The Comfort of Common Goals
Be Prepared to Follow the Rules
A Cabot Growth Investor Stock
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The Comfort of Common Goals
I don’t have any historical data, but I know that the practice of senior corporate executives getting part of their compensation in company stock has been around for a long time.
Compensation in stock is a win-win on every imaginable level, but the biggest bonus, at least from the point of view of stock investors, is that the practice aligns the executive’s interests with those of the investor. A CEO with a lot of stock has a built-in reason for trying to increase the price of his holdings. Every dollar the stock price appreciates is like getting a raise in pay, and if the exec chooses to hang onto his shares, the dividend income also boosts total pay.
But during the Tech Bubble days, when the future was so bright that you needed sunglasses even to think about it, the giving of stock options began to gather momentum.
Stock options—agreements to sell a specified number of shares to someone for a specified price at an unspecified future time—offered a way for a company with no money to give key players a lot of money, presumably some time in the future when the stock was trading way, way above its option price. Needless to say, many of those options wound up about as valuable as paper towels, but not as useful.
These days, both stock and stock options are a hellaciously popular part of compensation packages for senior executives, and the justification for granting them comes right back to the incentive they give for everyone to work hard to increase shareholder value. (And, in fact, I always like to see that the C-level officers in a company I’m considering recommending have a significant equity stake.) It’s not that executives don’t always have shareholder value in mind when they make decisions, but it’s easier to really believe it when they’re shareholders themselves.
Small moral: In the same way that owning stock or stock options creates a strong connection between the fortunes of executives and interests of stockholders, Cabot’s way of doing business aligns our interests with those of our readers, which is you.
Here’s how that works.
Cabot publishes investing advisories, and our revenue comes from paid subscriptions. We don’t accept paid advertising in our advisories and we don’t put advertising on our website. We don’t accept fees from companies to promote their stocks. We don’t handle money for people. We’re a private company, so we don’t have stockholders to answer to.
What we have are subscribers, and they buy our advisories and renew their subscriptions because they find them useful. Ideally, they make money by following our advice.
If people don’t get value out of our advisories, they don’t renew their subscriptions and we don’t stay in business. No amount of fanfare or sleight of hand can obscure that bottom line. If our subscribers make money, we get to keep doing what we do.
And that’s about as direct an alignment of interests as you’re likely to find anywhere.
And with all that said, here’s a little fanfare.
The Cabot Growth Investor, which is our flagship publication, is now 45 years old and still going strong. It does what most stock gurus say can’t be done: It outperforms the broad market year after year.
Cabot Growth Investor is a growth stock advisory that uses market timing to vary the amount of exposure that our subscribers have to the market. If markets are in a foul mood and stocks are trending down, Mike Cintolo, Cabot Growth Investor’s chief analyst, tightens up the loss limits on the stocks in the Model Portfolio (which can have up to 12 stocks when it’s fully invested) and moves toward a higher cash position.
This shift in market exposure alone kept Cabot Growth Investor readers from tanking along with the market in 2008. This year, the advisory has kept a high cash position since the market turned cranky in mid-August, and is currently 60% cash with five stocks rated hold.
Mike’s stock picks are based on the strength of the stock’s chart (momentum), the attractiveness of the company’s story and the soundness of the underlying fundamentals like revenue, earnings and after-tax profit margins. The combination of Mike’s market timing and stock selection methods have allowed him to outperform the S&P 500 by 4.8% per year since he took the helm of Cabot Growth Investor in 2007—basically, he’s more than doubled the market’s return during the last 8 1/2 years.
Cabot Growth Investor tells you exactly what’s going on in the market, what each buy and sell is, how our market timing indicators are faring, what stocks we have our eye on for future investments and, more importantly, how we think about growth investing.
Subscribers receive weekly messages, with regular issues and updates coming out on alternating Wednesdays. And occasionally, there’s news about a stock that needs buying or selling or something happening in the market that’s so urgent that we send out a special bulletin.
Perhaps best of all, subscribers are entitled to email Mike directly anytime they have questions on the portfolio or the market—it’s like having a personal stock advisor!
More than anything, after all my years in the investment industry, watching the cynicism and weariness of professional money managers, what impresses me about Cabot Growth Investor is the degree to which Mike really lives and dies by how the advisory is doing.
I also write part of each issue, but it’s really Mike’s baby, and he’s as emotionally attached to the performance of the Cabot Growth Investor as he is to the fortunes of the New England Patriots. And that’s a lot!
The final thing I have to say about the Cabot Growth Investor is that it requires some commitment from its subscribers as well. You have to be prepared to follow the rules, including both the fun part (buying) and the sometimes not-so-fun part (selling).
If you let it, the Cabot Growth Investor will change how you think about growth investing. You’ll focus on the market’s leading stocks, you’ll avoid market downturns, and you’ll never miss a market uptrend.
I think it’s a good idea.
As I mentioned, Cabot Growth Investor is currently holding five stocks. I won’t name them all here, but I will name its oldest holding, Facebook (FB), which Mike bought at 38 on August 1, 2013. Today, the stock is trading at around 96, up about 153% in a bit more than two years.
Here’s what Mike wrote about FB in last week’s issue. I think it will give you a good idea of how Mike continues to update his subscribers on every holding.
“HOLD—Facebook (FB 93)—FB continues to act well, with the stock hitting a new relative performance (RP) high earlier this week. The latest noteworthy news item about the company concerned its WhatsApp messaging subsidiary. The outfit had 700 million active users earlier this year, passed 800 million in May and just passed 900 million this month! When the company decides to monetize this platform (which probably won’t be for another few quarters), the revenue potential is huge. Speaking of monetization, Instagram’s ad load has been growing both here and overseas, with many analysts seeing revenues growing from about $325 million this year to a few billion dollars by 2020. We believe Facebook hasn’t seen its ultimate top, and the stock’s resilience is a clue that institutions agree. Continue to hold your shares.”
If you’re interested in finding out how Cabot Growth Investor can help you achieve your investing goals, click here for more information.
Sincerely,
Paul Goodwin
Chief Analyst,
Cabot China & Emerging Markets Report
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