Interview with Timothy Lutts, Cabot Chief Investment Strategist, on Cabot growth investing stretegies: Cabot Market Letter, Cabot Top Ten Report, Cabot China & Emerging Markets Report and Cabot Green Investor 10/3/08
Explain your investment process and criteria for investments.
I’ve always been a growth investor, swinging for the fences by investing in fast-growing companies. My ideal investment has fast-growing sales and earnings; triple-digit revenue growth is wonderful. That generally means the company tends to be small, though there are exceptions. It serves a mass market, so it can get very big. It’s not yet well loved—or perhaps even well known—by the average investor. And its stock is strong.
Who is your target audience?
We write for the person who wants to improve his investment performance. Our average reader is a 57-year-old American man, but we have readers all over the world. Some are in their 20s and some are in their 90s. Many are women. And nearly 9% are investment professionals. The one thing they have in common is a desire for superior investment performance, and a willingness to put in the time and effort to get it.
What do you believe gives you an edge over other investment experts?
Our experience helps a lot; we’ve been refining the Cabot system for 38 years. And our independence is a critical asset; our sole goal is to help our subscribers become better investors. But perhaps our key advantage is that we listen to the market very carefully. Many years ago, Jesse L. Livermore wrote, “Markets are never wrong; opinions are.” We respect that. We know the actions of the market, properly interpreted, are a far more reliable guide than any theory or opinion.
What are your short-term and longer-term views of the markets?
My views don’t count. What counts is the action of the market. Having said that, I’m optimistic that we’ve passed the point of peak fear. I’m optimistic, therefore, that the market bottom has passed. And I’m optimistic that despite America’s economic problems, there are some very good profits ahead. After the Panic of 1907, for example, when J.P. Morgan stepped in to organize a rescue effort for banks, the Dow Industrials roared ahead in 1908, posting a gain of 46.6%.
What sectors do you think offer the most opportunities to profit today?
I’m bullish on the medical sector, particularly biotechnology and genetic technology. I also think that health care that keeps people healthy—and is thus more cost-effective than medicine that treats sick people—will be in big demand in the years ahead. I like alternative energy, including solar power, wind energy, battery power, clean coal and more. And I think that international markets, particularly those that fallen farthest in the past year like China, India and Brazil, have terrific upside potential.
What are your top three stock picks, and what attracts you to each company?
I like Sequenom (SQNM), a genetic technology company that sells to a variety of industries and that has developed a superior test for Down syndrome. The test is non-invasive, it’s done earlier than the traditional amniocentesis, and it’s far more effective. The company is not profitable yet, but the market potential is huge and the stock is strong.
I like Websense (WBSN), a maker of Internet security solutions for companies that keeps hackers out, keeps email clean, and in general keeps employees working more productively. The company boasts accelerating growth of both revenues and earnings.
And I like Energy Conversion Devices (ENER), a manufacturer of solar power systems that are ideal for rooftop applications, large and small. In the past year, the company has become solidly profitable, and now revenues are growing at triple-digit rates.
Give any other comments you think would let subscribers know your investment style even better.
In growth investments such as these, a key factor that most amateurs don’t appreciate is the need to cut losses short. The goal is not to be right; the goal is to make money. So if the market tells you you’re wrong, you should sell. Being wrong is not a sin, but sticking with a losing investment—after the market has told you you’re wrong—is.
More information on Cabot Market Letter
More Cabot in the News
Cabot Home
Sign up for free Cabot Wealth Advisory e-newsletter