Stock Market Video
Why You Should Have Growth Stocks in Your Portfolio
In Case You Missed It
In this week’s Stock Market Video, I talk about the flatness of the markets, the lack of usable momentum (either up or down) and the importance of having some cash on the sidelines and short leashes on your laggards. It’s not that markets are negative; it’s that the next move is impossible to predict. That makes it a stock-picker’s market, and I look at some of my favorite stocks in this situation. Click below to watch the video.
Why You Should Have Growth Stocks in Your Portfolio
Back in 2007, before the catastrophic bursting of the Housing Bubble, the Financial Crisis and the Great Recession, 72% of American owned stocks, either individual stocks, stock mutual funds or a 401(k) or an IRA.
Today, about half of all Americans own stocks. (Depending on which poll you read, it’s either 55% who own stocks or 53% who don’t. Polls are twitchy things and need a lot of translating to tell a straight story.)
But what that means is that about half of all Americans (give or take 5%) are stock owners.
And if those good folks are listening to what their financial advisors are telling them, they probably have most of that money in index funds, patiently waiting for the market to lift their portfolios into fat enough gains to allow them to retire comfortably.
I don’t really have a problem with that. The number of investors with the free time, the temperament and the skills to own individual stocks isn’t huge. Just from talking to people in my circle of acquaintances, a group with plenty of brain-power but zero experience with stock, investing gives me a pretty good picture.
These people are scared stiff of owning stocks. They sweat at the very thought.
When I try to explain why stock investing—especially growth investing because that’s what I write about for Cabot—is a good idea, I get nervous laughter and comments like “Yeah, right!” So I want to show you two charts that will illustrate why I think everyone should have some growth stocks in their portfolio.
The first chart is a year-to-date chart of the S&P 500 Index, the most popular Index for mutual fund investors. What the chart shows is that the S&P is virtually flat for the year. It opened on January 2 at 2059 and closed on Thursday at about 2051. Flat as roadkill.
And now, just for contrast, here’s the chart of Ulta Salon (ULTA), a stock that has appeared several times in Cabot Top Ten Trader and is now in the Model Portfolio of Cabot Growth Investor.
ULTA opened the year trading at 128 and closed on Thursday at 183.
Now, I can hear you objecting that anyone can cherry-pick a stock that’s done well for the year and claim that he has made a bundle, either for himself or for the people he advises.
And that’s true.
But what’s also true is that growth investing is absolutely about finding stocks like ULTA and making money in them. Growth investors don’t own dozens of stocks, because that kind of portfolio dilutes gains. Even a big price appreciation won’t contribute much to a portfolio with 30 stocks in it. Growth investing looks for big winners. And it avoids big losers by using strict loss limits that keep losses low. That’s it in a nutshell.
But the average investor, without some kind of help in selecting stocks with strong stories, constructive charts and appealing fundamentals, is unlikely to have discovered ULTA in a timely manner. Most brokers stick to stocks that are part of major indexes and trade millions of shares a day. ULTA is liquid, averaging over 800,000 shares traded per day, but it’s not in any indexes.
Here’s another little insight into how we do things in the growth group at Cabot. Every week, when Cabot Top Ten Trader has been sent to subscribers, I update my database of every stock that has ever been featured there, all 6,640 of them over the last 13 years. Here’s the record of recommendations for ULTA. (The columns are: Stock Name, Symbol, Issue #, Date, Buy Range and Closing Price on Publication Day.)
ULTA has been in Top Ten 17 times since it first appeared in 2011 trading at 58. And twice it has been the Editor’s Choice, Mike Cintolo’s pick for the best stock in that issue. (And, just btw, the company name is officially Ulta Salon Cosmetics and Fragrances, Inc. But that’s a mouthful.)
So those who subscribe to Cabot Top Ten Trader would most certainly have been aware of ULTA.
I know that the idea of buying (and selling) individual stocks will still seem foreign to some of you, so I have a unique offer for you.
Next Wednesday (December 16), I will be hosting a webinar called Lunch With the Analyst. It’s a live hour of market review and stock recommendations with special attention to Chinese consumer stocks, which are a specialty of mine.
And, best of all, I will be taking questions from attendees on the markets, recommended stocks (Buy? Sell? Hold?) and growth strategies.
This is Cabot’s third Lunch With the Analyst webinar, and the previous two have been a great success, with lots of information and plenty of interesting questions.
So, if you want a cheap (Free!) introduction to the theory and practice of growth investing, this is your chance. In just one hour, from 1:00 to 2:00 EST, you can listen, watch and even ask questions about how growth investing works. And all you have to do it click on this spot here to place your reservation. (You do need to register soon, because webinar capacity is controlled by our Internet company.)
I hope to see your name on the list.
---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: Looking back over the decades and centuries of our country’s progress, I observe that this has proven to true, and thus, even though the “bitter experiences” hurt in the short run, that it is very likely it will continue to be true.
Paul’s comment: Or, as some wit (but not Winston Churchill) put it, “You can always count on the Americans to do the right thing after they have tried everything else.” Learning lessons about anything important always seems to come only after “bitter experiences.” It’s a shame, but it seems to be the case.
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, Chief Analyst for Cabot Stock of the Month, writes about the market’s history of going up after a first rate increase from the Fed. He also reveals the name of a mystery stock he recommended on November 17 and recommends a new stock that’s favored by two different Cabot advisories. Stocks discussed: Nvidia (NVDA) and Royal Bank of Canada (RY).
Cabot Dividend Investor’s Chloe Lutts Jensen explains why the Santa Claus Rally occurs and how to make money from it by picking up bargains in retail and consumer discretionary stocks (this year). Stocks discussed: Agrium (AGU) and Target (TGT).
In this issue, Tyler Laundon, Chief Analyst of Cabot Small-Cap Confidential 2.0, writes about the downswing in oil stocks and the revolution in energy that happened in the (whale) oil industry in the 19th century when new technologies appeared.
Have a great weekend,
Chief Analyst of Cabot Emerging Markets Investor and
Editor of Cabot Wealth Advisory