Investing Resolutions? Yeah, I've Got a Few
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---Investing Resolutions? Yeah, I’ve Got a Few
It’s January — which must be the absolute favorite month of health clubs, yoga studios and vendors of dieting products — when many people resolve to lose weight (at least the seasonal bulk they added in December), get in shape and otherwise take control of their lives. The northern hemisphere is filled with people forced indoors by short days and cold weather, regretting their dietary indiscretions and vowing to lead better, simpler, healthier, leaner lives. It’s enough to make a gym owner break out in smiles.
The end of the year may have forced you to make some decisions about what stocks to sell for tax purposes. Or the holidays may have given you a chance to tot up your performance for the year while you prepare for the quarterly ritual of earnings reports.
Whatever the reason, the end of a year is a great opportunity to make a New Year’s Resolution to be a better investor. The question is: what should you resolve?
The experience of people who vow to lose weight or stop smoking or learn Chinese should give you a little guidance here. Huge resolutions often lead to huge failures. The key to a successful resolution is thinking small.
Rather than give the same old big advice (buy quality stocks on reasonable pullbacks, let your winners run, cut your losers short, and adjust your tactics to the trend of the market), I’m going to recommend three small changes that you might actually be able to implement. And a small change you actually accomplish is much better for you (both financially and emotionally) than a big change that you can’t make happen.
So here they are.
First, resolve to set a loss limit as soon as you buy a stock. This means, for instance, that if you buy a stock at 30, you will make a note that says: “Sell the stock if it closes below 25.5.” Make a note of it and keep it where you will see it often. If you prefer a 10% loss limit, write down “Sell at 27.” Making the note makes it official; it says, “I will not absorb any more big losses this year.” But your resolution is just to make the note and keep it where you can see it. Explicit goals make action easier.
Second, you can resolve to read one investment book this year. You don’t have to try to turn yourself into Warren Buffett (on the value side), Peter Lynch (on the growth side), or Gordon Gekko (on the wild side). Just pick one book and get through it. Carlton Lutts, the founder of Cabot, used to say that all he needed from a book was one good idea. You might consider Invest Like a Shark by James DePorre or Inside the Investor’s Brain by Richard L. Peterson or even Jim Cramer’s Stay Mad for Life by guess who. Reading what successful investors write will help you think like successful investors think.
And third, resolve to review your results at the end of every quarter to see how you’re doing. Remind yourself with a note on your wall calendar, PostIt note or your iPhone. But make sure you give your portfolio a reality check at least a few times a year to see if your strategy (whatever it is) is working. And while you’re at it, you can see how you’re doing with your other resolutions. That will help to keep yourself focused on the good ideas you had in January.
I used to do communication consulting, and I can report quite confidently that small, do-able changes are the best. They give you confidence and a sense of achievement. They allow you to feel like you’re in control of your life. (This may be an illusion, but the Cabot Wealth Advisory isn’t a philosophy course.)
Good luck and Happy New Year!
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: There is no proof that Roosevelt ever said this; the sentiment was popular before he became president. Nevertheless, it still rings true, when fat cats hire both lobbyists to serve their interests, and lawyers to create tax loopholes.
Paul’s Comment: The idea that businesses and markets can be self-regulating is a quaint fantasy at best, and a dangerous delusion at worst. A large amount of money piling up in one place can take on a life of its own, protecting itself, feeding itself and creating the kind of greed that leaves rules behind. Roosevelt lived in an age of Robber Barons, and he’s really just commenting on scale.
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 12/28/15 — Roy’s Top 10 Stocks for the New Year
Roy Ward, Chief Analyst of Cabot Benjamin Graham Value Investor, gave out the first five of his ten stocks with great prospects for 2016. This week, he’s back with the second five. Stocks discussed: Cognizant Technology (CTSH), CVS Health (CVS), Gilead Sciences (GILD), McKesson (MCK), and Skyworks Solutions (SWKS).
Cabot Wealth Advisory 12/29/15 — Using Options to Profit from Disney and Chipotle
Cabot Options Trader’s Chief Analyst, Jacob Mintz, shows how using simple call and put options can give investors access to unlimited upside potential in popular stocks while limiting downside risk. Stocks discussed: Disney (DIS) and Chipotle Mexican Grill (CMG).
Cabot Wealth Advisory 12/31/15 — 10 Year-End Investing Tips
Cabot Growth Investor and Cabot Top Ten Trader’s Chief Analyst, Mike Cintolo, gives you 10 great investing tips to get your investing strategy for 2016 off on the right foot.