Stock Market Video
Keeping Your Head Above Water?
None of us is as smart as all of us.
In Case You Missed It
In this week’s Stock Market Video, Mike Cintolo talks about the market's bullish snapback this week, though he also makes it clear that not all of the market's troubles are behind it. He's currently leaning bullish, and looking for uptrending stocks that have tightened up, or new leaders that are emerging on earnings. Stocks mentioned include ServiceNow (NOW), BE Aerospace (BEAV), Netflix (NFLX), Pulte Homes (PHM) and Zillow (Z). Click belwo to watch the video!
I’m looking for a little input from you on our weekly video. Are there topics you’d like Mike or me to discuss? Maybe you have a stock (or a sector or an industry or whatever) that you’d like our opinion on? Or maybe a question about investment strategy or chart reading? Mike and I won’t use your name, of course, but I’d like to know what you think and what you’d like hear about what we’re thinking. You can leave a comment by emailing us at TimothyLutts@cabotwealth.com.
Keeping Your Head Above Water?
Back in my university professor days, I used to speak to community and professional groups on communication topics. Among the courses I taught was Business and Professional Communication, and when I talked to business groups, these talks often got around to putting communication into action. One image I used to explore the plight of a small business trying to decide on a communication strategy is The Four Things You Can Do In the Water. It goes like this.
“If you’re in the water, there are four things you can do.
“The first is drown. Let’s keep that in mind, because if you do nothing when you’re in the water, you really can sink, die and disappear.
“The second thing you can do is float. You have the advantage of not drowning, but unless you trust the tide to put you on the shore or you think someone is going to come along and rescue you, that’s about it.
“If drowning and floating don’t suit you, the third thing you can do is swim! All of a sudden you have a direction, momentum and some control over your destiny. Good for you!
“But there’s a fourth option, one that not many people think about. You can surf. Surfing requires finding a wave, paddling hard to get it pick you up and riding its face for as long as it will carry you. If you can find a wave that’s heading in your direction and ride it successfully, you can outdistance even the strongest swimmer while expending just a fraction of the effort.”
At the time, my point had to do with communicating with customers, with investors and with your employees. But I’ve realized that it can also have a lot to do with investing. (You knew there had to be a connection, right?) It wasn’t what I had in mind when I first wrote the image up, but here it is.
In the financial world, the person who drowns is the person who pays no attention to money. No budget, no plan, no savings, no investments. Nothing. This is the neighborhood of huge debts and bankruptcy, which is about as close to drowning as you can get where personal finance is concerned.
The person who floats is the person who saves, which is a good thing. The more you save, the bigger your financial cushion is. But, while money in the cookie jar or under the mattress is better than nothing, that’s the best you can say about it. Completely safe investments—an insured savings account or a Treasury bond—used to allow your money to grow fast enough to keep up with inflation. Not any more, of course, but floating certainly beats drowning.
The person who swims is the one who invests. Investing in anything—from a stock index fund to a highly leveraged derivative—always involves risk, and the relationship between risk and reward always follows the same formula. Low-risk investments bring low potential returns. The more risk you are willing to take on, the higher the potential reward. Still, swimming gets you moving toward some goal.
The surfer is the investor who figures out which direction the market is going and gets in step with it. This takes skill and nerve, and there is always the chance of wiping out. But if you ask an investor who has ridden a bull market what it’s like, the answer will be ecstatic. It’s not just the money—although that’s a huge part of it. It’s the sense of being locked in to a bigger movement, leveraging the movement of the market, letting it do the work while you make huge gains. Skiers and snowboarders can get the same feeling.
If you’re just floating along and you’re ready to get moving, Cabot can help. We’ll help you find the waves and teach you how to ride them. And, even more usefully, we’ll even tell you when to heed warnings about market conditions and head for shore.
Cabot’s growth advisory letters—Cabot Market Letter, Cabot Top Ten Trader and Cabot China & Emerging Markets Report—use market timing to identify positive market conditions, essentially telling you when the investment surf is up. Their advice is especially important when market conditions are negative. Knowing when to get out of the water is how surfers—and investors—stay safe.
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Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.
None of Us Is As Smart As All of Us
Tim’s Comment: This Japanese proverb is particularly appropriate for investors using growth- and momentum-based strategies. To succeed, they must first understand that the market’s actions reflect the conclusions of every investor, and that the market is never wrong. Individually, in contrast, we are each wrong frequently. Thus the sooner we recognize our errors, and recognize the infallibility of the market, the better!
Paul’s Comment: This button fits right in with the notion from my commentary above that riding the wave of investor enthusiasm, as it’s happening, is easier than trying to figure out when it might happen. Cabot’s growth investing strategy follows the market; it doesn’t anticipate it. We’re not that smart.
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.
Tim Lutts, editor of Cabot Stock of the Month, gives his deceptively simple advice on how to find big stock winners, including Look at the Big Picture and Use Your Imagination. Stock discussed: Onyx Pharmaceuticals (ONXX).
Cabot Benjamin Graham Value Investor’s editor Roy Ward writes in this issue about how he evaluates whether the market is under- or overvalued, which will indicate whether it’s likely to rise or fall. Stocks discussed: Actavis (ACT) and United Therapeutics (UTHR).
Mike Cintolo, the sage behind Cabot Market Letter and Cabot Top Ten Trader, shares his thoughts on the myth of “average” market gains and how to reap the benefits of a few stocks that perform way beyond expectations. Stock discussed: iShares Dow Jones Home Construction Fund (ITB).
Have a great weekend,
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report