Mike Cintolo, editor of Cabot Market Letter, looks at the disconnect between companies and their stocks and the role that investor perception plays. Stock discussed: Oasis Petroleum (OAS).
Have a great weekend,
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report
P.S. An ETF is an investment fund traded on public stock exchanges, much like stocks. But unlike individual stocks, which sometimes deliver nasty "surprises," ETFs hold dozens and even hundreds of stocks, commodities or bonds, so you get the safety of diversification. In that way, they're much like mutual funds.
Because ETFs are "unmanaged," however--you might say they run on autopilot--ETFs entail far lower annual fees than comparable index-based mutual funds, and far lower fees than actively managed mutual funds. And instead of pricing once a day after the market closes, like mutual funds, ETFs are traded throughout the day as if they are regular stocks, so you can buy any time you want and when you buy, you get exactly the price quoted when you buy.
For all these reasons, ETFs are hot right now.
In fact, The Wall Street Journal estimates the total value of all ETFs exceeds $ 600 billion! That's a lot of money for something created less than 20 years ago. Sadly, a lot of that money is stuck in broad market index funds ... because most investors don't know any better. They're content to be average.
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The secret is in what I call the perfect investment vehicle ... sector ETFs that allow you to invest precisely in the economic sectors most likely to bring the biggest gains.