Stock Market Video
Why Invest in Stocks?
Push Yourself Beyond Conflict and Complacency
In Case You Missed It
In this week's Stock Market Video I speak admiringly of the market’s recent progress and the strength it’s giving to many growth stocks. Corrections look like buying opportunities at this point. But be careful not to chase issues that have pulled away from their moving averages. Stocks discussed: Vipshop Holdings (VIPS), Nationstar Mortgage (NSM), Eastman Chemical (EMN), General Motors (GM) and Boeing (BA). Click below to watch the video!
Why Invest in Stocks?
If I asked any of my coworkers at Cabot to explain why someone should invest in stocks, I would expect many of them to look at me sideways. When you make your living by giving people advice about how to buy equities and which ones to buy, buying equities comes to seem like an eminently reasonable thing to do. I’d have more luck asking anyone who doesn’t buy stocks.
I got to thinking about this question because I’ve been seeing a little surge in the number of online articles about a widespread aversion to investing in individual stocks. Many non-investors are people who were investing in the late 1990s and got their tail caught in the door … twice … and are now cruising into retirement with a much smaller purse than they anticipated. If you’ve been bruised by the bursting of two investment bubbles, low- or no-risk investments can look very good.
A quick glance at this chart of the S&P 500 Index from 1950 until today tells much of the story. Look especially at the rapid increase in the Index’s rate of advancement from about 1995 on. For the five years from then until the market’s collapse in early 2000, an increasing percentage of Americans were participating in the market, and many of them were enormously aggressive, borrowing to invest, chasing the hottest of high fliers and leveraging their positions to the max.
But from 2000 on, the markets delivered a lesson on the perils of volatility, showing that a high rate of change can cut both ways. And that, in short, is why many people roll their eyes and snort derisively when stock investing comes up.
So what do I tell people who ask why they should buy individual stocks? I have boiled it down to two reasons.
First, you can make money by buying stocks. Specifically, you can enjoy big gains when markets are in an uptrend and you can protect yourself when markets turn down. That’s the big common-sense secret behind the Cabot growth disciplines. When the sun’s out, you hike. When it rains, you sit in your tent. Cabot Market Letter has been doing this for decades.
Yes, there are still risks, and you have to follow the rules—which isn’t as easy as it sounds. If following rules were easy, I’d be 20 pounds lighter. But it can be done.
The close corollary to this reason is that all of the safe alternatives to equity investing—savings accounts, Treasuries and gold coins, for instance—are offering returns so low that they’re insulting. Having a savings account (and losing the race with inflation) is like floating in the water with a few piranha; you won’t lose a leg, but the nibbling will be constant.
My second reason to invest in equities may not be to everyone’s taste, but it’s very important to me. I think people should invest in stocks because it’s a fun thing to do.
People always have the same comeback when I try to sell them on the fun of stock investing. They say there’s nothing fun about losing money. And yet Las Vegas stays in business year after year.
The fact is that for many older people, taking charge of a portion of their own investment portfolio is the thing that gives meaning to their retirement. Travel, yes. Grandchildren, yes. Golf, yes. But getting up in the morning and checking the markets and their stocks is way more engaging and challenging than watching reruns of Murder She Wrote.
Armed with Cabot’s rule of growth investing, which take the bite out of market corrections, our subscribers get a satisfying taste of the joy of being active and in charge. And there are few things in life to match the sensation of surfing the surge of a bull market.
If you think you might be up for this kind of fun, a trial subscription to Cabot Market Letter can give you a crash course, getting you up to speed while the bulls are still getting the herd moving.
Here's this week's Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
Push Yourself Beyond Conflict and Complacency
Tim’s Comment: For a long time, I didn’t understand this button. I knew that complacency was to be avoided; only sloths sit happily and do nothing. But what about conflict? I finally realized that truth, wisdom and investment success were found, not in union with others’ opinions or in opposition to others’ opinions but in independence—even isolation—from them.
Paul’s Comment: This looks to me like a call for a stance of reasonable skepticism, avoiding argument and contention on the one hand and smug know-it-all-ness on the other hand. You can really get things done if you are confident enough to take action, tolerant enough to accept differences and humble enough to keep learning.
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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.
This issue has the second part of my interview with Thomas Garrity, the research genius behind Cabot Small-Cap Confidential. Tom gives his outlook on the economy and talks about what he looks for in a small-cap stock.
I used this issue to report on the stocks that made the biggest gains in 2012 and offered to send a complete list of the winners that jumped over 200% to anyone who emailed me. The offer is still open. Stock discussed: Vipshop Holdings (VIPS).
Editor Chloe Lutts of Dick Davis Investment Digest writes about the market’s strong start to the year and gives three recommendations from the Digest. Stocks discussed: Lithia Motors (LAD), Schweitzer-Maudit International (SWM) and Stewart Information Services (STC).
Have a great weekend,
Editor of Cabot China & Emerging Markets Report
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