Getting Contrary in the Stock Market
This Weeks Fortune Cookie
In Case You Missed It
In this week’s video, Mike Cintolo remains bullish ... but he also notes that this is the first week he’s seeing abnormal activity. Instead of wondering about Washington, he advises focusing solely on the market itself, and believes position management is key, while new buying needs to focus on “fresher” names that have recently started to move, or major leaders that have consolidated for a few weeks. Click below to learn about Mike’s view of the market and the stocks on his watch list.
Getting Contrary in the Stock Market
I’m spending the last three days of this week attending the Contrary Opinion Forum, a gathering of independent-minded investors that has been going on for more than 50 years. We have come from all over the U.S. (I’ve talked with people from Kansas and Texas, along with many East Coasters) to talk to one another, and to listen to some impressive experts give their opinions on where markets are headed, and why.
As I understand it, the speakers are given only two requirements: You have to tell a joke and you have to give a forecast.
So far, my favorite joke involves a researcher who asks three different people what 2 + 2 equals. The mathematician says, “Four.” The pollster says, “On average 4, plus or minus 10%.” The economist shuts the door and pulls the shades down, then whispers, “What do you want it to be?”
Obviously this isn’t a gathering of stand-up comedians. But economists love to poke fun at themselves.
The eight programs I’ve seen so far have been about as contrary as anyone could wish. Four speakers were fairly optimistic about the prospects for U.S. equity markets. Two were fairly pessimistic. One didn’t actually give an opinion, but did a masterful macroeconomic review of the world’s markets, including detailed assessments of the political and economic conditions in places like Indonesia, Tanzania and Turkey. And one long-time participant focused almost entirely on the vagaries of the global market for gold.
All in all, it’s a hugely useful experience to hear closely reasoned arguments about the direction of the stock markets of the world (and the economies that undergird them). The tidal wave of information and analysis, accompanied by heavily annotated PowerPoint charts and statistics, is absolutely convincing. There is no doubt that we’re in a bull market and that it will continue for quite a while.
The trouble is that, at least twice, the next brilliant analysis—supported by an equally compelling set of charts and statistics—has come to the opposite conclusion.
I’m absolutely serious about this. It’s one thing to go fishing on the Internet for opinions about where markets are headed. You expect to find a rainbow of opinions on the Web, from the lunatic fringes on either end to sober and useful discussions closer to the middle. But to hear diametrically opposed forecasts from eminent experts one after the other is unsettling.
It’s also useful. It lets me know that there is no consensus, and that economic forecasting is as difficult as ever.
Sometimes I’m tempted to speak up from the Cabot growth investing point of view. I’d like to ask why people don’t just figure out what the market is doing right now and act accordingly? That’s what the Cabot growth investing disciplines say to do. Worry about next year when next year gets here.
I know I’m being a little disingenuous. Many attendees at the Forum manage very large portfolios and are looking for every advantage possible. A good economic forecast that can locate investment themes ahead of the herd is a valuable service. And there was some consensus that the rebound of the Japanese economy and the reviving fortunes of Europe may provide interesting opportunities. And ETFs and index funds can provide a way to play these predictions.
I just can’t help thinking that the Cabot growth rules could simplify things a lot. If the markets are going up, you get in. If they’re going down, you go to cash. Pick good stocks with strong numbers and stories and rising charts. Let winners run. Cut losers short.
I’m enjoying the Contrary Opinion Forum. But it also brings out the contrarian in me. For more on Contrary Opinion, visit Tim's blog here.
Mike Cintolo’s Comment: Well, Twain couldn’t have written it better if he’d been a growth stock investor himself. I wouldn’t go so far as to say “fools” are the only ones who spread out their purchases, but the question is really whether you want to be average (which you can do by owning index funds and a couple dozen names), or whether you want to strive for awesome performance ... which normally comes via owning a few top-notch, revolutionary leaders, and knowing them inside out.
Paul’s Comment: There’s a real sense of power to be gained from actually managing your own investments, but nobody ever said it would be easy. The easy choice is to let someone else do it. “Watching that basket” requires time and attention. Fortunately, the potential rewards, both monetary and personal, are substantial.
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.
Roy Ward of Cabot Benjamin Graham Value Investor writes in this issue about where investors can find safe income when bond prices are tanking. Roy rejects bond mutual funds and bond ETFs in favor of dividend-paying stocks and ETFs. Stock discussed: SPDR S&P Dividend ETF (SDY).
In this issue, I give my second stock that has caught the eye of both growth and value analysts. These stocks have often outrun their value phase, but the quality label still sticks, despite the increased price. Stock discussed: Priceline (PCLN).
Chloe Lutts Jensen of Dick Davis Investment Digest and Dick Davis Dividend Digest writes about the daunting task of getting started investing in the stock market. She recounts her own education, and those of friends and book authors. And she asks, how you learned to invest?
Have a great weekend,
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory