More Shark, Less Whale in Your Stock Portfolio

Stock Market Video

More Shark, Less Whale in Your Stock Portfolio

This Week’s Fortune Cookie

In Case You Missed It

In this week’s Stock Market Video, Cabot Chief Growth Analyst Mike Cintolo discusses the continuing increase in positive evidence in recent weeks—from dour sentiment, to improved action among growth stocks, and now to the Nasdaq’s leap above resistance near 5,100. That suggests that buyers are slowly wresting control from the sellers. Mike isn’t fully bulled up, but he’s seeing many current set-ups and other leading stocks that could offer opportunities on pullbacks.

More Shark, Less Whale in Your Stock Portfolio

If you’re one of the millions of investors who (collectively) have billions of dollars invested in mutual funds, you know that index funds are the most-recommended (and most popular) choices. These funds work scrupulously to emulate the performance of the Dow, the Nadsaq and the S&P 500, advancing when the index advances and stumbling when the index stumbles. Even sector and country funds usually include a major index as a benchmark, the bar that the fund uses to decide whether it’s had a good year or not.

But is beating an index really a sufficiently ambitious goal to aim for?

The most famous investor in America doesn’t really think so. Yes, Warren Buffett, the King of the Value Investors, the guru of the buy-and-hold strategy, used to get great joy out of beating the Dow Jones Industrial Index.

Back in 1999, in an interview with Businessweek, Buffett recalled the following: “The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money.”

You can almost hear the nostalgic excitement in Warren’s voice as he recalls the thrill of kicking the Dow’s butt.

Warren is probably still enjoying himself, of course. When you’re among the richest people in the world and you’re still going to work every day, odds are you’re finding some satisfaction in what you do.

But someone like Buffett, who’s buying entire companies and taking equity that amounts to tens or hundreds of millions of dollars in other businesses, has lost something that the small investor has, and that’s freedom.

As Warren himself says, “It’s a huge structural advantage not to have a lot of money.” A huge position in any stock can’t be bought in a day. And, maybe even more important, it can’t be sold in a day. Liquidating a large position without knocking the stock’s price into a tailspin requires patience and a deft touch with the sell button.

And it’s that liquidity problem (plus finding companies with a large enough market cap to accommodate investments of millions of dollars) that keeps institutional investors out of many growth stocks.

I’ve pointed out before that the small investor’s ability to buy or sell a position in a stock at a moment’s notice is one of the amateur investor’s greatest advantages over the whales.

And now I have Warren Buffett on my side to prove it.

So you should ask yourself, if you’re a small investor with a majority of your assets in mutual funds that are plodding along, trailing after the major indexes, is this the best you can do?

Personally, I don’t think so. While the diversification of the major indexes may look like a good way to lower risk, there are times when there’s no substitute for a well-considered portfolio of individual stocks. And with the S&P 500 trading sideways in a sloppy range for months at a time (and the Dow doing the same thing since New Years), this stock-picker’s market is perfect for the growth style.

So don’t sell yourself (and your portfolio) short. You’re still small enough to act like the shark Warren was in the 1950s and less like the whale he is now. Don’t give up your portfolio’s biggest advantage! Cabot’s growth advisories have been helping individual investors hunt with the sharks for over 40 years. Check them out here.

Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies and Contrary Opinion buttons.


fortune cookie“Believe none of what you hear, and only half of what you see.” — Benjamin Franklin

Tim’s Comment: At first glance, this seems a bit excessive, but on reflection, I conclude it’s not bad advice. In fact, just last week, researching the history of native American wines for Monday’s Cabot Wealth Advisory column, I came across T.V. Munson, a Texas horticulturalist (1843-1913) who was active in the Freethought movement. Freethinkers questioned ALL received wisdom.

Paul’s Comment: Personally, I think Benjamin Franklin must have been one of the all-time great drinking buddies. He was smart, clever, loved a good time and (from what I read), was an honest and honorable man. And I’m sure that, despite the quotation, he believed much of what he heard and saw, although he most certainly didn’t take anything on faith, preferring to run everything through his internal BS detector. Such a man would also make a great investor.

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 6/15/15 – American Midwest Road Trip, Part Four

Cabot Stock of the Month’s Chief Analyst, Tim Lutts, continues his review of his Great Motoring Adventure with an account of the wines he encountered along the way, especially those made from native grapes. Stock discussed: Constellation Brands (STZ).

Cabot Wealth Advisory 6/16/15 – Six Investments You Might Not Know Are at Risk Because of Interest Rate Increases

Chloe Lutts Jensen, Chief Analyst for Cabot Dividend Investor, writes about some investments that may be adversely affected by Fed rate hikes in the future. This includes bonds and bond funds as well as preferred stocks.

Cabot Wealth Advisory 6/18/15 — My Thoughts on Greece and the Stock Market

Mike Cintolo, the growth guru behind Cabot Growth Investor and Cabot Top Ten Trader, gives a little reassurance to nervous investors about how a Greek crisis might affect the markets. (History says: Follow the market.) Stock discussed: Norwegian Cruise Lines (NCLH).


You must be logged in to post a comment.