This Week's Stock Market Video
How to Get Your Toe Back into the Market
This Week's Fortune Cookie
In Case You Missed It
In this week's video, Mike Cintolo talks about his new intermediate-term buy signal and what he's doing with it, reviewing both off-the-bottom stocks (names that were hit hard but are now rebounding) and potential new leaders of the next leg up. It's not a raging bull market at this point, but Mike sees many solid set-ups and thinks it's best to wade back into the market's waters ... and then watch to see whether the buyers can continue to make headway. Click below to get the names of Mike's watch list.
How to Get Your Toe Back into the Market
Getting back into the market after a significant correction is a little like getting back in the water at the beach after a shark alert. It's hard to feel really comfortable with the decision.
That's one of the biggest reasons Carlton Lutts, the founder of Cabot and the long-time editor of Cabot Market Letter, created the market timing indicators that help us determine the short-, medium- and long-term momentum of the U.S. market.
I've written before about the advantages of getting into a new bull market as soon as possible, but I haven't been very specific about how you actually put your toe back in the water. And from my experience, there's a right way and a wrong way to do it.
The first principle is that you should have a fairly high proportion of cash in your growth portfolio now. Having the discipline to sell off losers and weaklings during a market correction is your first line of defense against big losses. And once markets turn up again, it's your portfolio's cash that positions you to profit from the new rally.
The second principle is that your growth portfolio should be made up of a limited number of equal-dollar positions, ideally between 10 and 12. This relatively high concentration will allow the portfolio to benefit from the strong performance of the two or three stocks that will likely deliver your profit for the year. But by keeping you from sinking your whole portfolio into one or two stocks, it will also give you enough diversification to avoid the kind of disaster that can follow a negative event like a bad earnings report.
The third principle is that you get back into the market the same way you get into the chilly New England waters: one small step at a time. By buying one or two stocks soon after a new buy signal, you get some exposure, but you protect against reversals. You watch your new buys closely, waiting until you make a little money before taking the next step and buying a couple more. In effect, you let the market control your re-entry, rewarding you or warning you by the results you get.
Once a bull market is confirmed and you have some good profits, you continue to move toward full investment, continuing to improve your portfolio by mercilessly weeding out the stocks that aren't working and adding strong names as you find them.
Right now, the Cabot China & Emerging Markets Report has a cash position of about 60%. Cabot Market Letter just added two new positions (bringing it up to five of a possible 12), to get to about 50% cash. That's still a lot of cash, but Mike Cintolo and I manage those portfolios exactly as I'm describing here. The longer and stronger the new bull market lasts, and the better our new stocks perform, the more cash we will put to work. I recommend that you do the same.
Here's this week's Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.
Tim's Comment: As an employer, I'm astounded by the number of people who apply for a job and then fail to show up. And I'm grateful to my father who-even before I heard Woody Allen's great quote-taught me the value of both showing up and doing good work. As to the connection to investing, it's not complicated. If you put in the time on a regular basis, and work at it diligently, you'll succeed as an investor.
Paul's Comment: I've always admired the economy of this little gem. It goes along with similar sentiments from the sports world ("You miss 100% of the shots you don't take"-Wayne Gretzky). The application to investing is obvious, since you make absolutely nothing on the investments you don't make. With markets strengthening to the point that the market timing indicators for both Cabot Market Letter and Cabot China & Emerging Markets Report are either positive or teetering on the edge of positive, it's time to limber up your online brokerage account and get ready to do some buying.
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.
Cabot Wealth Advisory 5/26/14 - Trading Covered Calls for Increased Income
Jacob Mintz, Cabot's options expert and chief analyst of Cabot Options Trader and Cabot Options Trader Pro, explains how to use covered calls to create yield even in a choppy market. He takes you step by step through option trades on Penn Virginia (PVA) and Facebook (FB).
Cabot Wealth Advisory 5/27/14 - A Contrarian Play: Time for Some Gold?
In this issue, Nancy Zambell, editor of Investment Digest and Dividend Digest, looks at the evidence that the correction in gold may be near an end. She looks at four choices for owning gold, including physical gold such as bullion or coins, as well as mining stocks and gold ETFs.
Cabot Wealth Advisory 5/29/14 - Car Rental in Ireland-To Insure or Not?
Cabot's Chief Investment Strategist, Tim Lutts, lays out his rationale for not buying car rental insurance while he was on his recent vacation to Ireland. Tim also names the second in his series of 10 Stocks to Buy & Hold Forever. Stock discussed: Autohome (ATHM).
Have a great weekend,
Chief Analyst of Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory
P.S. The Early Bird Discount Expires at Midnight!
The Early Bird rate for the Cabot Investors Conference ends on Saturday, so I recommend that you sign up now if you're planning on attending. The conference is in our hometown of Salem, Massachusetts, from Wednesday, August 13 through Friday, August 15. At the conference, you'll meet all the Cabot analysts and editors, attend a great lineup of presentations and participate in panel discussions on markets, sectors and, of course, our favorite stock picks. I hope you'll join us.
Click here to register here.