Stock Market Video
My “Stock of the Year”
Luck is what happens when preparation meets opportunity.
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My “Stock of the Year”
Those of you of a certain age might remember a scene from Crocodile Dundee just after a purse-snatcher has run off with a woman’s purse and is escaping through a crowd. Mick Dundee picks up a can of corn from a dropped bag of groceries and nails the guy 50 feet away. Everyone gasps and admires the feat. It’s a nice scene.
But when I’m asked by someone to pick my Stock of the Year (AKA “the one best stock to buy right now”), I feel like someone is asking me to throw that can of corn at a thief sprinting through a crowd. In the movie, it’s funny, because everyone knows it’s impossible.
In real life, for a growth investor, it’s a total shot in the dark.
I spend most of my working life at Cabot researching the stocks of companies in emerging markets, especially China, and I’m pretty good at it. When Chinese stocks are doing well, as they are now, Cabot China & Emerging Markets Report even works its way onto the list of performance leaders of Hulbert Financial Digest, the independent group that tracks such things.
Despite all that, if someone forced me to make a choice between 1) putting a huge chunk of money into one stock for a whole year, or 2) keeping the money in cash, I’d take the cash every time.
Maybe I’m overthinking this. Nobody is going to make an outsized investment in some stock just because I said it was my favorite, right?
That would mean that instead of doing due diligence on a company, checking the health and direction of the market, paying attention to the diversification of the target portfolio and waiting for a proper buy point, some bozo is just going to run out and buy a cartload of a stock on my say so? That would be exceptionally dumb, right?
After all, who am I, Jim Cramer?
I get asked several times a year—usually in November or December—for my stock pick for the coming year for different publications. It’s not my favorite task, since the average holding period for my stock picks in Cabot China & Emerging Markets Report is typically less than six months. (While my big winners may stick around for a long time, there are always a few stocks that head south in a hurry and flame-outs that lose momentum quickly, and these have to be snipped off quickly.)
Every two weeks, I pick a new stock for the China & Emerging Markets Report. And what I recommend there I’m totally comfortable with, because I know I will be able to communicate with my subscribers any time I want to. I can switch recommendations of stocks from buy to hold and back again. I can kick stocks out of the portfolio as needed and remind investors about how to buy and how to put a portfolio together. That’s all good.
Maybe in the final analysis, what I object to in being asked for my Stock of the Year is the assumption that anyone might let the calendar play a significant role in managing their portfolio. If you’re a growth investor, you need to be paying attention at crucial times, say, when the market is open.
And it sticks in my craw that my ranking among the analysts who are being asked for their top picks will be decided by who’s on top at the close on December 31.
Bottom line: As the year gets closer to its end, if you see a recommendation from me for my Stock of the Year, take it with a grain of salt.
Or, better yet, send me an email about it and I’ll tell you how the stock is doing and what’s up with the market. And you can take that to the bank.
Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies and Contrary Opinion buttons by clicking here.
Tim’s Comment: The stock market provides opportunities every day. However, many of them are opportunities for which you are not prepared, and that's okay. You can't expect to master every kind of trading and investing style. Better to learn a few good systems well so that when opportunities arise, you will recognize them and confidently take advantage of them. Then people will call you lucky.
Paul’s Comment: The Boy Scouts’ motto—“Be Prepared”—is excellent advice, but not really realistic, because you can’t be prepared for everything. Learning CPR is good preparation, but it won’t do you any good if the health crisis you actually run into is a broken leg. Fortunately, in the stock market, you can find an investing discipline that appeals to you and act only when you see the kind of opportunity you’ve been waiting for, whether it’s a bunch of undervalued stocks or a flock of tech stocks just taking flight. That’s when preparation really pays off.
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 8/25/14—Contrary Opinion and How it Can Help You Today
In this issue, Tim Lutts, Chief Analyst of Cabot Stock of the Month, discusses the tricky strategy of Contrary Opinion, the art of resisting what the crowd believes. He also looks at value stocks as a way of playing the contrary move. Stock discussed: Middleby (MIDD).
Cabot Wealth Advisory 8/26/14—Undervalued and Relatively Undervalued Stocks
Roy Ward, the number-crunching genius behind Cabot Benjamin Graham Value Investor, writes about questions he got at the second Cabot Investors Conference. He also discusses three undervalued, high-quality companies. Stocks discussed: Middleby (MIDD), Tim Hortons (THI) and Bally Technologies (BYI).
Cabot Wealth Advisory 8/28/14—An End of Summer Q&A
Cabot Market Letter’s Chief Analyst, Mike Cintolo, answers questions he’s received from subscribers and attendees at the Cabot Investors Conference about handling stocks when a company is being bought out, the possible secular bull market and other topics. Stock discussed Arista Networks (ANET).