Aggressive Growth Stocks for Retirement
Concentrated Bets
A Powerful Chinese Stock
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Investment advisors are a predictable bunch, and they dispense almost identical advice.
• Start young! they tell you, pointing out that just $250 a month in a Roth IRA starting at age 23 will have you within spitting distance of a million bucks by the time you roll into age 65.
• Live a disciplined life—no Starbucks lattes or Cristal champagne—buy the sensible used car and practice moderation and blah, blah, blah.
• Diversify, take the long view, get a financial advisor, rotate your tires and drink eight glasses of water a day.
It’s enough to put you off your feed. (They don’t bring up aggressive growth stocks.)
The fact of the matter is that by the time most people have the time to think about it and any money to do anything with, they’re too old to start young. I came of age during the 1960s, and for the four years I was in the Army and the six years I spent in grad school eating cheap food and drinking cheaper beer (Wisconsin Club at $0.99 an eight-pack!), retirement planning was the last thing on my mind.
After I started teaching college, the pay was wretched and the retirement plan was pitiful. I loved teaching, but financially, things didn’t pick up until I left teaching and hooked up with a big Boston financial house, which was well into my theoretical peak earning years.
I’ve been playing catch-up for a long time, and I’m getting a little more comfortable with the idea of retirement, although I imagine I’ll probably follow in my dad’s footsteps and work as long as I can drag my bones out of bed. Life is just more interesting if you stay useful.
But I suspect there are a lot of people out there who have gotten sufficiently terrified about the state of their retirement accounts only recently as their personal odometers have ticked over into their fifth and sixth decades. And when they start looking for retirement advice, what they run into is the “start young, diversify, stay the course” crap that financial advisors dish out.
To paraphrase Warren Zevon (and there’s a generational touchstone if there ever was one), you’re too old to start young, but too young to retire now.
The mutual fund people (who make money by taking a yearly cut off the top of what they manage for you) tell you to just keep shoveling money into your diversified account and leaving it there. And if you’re a little older than you should be (given the amount you have in your account), you need to shovel more.
Maybe.
But the mutual fund people and the financial advisors seldom acknowledge that it is possible to beat the broad market by strategically investing in aggressive growth stocks. The Cabot Market Letter has done it for years. And when markets are in an uptrend, the Cabot China & Emerging Markets Report can also gather momentum quickly.
Personally, although I’m not a certified financial advisor, I think that anyone who’s concerned about the state of their retirement funding ought to think about putting more of their stock portfolio into growth stocks, with at least half of that in aggressive growth stocks.
Managing an aggressive growth portfolio isn’t easy. It takes hours of study and analysis, and you have to be prepared to live through some dismaying downmoves as stocks hit the rocks from bad earnings reports, scandals, market downturns and inexplicable failures to thrive. But if you have an advisory that will get you out of the market and into cash when the tides turn against you—as both the Cabot Market Letter and Cabot China & Emerging Markets Report will—and a sell discipline that will cut your losses short, you can do well enough to take control of your retirement, rather than just drifting toward it like a canoe heading for the waterfall.
Most people have been sold a bill of goods by the financial industry. But you don’t have to just sit there while management fees and inflation let the air out of your retirement party balloon.
How do you get started? I can think of two ways. One involves studying the market for years, discovering how to recognize bull and bear patterns, learning how to pick stocks by reading charts, interpreting fundamentals and analyzing business models, and making decisions about how much money to put into each attractive stock and how to manage your portfolio through the vicissitudes of different market movements.
Or, alternatively, you can just take a trial subscription to either the Cabot Market Letter or Cabot China & Emerging Markets Report, two publications that have been doing exactly that kind of study and analysis for decades.
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People who’ve known me for a while know that I’m a serious fan of the movies. I used to teach film criticism and for many years I was a practicing critic, first in print, then on the radio. And I’m approaching 20 years as the leader of film discussions at The Music Hall, a non-profit theater and entertainment venue in Portsmouth, New Hampshire.
I hope this doesn’t tarnish my image as a knowledgeable, sober and trustworthy writer about growth stocks, but there’s not much I can do about that. I fully expect to continue with my film fascination for as long as I have the use of my eyes and ears.
When I first came to work at Cabot, the one thing I was firm on during my negotiations was that I would be allowed to come to work late on the morning after the Oscars. And that’s exactly what I do every year.
I won’t bore you with my Oscar observations, but I have one anecdote that I think might interest you.
I ran an Oscar-picking contest among my co-workers at Cabot. I edited the list of nominees down to 16 categories and told people that they had to pick winners in at least five of them. The winner would be the person with the highest percentage of winners.
The strategies were all over the place. Some people made picks in all 16 categories and several made only the required five choices.
The winner was Tim Lutts, which wasn’t a surprise to many of the people at Cabot, who know him for a careful strategist with a clear-eyed way of analyzing odds.
Tim picked in just five categories, sticking to ones that either had a clear favorite or had just three entries. His final score was 100%.
There is an investing lesson in this story, though, and it’s this. With only five bets down, if Tim had been wrong on just one of his picks, he would have finished with just 80%, which would have put him in third place, behind two people who picked all 16 categories and finished with scores of 82%.
The moral is that a concentrated bet, on the Oscars or growth stocks, or anything else, is a riskier proposition than spreading the money around a little. The smaller the number of bets, the bigger the potential damage that each one can do. The more concentrated your portfolio of issues, the closer to perfection you have to get to make (and keep) your money. But I could also argue that when you’re right, you’ll make big money.
My stock pick today is one that I’ve written about before, Qihoo 360 (QIHU), a Chinese company that makes security software for mobile devices. Qihoo gets most of its money from selling programs that battle viruses, adware and other malware and protect personal information on phones and tablets. The company makes nearly three-quarters of its money from ads on its mobile Web browser and the other quarter from its protection software.
The boom in mobile devices in China has lifted Qihoo 360’s market cap to $3.6 billion on annual revenue of just $288 million, and the reason is that many investors see the company’s rapid market-share growth in Internet search as a huge opportunity.
QIHU popped higher in August 2012 when it switched from Google as the default search engine to its own search program on its popular mobile browser. The sudden acquisition of a nearly 10% market share (mostly taken from Google) grabbed lots of attention and kicked the stock from 15 at the beginning of August 2012 to 25 on August 22. Another surge started in late December and the stock surged to 33. But since the beginning of January, QIHU has traded in a range with support at 30 and resistance at 33.
This kind of range-bound trading usually indicates a battle between buyers and sellers, and it will probably come down to the results of the company’s quarterly report on March 5 to decide the contest.
Right now, Qihoo 360 is one of a number of small Chinese stocks that are making investors look more closely at the China market. After years of global economic turmoil, the big emerging markets are once again tempting targets, with GDP growth that dwarfs anything in the developed West and economies that are ready to explode higher when the woes in Europe finally resolve themselves.
If you want in on the ground floor of this resurgence in the fastest-growing economies in the world, you might consider taking a trial subscription to Cabot China & Emerging Markets Report, which I write with my own hands. I think you’ll enjoy the results.
All the best,
Paul Goodwin
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory
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