In the Stock Market, the Readiness Is All

 
Stock Market Video
In the Stock Market, the Readiness Is All
This Week’s Fortune Cookie
In Case You Missed It

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In this week’s stock market video, I point out that the major indexes have actually calmed down and traded sideways for more than a week. It’s a welcome relief, and may be the start of a bottom-building process that will lead to a resurgence in stocks. But it’s way too early to jump to that conclusion, and we need a much longer spell of continuing support to call a bottom. I look at a number of stocks that have performed well, possibly tempting investors with jumps higher. Don’t be fooled; the market loves to tempt you that way. If you absolutely have to buy a little something, I give a couple of good possibilities as well. Click below to watch the video.

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The Readiness Is All

We’re at an interesting point in the stock market. And by interesting, of course, I mean threatening as hell.

Many of the growth stocks that made it such a fun summer have gone into retreats. The major indexes, while they haven’t really turned down, have shown a couple of weeks of increased volatility and took a vicious left hook to the nose on Thursday.

As always, Cabot remains obdurately silent about what might happen to the market in the future. It’s possible that markets will reel around like a linebacker with a concussion for a while longer. Or we may be at the beginning of the 15% correction that so many commentators love to predict. Or markets may pull up their big-boy pants and get back on the upward path.

I don’t know. Cabot doesn’t know. And we doubt that anybody out there knows, although whatever happens, someone will take credit for predicting it and brag about it for years to come.

I think Hamlet was probably the best commentator for the present circumstance. He said, “If it be now, ’tis not to come. If it be not to come, it will be now. If it be not now, yet it will come.” (Translation for today’s market: We’re going to get an end to this correction sometime, but we don’t know when.)

But it’s what Hamlet says next that makes him look like the historical predecessor to a Cabot growth analyst. He said, “The readiness is all.”

I couldn’t have said it better myself.

Bull markets are easy: you buy. Bear markets are easy: you sell.

But the transitions from one to the other and back again can send strong men in search of the Xanax bottle. Or a bottle of something else.

And that’s because change is difficult for everyone. It’s emotionally difficult to give up the rosy glow of a brokerage account in an uptrend and prepare your portfolio for foul weather. It’s like the scramble when a sudden thunderstorm interrupts a pleasant picnic.

It’s equally difficult for people to leave behind their depression and lethargy after a long bear market ends and there’s a new bull in town. Too many people miss the opportunity to grab those early gains when markets turn up. Bear hangovers are hard to cure … and expensive, too.

The key to managing markets in transition is planning ahead. Follow the Cabot timing disciplines to see clearly when markets change character. Know your loss limits for each of your holdings and follow the selling rules when market turn down. Have a watch list and be ready to buy when markets turn up.

Market transitions—and I’m not sure whether we’re in one now or are just getting faked out again—only cause major damage if you just sit there, either because you don’t have a plan, or you don’t have the emotional resources to take action.

The readiness is all. Hmmm. That Shakespeare had a way with words! I wonder if he wrote anything else?

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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.

Tim’s comment: Does it apply to investing? Of course. None of us knows what surprises the market will bring months down the road. But if, day by day, we can avoid driving off the road (incurring precipitous loss of capital), we can each reach our goals.

Paul’s comment: When I read this, I thought of parent of young children, walking slowly down the hall, in the dark, to the kitchen to fetch a glass of water. What that parent wants more than anything is not to step on a Lego block. If you’ve stepped on one, you know why. And any investor who has been walking down the dark hall of the market just wants to avoid that painful big loss. You can’t avoid them all, but having firm mental stops in place for your growth stocks can be the equivalent of a “glimpse of the next three feet of road.”

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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 1/25/16 – Five Widespread, but Wrong, Ideas

Cabot Stock of the Month Chief Analyst Tim Lutts looks at five pieces of common wisdom that don’t have much claim to truth, in his opinion. Tim also looks at a stock that’s been holding up well in a tough market. Stock discussed: Adobe Systems (ADBE).

Cabot Wealth Advisory 1/26/16 – Top 5 Small Cap Stocks to Play a Market Bounce

Tyler Laundon, Chief Analyst of Cabot Small-Cap Confidential, Shares five excellent stories from the small-cap sector based on his research. Stocks discussed: Cornerstone OnDemand (CSOD), Tyler Technologies (TYL), Manhattan Associates (MANH, Synchronoss (SNCR) and Reis (REIS).

Cabot Wealth Advisory 1/28/16 – 5 Ways to ID a Market Bottom

In this issue, Mike Cintolo, our growth expert and Chief Analyst of Cabot Growth Investor, writes about how to tell when the market has really bottomed. He also describes a solar stock that’s high on his watch list. Stock discussed: SolarEdge (SEDG).

Sincerely,

Paul Goodwin
Chief Analyst, Cabot Emerging Markets Investor
and Editor of Cabot Wealth Advisory


Paul Goodwin can be found on Google Plus.

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