What You Know and What You Can't Know

 

Stock Market Video

What You Know and What You Can’t Know

This Week’s Fortune Cookie

In Case You Missed It

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In this week’s Stock Market Video, Mike Cintolo tells you all you need to know about the market’s action and his recommendations—from recent divergences to elevated sentiment to this week’s breakdown. Mike is turning defensive as he waits out this selling wave. But he’s spending more time than ever constructing his watch list (it’s easiest to spot strength in a bad market), looking for the leaders of the next market upturn. Click below to watch the video. 

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What You Know and What You Can’t Know

The things we know about the market would fill a book. And, in fact, they have filled hundreds of books over the years, with every new quarter usually producing one or two new tomes filled with wisdom and priceless advice about how to thrive on Wall Street. People have sliced and diced everything we know about the market using every tool available, including calendar patterns, statistical analysis, measures of central tendency and standard deviation, micro- and macroeconomic analysis, measures of momentum, investor sentiment, chart patterns, valuation and everything up to and including astrology. And then there are the really strange ones.

But the things we know pale in comparison to the things we don't know.

The biggest unknown is any certain knowledge about what the market will do tomorrow, which is, of course, exactly the thing investors would pay any amount for. If you knew the absolute certain truth about anything that was going to happen tomorrow or next week, month of year, you could find a way to make money on it.

But, alas, that's not going to happen.

Accordingly, the most important thing you can actually know is what you, personally, are going to do when the unknown future reveals itself to you.

Strangely enough, that's exactly what just about everything in the lives of just about everyone is all about, but I'm not going to speculate on that. I'll just say that it might be a good idea for everyone to spend at least as much time thinking about practical steps to take in preparation for retirement as they spend daydreaming about what they'd do if they won the lottery.

I will also note that when you see someone preparing with great diligence for something that you doubt will happen, there's a little conflict in your mind. I have in mind especially the people who are preparing for the complete and utter breakdown of civil society, the Internet, the electric grid and every other vestige of what we call civilization. If they're right, I'll be chagrined. I’m counting on continued progress.

But I digress.

As this week’s collapse showed, the stock market is quite capable of delivering some serious pain. This chart of the S&P 500 for the month of July gives the bad news.

If you were prepared for this kind of downdraft, you’re probably sitting pretty heavily in cash right now. That’s what Cabot’s growth letters are doing.

But I also want to show a chart of the S&P 500 for the year, so you can see what you might have missed if a fear of pullbacks had kept you out of the market completely.

This is a constant refrain in Cabot Wealth Advisory, but I can’t apologize. You can only succeed in the market if you pay attention to what you know. And knowing what you will do when the market springs the unexpected on you is a valuable resource.

And I will just point out that having a time-tested, reliable ally like Cabot Market Letter or Cabot China & Emerging Markets Report on you side can let you enjoy the benefits of the second chart above, while not worrying so much about the first.

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Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

“In the course of evolution and a higher civilization, we might be able to get along comfortably without Congress, but without Wall Street, never.”—Henry Clews, 1900

Tim’s Comment: With Congress off on a five-week vacation, this seems appropriate. There is no doubt that the country will manage just fine over those five weeks without it. But close Wall Street for five weeks and chaos would reign; without a free market, progress is impossible. Might we possibly evolve to manage without Congress, as Clews suggests? To me, it's an optimistic thought.

Paul’s Comment: I wish I could think of some cutting contrarian remark to make in favor of Congress, but I just can’t. All I can do is remind people that there have been Congresses in the past, before the radical polarization of our political life, when legislators actually tried to govern, solve problems and improve things (like our national infrastructure and other urgent needs). But this group of ideological knife fighters give the giants of the past a bad name. It’s a pleasure to be working with the relatively straightforward honest sharks of Wall Street.

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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 7/28/14—The 10th Stock to Buy and Hold Forever

In this wide-ranging issue, Tim Lutts, Chief Analyst of Cabot Stock of the Month, reports on answers to his question on how people handle the daily flood of bad news stories. He also digs into the Pareto Principle (the 80/20 Rule) and gives the tenth in his series of Stocks to Buy and Hold Forever. Stock discussed: Zillow (Z).

Cabot Wealth Advisory 7/29/14—One Great Dividend Growth Stock

Chloe Lutts Jensen, Chief Analyst for Cabot Dividend Investor, writes in this issue about the four numbers you need to analyze dividend growth stocks: dividend history, dividend growth rate, payout ratio and earnings growth. Stock discussed: Reynolds American (RAI).

Cabot Wealth Advisory 7/31/14—A New Leader in the Oil Patch

In this issue, Mike Cintolo, Chief Analyst for Cabot Market Letter, reveals a shocking truth behind “average” stock market returns and looks at one of his “ah-ha!” moments about stock investing: it’s the outliers that count. Stock discussed: Cameron International (CAM).

Have a great weekend,

Paul Goodwin
Chief Analyst, Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory


Paul Goodwin can be found on Google Plus.

Stock Picks

Tesla Motors

If Tesla ever begins to cut back on development and innovation costs, earnings will soar.

Alibaba

China seems to be raising up its very own version of Amazon in Alibaba (BABA.

Facebook

Roy Ward uses the PEG ratio to determine if the stock is undervalued or overvalued.

Cabot Wealth Advisory

Three Vital Tips for the Chinese Stock Market

By Paul Goodwin on September 30, 2016

As U.S. stock markets continue to drag, the Chinese stock market is an ideal alternative for growth investors. Here's how to find the best Chinese stocks.Read More >

What Fed Speeches Mean for the Stock Market Today

By Chloe Lutts Jensen on September 29, 2016

Four Fed presidents gave speeches yesterday, and every word was digested by the stock market in an attempt to better predict the Fed’s next move. With odds of a December rate hike now about even, how should stock investors prepare?Read More >

The Emerging Market Stock You Ought to Own

By Paul Goodwin on September 27, 2016

The company I’m talking about (the one that you probably don’t own) is the largest Chinese instant messaging company. It is a giant in its own right, with a market cap of $262 billion and annual sales of over $19 billion. The company grew revenue by 28% in 2015 and routinely boasts after-tax profit margins over 30%.Read More >