Timer Digest September 15, 2014
While the Cabot Market Letter has a long and storied history, with its roots stretching back to 1970 when founder Carlton Lutts took a leap of faith (and his usual heavy dose of optimism), current Chief Analyst Mike Cintolo is a relative newcomer—“only” 16 years with Cabot. Yet as he explains below, he’s actually been part of the Cabot family for much longer … as a subscriber!
“My Dad subscribed to Cabot Market Letter back when I was finishing up high school. At the time, I was learning about mutual funds and such—this was when the market was just beginning to heat up in the mid-1990s—and I began reading the Market Letter and became fascinated by the stock market.
“I began to regularly email Timothy Lutts (now my boss) with questions and inquiries about this stock or that indicator. I actually visited the Cabot office one summer day, had lunch, and saw the operation. When graduation time came, I wasn’t totally sure what I was going to do. I remember having an interview with Goldman Sachs down in New York City—I think it was for an analyst position. Nothing against those guys, but I saw this fellow staring at his computer monitor, building a detailed model of Abercrombie’s business and balance sheet.
“The interview happened to be on the day Amazon.com was up 40 points on an upgrade—Cabot Market Letter owned it at the time—and all I could think about was, “How is that Goldman Sachs spreadsheet going to help anyone make money?” I couldn’t see myself doing that for years.
“Just when I was trying to decide what my career path should be, Tim shot me an email and asked if I would come in for an interview. Cabot was starting a new publication (Internet Stock of the Week) and wanted to see whether I could help write it. Apparently I did well enough—I joined the team a couple of weeks later and the rest is history.”
After working as an analyst for eight years, Mike became the steward of the Cabot Market Letter at the start of 2007—just in time for that year’s great bull move in growth stocks, the historic bear market of 2008 and the equally-historic rebound in 2009. Through it all, he’s been able to guide subscribers in and out of the market, thanks to the Cabot Tides, the Market Letter’s most important timing indicator. Interestingly, however, his timing success stems from a refocusing of the firm’s market timing system a few years before.
“Back in 1999 and 2000, like so many others, our market timing system had decayed; after all, for 20 years, any market pullback led relatively quickly to higher prices, so why did anyone need market timing? Thus, when the 2000 bear market hit, our indicators didn’t do a good job, and more importantly, we didn’t do a good job listening to them.
“After lots of research, we came up with Cabot Tides, which is now one of our key indicators. It simply measures the market’s intermediate-term trend by monitoring five major indexes and their corresponding 25-day and 50-day moving averages. It’s really pretty basic, but we developed it that way—we use it to keep us on the right side of the market’s major movements.
“And that’s the big benefit of the Cabot Tides. By using this trend-following approach, we are literally guaranteed never to miss out on a major market upmove, and we’re also guaranteed never to remain heavily invested through a major bear market. Just having those two facts on your side is what it’s all about; you’re automatically putting yourself ahead of 95% of all investors. As Jesse Livermore said, the big money (or big mistake) is in the big swing, so being assured of staying on the market’s major trend is paramount.
“Granted, using this trend-following approach, you have to put your ego in your back pocket. When someone asks us where the market will be at year-end, or how the market will react to some event, we have to admit that we don’t know. And we’ll never be able to brag that we bought at the bottom or sold at the top. But that’s OK—we’re just trying to make money. We don’t need to sound like the smartest guys in the room.
“Anyway, the big test for Cabot Tides came in late 2007 and 2008. Happily, the indicator flashed red starting in November 2007, and we remained mostly defensive for all of the bear market. In particular, we were in a 90% cash position in early September 2008—so we avoided the crash of the next two months. And we received a new buy signal in late March 2009, catching the new bull move. All of us here are proud of that achievement.”
Looking ahead, as Mike said, he doesn’t predict where the market’s going to be. But he does have some final thoughts on the big picture, including something he learned from founder and mentor Carlton Lutts.
“The biggest thing I learned from Carlton was the power of optimism—truly believing that the future of our country and our stock market will be better than the past. Maybe the biggest lesson I ever learned was from him: You have to stay positive so you can benefit from the amazing opportunities the market always presents.
“Applying that to today, I have been coming around to the view that the secular bear market, which started in 2000 and lasted through 2012 (the market made no net progress over that time), has come to an end, and we’re in a new secular bull market that could run 10 to 15 years. Of course, that’s a super long-term view, but the combination of incredibly dour sentiment in late-2012 (investors were completely satisfied with 2% dividends back then; many still are!) and the fact that both our long-term and intermediate-term trend indicators (including the Tides) are positive, tell me to expect this bull market to continue in the months ahead.”
Timer Digest has been following The Cabot Market Letter since 1986.
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