The Emerging Market Stock You Ought to Own

I’ll talk about an emerging market stock that you ought to own in a bit, but first, I want to talk about how following the advice of big mutual companies can really mess up your portfolio.

How to Take Control of Your Retirement Portfolio

If you pay any attention to your retirement account, you have probably read somewhere that a balanced approach to investing, with wide diversification across indexes, sectors, countries and regions, is a great way to lower risk.

And in one sense, that’s absolutely true. The theory is that when one stock is down, another will probably be up, with the same idea applying to every other way of slicing and dicing the market.

And the graphic representation is “style box” with nine compartments, arranged three by three, with “small, medium and large-cap stocks” across the top and “value, balanced and growth stocks” down the side.

I wasn’t ever very fond of that box, even when I was preaching the gospel of diversification for a large Boston investment firm. My objection wasn’t what it included. Diversification probably has a mild positive effect on risk. Rather, I was dismayed that it assumed that the best way for investors to manage their retirement accounts was passively. Allocate your funds and let time do the work was the dominant idea.

I have now spent 11 years at Cabot. My time has included the Great Recession of 2008, a market collapse so universal that it sank assets in all nine of the style box’s compartments. If you want to see what a 53% drop in the S&P 500—most investors’ preferred proxy for the market—looks like, here it is. (You’ll also see nearly five and a half years it took for the S&P to regain its October 2007 level.)

S&P 500 chart

When I look at this historical chart, I see the price that investors pay for passivity. By sticking with the “time, not timing” advice given by mutual fund companies, investors rode that market correction all the way to the bottom.

But they didn’t have to.

Active investors, those who take control of their own investments, had the ability to step off the down escalator in 2008, saving their capital and protecting themselves from further losses.

And I know that at least some of them did, because Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) and Cabot Growth Investor advised subscribers to do just that. I advised my followers to exit emerging markets stocks as they rolled over into corrections and hold the cash until market conditions improved. And while nobody can get out at the top and get back in at the bottom, I started bailing out before year-end 2007, was mostly in cash when Lehman went bust and then started making new recommendations for stocks to buy within two months of the market bottom in March 2009.

If you look at the chart of the S&P 500 now, it’s a pretty rosy picture, and most of those who hold its index funds are pretty happy. But imagine how happy they might be if they had been able to avoid a substantial portion of that 53% loss.

Sound like a good idea? Here’s how to get me and growth guru Mike Cintolo as your advisors as you start taking control over your own portfolio. Cabot’s growth advisories want to save you money so you can make more money.

Get the advisory right for you by clicking here.

The Emerging Market Stock You Ought to Own Right Now (But Probably Don’t)

It used to be that investors who were getting interested in emerging markets equities would look for the BRIC stocks, companies operating in Brazil, Russia, India and China.

But over the years, Brazil has broken down in scandal, Russia is under the control of a man who wants to recreate the Soviet Union and India has been unable to escape the drag of its own bureaucracy.

Today, the hot acronym for emerging market investors is BAT, which stands for Baidu (BIDU), Alibaba (BABA) and Tencent Holdings (TCEHY).

The company I’m talking about (the one that you probably don’t own) is Tencent Holdings, the largest Chinese instant messaging company. Tencent is a giant in its own right, with a market cap of $262 billion and annual sales of over $19 billion. The company has built the roster of monthly active users (MAU) on its QQ, Weixin, QZone and WeChat platforms to 2.4 billion, a 12% increase from Q2 2015. (That’s larger than Facebook’s MAUs.) The company grew revenue by 28% in 2015 and routinely boasts after-tax profit margins over 30%.

TCEHY’s chart, which has been in an volatile long-term uptrend, has really put the hammer down in 2016, soaring from 17 during the January market slump to 28 in recent trading. Here’s what the weekly chart looks like.

TCEHY chart

Given the company’s size (and the stock’s strength), why do I doubt that you own it?

The answer is in the five-letter symbol—TCEHY—that signals that Tencent is an over-the-counter stock. That means it doesn’t have a full listing on a major U.S. exchange, and trades on a bulletin board. And since very few analysts are willing to cover OTC stocks and very few mutual funds can buy such a stock for their portfolios, TCEHY is kind of the odd man out. You don’t own it because it’s outside the investment guidelines for most institutional investors.

Fortunately, the readers of Cabot Global Stocks Explorer don’t have that problem. I recommended Tencent Holdings to them in June, when the stock was trading at 22, which now gives them a 26% profit in the stock. And it doesn’t look like it’s done yet.

You can buy a position in Tencent Holdings through your online broker. They will all happily put your money to work, although at least one I know of will warn you that you’re coloring outside the lines.

This is a great example of the benefit of taking control of your own portfolio. If you’re ready to set sail without an anchor holding you back, let’s go! I’ll be happy to be your pilot.

Timothy Lutts

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