If there’s one thing gardeners and growth stock investors know about, it’s seasons.
You don’t see gardeners planting tomatoes in the icy ground in January and you don’t see growth investors plowing money into markets when the bears are in control.
But when days start to lengthen, you can bet that gardeners will be watching the calendar, waiting for the last-frost day to grab a trowel and head for the beds that they’ve been preparing.
Gardeners aim high; they fully expect a few grams of seeds or a flat of seedlings to grow into a bed full of bounty, one chunk of potato multiplying underground, tomato bushes producing fruit by the bushel and sunflowers over their heads with blooms as big as platters. Nobody ever accused gardeners of lacking ambition.
But they know when to plant, when to harvest and when to sit by the fire looking at seed catalogs.
Growth stock investors (well, the successful ones, at least), do exactly the same thing, although it’s not the calendar they look to for the signal to start putting their money to work.
The planting signal for growth investors comes when the market is ready, and not a minute before.
And the market is ready.
How do I know? Just look at this chart. It shows that the S&P 500 is off to the races. (It also shows a lot more, which I’ll explain in a bit.)
I don’t want to get too cute about this gardening metaphor, but a growth investor gets a planting signal the same way a novice gardener does, by noticing when everyone in the neighborhood is planting.
And if I can test your patience for just a bit longer, I’ll say that a growth investor who ignores a bull market is missing an opportunity just as much as a gardener who waits until the end of summer to do the planting. For the gardener, that opportunity won’t come again for a year.
For the growth investor . . . who knows? Bull markets aren’t so common that you can afford to waste one. And since every type of investor—growth, value, income or options—has a limited number of years between their first job and retirement, missing a growing season is losing an opportunity that will never come again.
Gardeners and growth investors are optimists. They have to be.
A pessimistic gardener will think only about thrips, aphids, cutworms, Japanese beetles, groundhogs, blight, caterpillars, deer, borers, fungus, squirrels and all the other enemies that wait in the garden. And if they do that, they will leave their trowels in the woodshed and hope that a nice neighbor brings them a couple of big, red, juicy tomatoes in August.
A pessimistic growth investor (it’s kind of an oxymoron) will agonize about the decision to start putting money to work, fearing whipsaws, Brexits, rate hikes, recessions, earnings season failures, and the gains that stocks have already registered. They will wait on the sidelines until everyone else is already in the market and stocks have registered huge gains, then, they’ll jump in and start buying growth stocks … just before the big correction.
So how can you—whether you’re a committed optimist or a dyed-in-the-wool pessimist—be sure that the market is like a garden waiting to be planted?
Look back at that chart of the S&P 500 above. I’ll just point out two things that Cabot’s growth analysts would use as evidence that the market timing light is flashing green.
First, look at the relationship between the S&P and its 25- and 50-day moving averages. When the index is above those moving averages (and the averages themselves are moving up), the intermediate-term momentum of the market is positive. Cabot’s analysts use a lot more indicators, but that one is both easy and reliable.
Second, notice that the S&P makes four attempts to get past resistance at 2,100, one in late December, one in April and two in June (there were other attempts in 2015 too). And each time, it got its face slapped and corrected lower. The January correction was a tough one, with an attempted recovery followed by another leg lower. Very discouraging. The other three rebuffs (including the remarkable two-day post-Brexit dip-and-rebound) were shallower, but they showed that resistance at 2,100 wasn’t just a fluke.
And what the stubbornness of that resistance means is that the market’s breakout above that level is a significant accomplishment. It really means something.
With all that said, I have no idea what the market will do on Monday. Cabot’s growth analysts all share a refusal to try to forecast the future.
But they will also all tell you that the bulls are in charge right now and the sun is shining and it’s time to get some money working for you in the growth stock market.
And you probably won’t be a bit surprised that me and my fellow growth analysts are quite willing to help you find the leaders and build a portfolio of great growth stocks while conditions are ideal. Let’s get to work! Click here to choose the right advisory for you.
Fortune Cookie
Here’s this week’s Fortune Cookie. Remember, you can always view all previous Contrary Opinion buttons here.
“The most dangerous moment comes with victory.”
-Napoleon Bonaparte
Tim’s comment: As I write, every position in my Cabot Stock of the Week portfolio is profitable. By one measure, I have succeeded. But experience reminds me that this is a time for extra vigilance—and possibly some profit taking—because Napoleon knew what he was talking about.
Paul’s comment: I wouldn’t say that picking great growth stocks is easy, but it’s certainly easier than figuring out exactly what to do with the stocks after they start making handsome profits. There are books dedicated to how to take profits and sell disciplines and the like. It’s a happier dilemma than figuring out when to sell a loser, but the rules for selling losers are simple compared to deciding when to jump off a winner.
[author_ad]
