Stock Market Video
When It Pays To Pay Attention
This Week's Fortune Cookie
In Case You Missed It
In this week’s Stock Market Video, Cabot Market Letter editor Mike Cintolo returns to the helm for this week's video, discussing the current condition of the market. He sees a couple of short-term yellow flags, but is generally bullish and looking for buying opportunities. He details how he's splitting up his watch list, giving examples of solidly rising stocks that are tightening up, as well as a few stocks that are still etching launching pads ahead of earnings.
When It Pays To Pay Attention
Everything in a modern, media-rich environment wants your attention. Television programs live and die by how many of us can be persuaded to watch. Websites can make big money by holding your attention for as long as possible. Advertisers rack their brains for ways to get a message to slice through the clutter and into your brain.
This is fine, of course. Advertisements on the back of our grocery receipts, popup ads momentarily obscuring the content we’re looking at on the Web, billboards, TV commercials, spam emails and junk snail mail are all relatively easy to deal with. We just ignore them. In effect, we must train ourselves to ignore them so we can go through our days and evenings without feeling like we’re being constantly tapped on the shoulder.
The problem is, we get to be so good at ignoring things that sometimes it’s hard to pay attention to anything.
[This isn’t an old-coot rant about how things used to be different in my day. The battle for attention has been fought energetically for as long as I’ve been alive. And if efforts to grab attention seem even more frantic today than they were back in the 20th century, it’s worth remembering that even then, people then still felt violated, annoyed and offended by them. Trust me.]
My real point is that there are sometimes things that genuinely need our attention, and these things can get lost in the noise. So if you want to keep up with something, you’re probably going to have to make a conscious effort to give it the attention they deserve.
Question: How often do you check on the stocks in your portfolio? And how often should you do it?
Like everything in the financial world, the answer depends largely on what kind of investing you’re doing.
If you’re a value investor, your investment horizon is often a matter of years. The undervalued stocks (with strong fundamentals and bright prospects) that you buy are expected to take some time to attain their full valuation. So if you check in on prices every couple of weeks, you’re fine. You can go on vacation and not worry about your portfolio.
If you’re an income investor, your holding period may be even longer. Your primary concern is with the dividends your stocks or funds pay, and most companies declare dividends a maximum or four times per year, though many bond funds pay monthly. So if you watch your mail (or your email, or your bank statement or your broker’s report) and confirm that the dividends are still flowing, you’re probably fine.
Things start to get trickier for growth investors, the buy-low-sell-high people who are looking for relatively rapid price appreciation in their stocks. (This group includes me, of course, and subscribers to my Cabot China & Emerging Markets Report, as well as Cabot Market Letter and Cabot Top Ten Trader.) Growth investors accept increased volatility in stock prices as part of the trade-off that comes with seeking higher returns.
And increased volatility means having to pay more attention. But how much attention depends on how aggressive you are in your purchasing style. Day traders have to pay attention all the time. Period. Most day traders zero their accounts by the end of the day. Some won’t even go for a coffee break without selling everything. This is not a lifestyle I envy.
If you’re like me, holding a small portfolio of growth stocks (no more than 10 at a time) with fairly high volatility, I’d say there are three times you really need to be paying attention.
1.Earnings season. Earnings season brings the possibility of big price swings for all stocks, but growth stocks are especially vulnerable. So you need to know when your companies are going to release their quarterly/annual results and watch the reaction to the news very carefully. Some companies announce the date for their earnings reports far in advance and some seem to delight in just springing them. It’s always a good strategy to look at the date for the most-recent report and then pencil in a date three months later. And, of course, you need to have a plan for what you will do if the reaction is bad.
2.If you’re going off the grid for a while. Taking a solo sailboat trip around the world that will have you out of contact with civilization for a year isn’t recommended for growth investors. But you can get the same effect by just not checking. It’s good to check in at least once a week on how your stocks are doing. And if you’re going on vacation for a couple of weeks (especially during the July/August earnings season), you should leave specific instructions with your broker (online or otherwise) about how to handle big movements.
3.Just before you buy or sell anything. Your moment of maximum exposure comes immediately after you buy a stock, when there is no profit cushion to protect your position. So you should take careful note of market conditions before you put your money to work. Are markets in a supportive trend? Are there any big data releases due soon? Is a Fed meeting coming up? In general, you should be aware of these external forces, just as a sailing ship’s captain is aware of the tides and the winds before weighing the anchor and setting out to sea.
It may not come as a surprise to you that many Cabot investment advisories offer very specific, very timely advice on specific portfolio holdings. Cabot Market Letter and Cabot China & Emerging Markets Report will send hotline messages if one of their holdings needs to be sold. Cabot Benjamin Graham Value Report will do the same for value stocks.
This can be a valuable service, but you’ll still have to pay attention.
Tim’s Comment: Personally, I don't like using the words right and wrong in discussing investments. If you're following a successful system, you're doing the right thing, even though it sometimes results in losses. Most pros lose money about 40% of the time. But by minimizing your losses, while maximizing your profits, great success can be achieved.
Paul’s Comment: I, on the other hand, use “right” and “wrong” all the time when talking about stocks. Yes, the bottom line is the only thing that’s important in the long run. But I know that part of the reason I enjoy growth investing is the genuine satisfaction I get from having one of my holdings—most recently Baidu (BIDU)—make a big gain. I’m not as good at taking the personal element out of investing as Tim is. I live a rich emotional life with my portfolio.
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 (and ace Scrabble player) delivers the second of his Best Revolutionary Stocks in this issue. Stock discussed: LinkedIn (LNKD).
Chloe Lutts Jensen, editor of Dick Davis Investment Digest, writes about services that match people who have accommodations and tools to lend/rent with those who need them, which is a growing trend. Stock discussed: HomeAway (AWAY).
In this issue, I talk about why so many people are behind in their retirement funding, and how growth investing can help to get things back on track. Stock discussed: LightInTheBox (LITB).
Have a great weekend,
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory