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It’s Hardest to Keep Things Simplest

This “focus on the simple” brings me to one of my favorite sayings in the stock market, which I got from the book, The Perfect Speculator (I highly recommend it): “It’s hardest to keep things simplest.”

Friendship and Recharging

It’s Hardest to Keep Things Simplest

A New Potential Leading Stock

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When you read this Wealth Advisory, I’ll be vacationing at Lake Winnipesaukee in New Hampshire—even though it’s only the 67th largest lake in the U.S., it might as well be Lake Superior for us Bostonians, giving us a fresh water location to visit that’s just two to three hours from the city.

But it’s not the size of the lake that’s meaningful to me; what’s meaningful is that for about 20 years, my high school buddies and I have headed up to Alton Bay (the southernmost part of the lake) to, basically, party. An uncle of one of these best friends bought a waterfront two-bedroom cabin 40 years ago and wisely held onto it. It’s in a woodsy area, with great privacy and a sunset-over-the-mountains view (especially from a dock that will make your jaw drop). The house was redone into a beautiful new structure a few years ago that has the all the charm you could ask for.

Of course, as the years have gone on and the grey hairs/kids have arrived, we’ve toned down the festivities a bit. Gone are the endless 30 packs of cheap beers of our 20s, frozen hamburger patties and late nights that often stretched until the sun came up. That’s been replaced by a few nice cocktails (including the curacao coolers I wrote about two weeks ago and my buddy’s pitcher of bourbon smashes—they’re always a hit), some poker or craps (yep, we bring our own felt), cigars and usually at least one nice dinner (marinated steak tips and grilled veggies are on the menu this year).

Here’s a (slightly fuzzy) picture from last year—usually there are three of us up there before anyone else, so we’ll break out a new board game Thursday afternoon (possibly with a little side wager involved) and have a few drinks (in red solo cups, naturally). And, yes, that’s me puffing on an afternoon cigar to kick off the weekend.

But whether it was taking down as many Natural Light beers as I could 15 years ago or helping prep the veggies for the grill last year, what this annual trip means to me are two things: friendship and recharging the batteries.

The friendship part is obvious—these are my best pals; I’ve known most of them since middle school or even before. And we’ve gone through everything together, from the good (new jobs, engagements, weddings, kids) to the bad (job losses, breakups) and the sad (deaths in the family). For all intents and purposes, we’re family, and given that many in the group now live outside of Massachusetts, this is an important time for us to hang out for couple of days without our kids or wives and catch up.

And that catching up is what leads to the second part—relaxing and recharging the batteries. We all have busy lives, with kids (most between one and seven years old), work and other taxing endeavors. So having our biggest worry be whether we have enough ice in the cooler is a great thing, allowing us all to reconnect and focus on the simpler things.

Now, don’t get me wrong—this isn’t one big hug-fest. There are still the usual guy-to-guy interactions, including inappropriate jokes (though none from me of course, ahem) and good-natured trash talking about various subjects (did I mention my fantasy football team, Team Calzone, is 2-0?). But being able to think about the simple things and appreciate them is the most important part of the weekend. Cheers to Lake Winnipesaukee 2015!

This “focus on the simple” brings me to one of my favorite sayings in the stock market, which I got from the book, The Perfect Speculator (I highly recommend it): “It’s hardest to keep things simplest.”

Right now, for instance, the market’s intermediate- and longer-term trends are pointed down. I determine this via my market timing indicators (we call the intermediate-term indicator the Cabot Tides, while the Cabot Trend Lines tell us the longer-term trend), but you can get the same picture by just looking at the indexes and their 50- and 200-day moving averages.

As for the broad market, the picture is also bleak. Even after four weeks of rallying, a mere 23% of stocks on the NYSE were in longer-term uptrends at the end of last week, while 35% of Nasdaq stocks were. Pretty sick.

Thus, the game plan for a growth investor remains simple—be defensive and be patient as we wait for a sustained uptrend to get underway. That means lots of cash and little new buying (and only small positions when you do take a stab at something).

But as the market has bounced in recent weeks, it’s become harder for most investors to keep things simple. The talking heads on TV are talking bullish, news has been flying all over the place and some stocks are acting well (more on that below). I’m hearing from a few people every day about what to buy or, more recently, what to do with the stocks they bought two weeks ago.

So as we head into the often-tricky late-September, early-October period, we’re working hard to keep things simple. When the market does turn up (hopefully it’s soon), there will be plenty of leaders to jump on. The key is to wait for the right time to jump, otherwise you’ll get chewed up by the endless ups and downs.

That doesn’t mean I’m completely opposed to nibbling on a stock or two, but you should make sure it’s a potential leader that’s acting resiliently. One that I have my eye on is Dycom (DY), which was recommended as the Top Pick in Cabot Top Ten Trader on September 8, and has run decisively into new high ground since then. Here’s what I wrote:

“Dycom Industries is a right place/right time kind of story. The company is a leading provider of engineering, construction, service and maintenance services to telecom companies that are expanding and upgrading their networks. And that’s a great place to be as 2015 has kicked off what could be a multi-year investment cycle by the big telecom firms that are looking to drastically expand their bandwidth. Indeed, most of the telecoms are big customers (AT&T accounts for 19% of revenues, CenturyLink 16%, and Comcast 12%) as they all look to lay upgraded pipe. That’s resulted in huge business for Dycom, which reported outstanding quarterly results last week—not only did sales growth accelerate and earnings blow away expectations, but the firm’s backlog grew to $3.68 billion (up 58% from a year ago) and management gave a bullish view of the next couple of quarters. And the top brass has been shareholder friendly, too, buying back about 3% of the company during the past two quarters. That said, Dycom is a “down the food chain” stock, so if the telecoms cut their budgets, business could dry up in a big way. But right now, the wind is at the company’s back.”

As noted above, I’m not big on buying much until we see a new buy signal, but if you’re heavy in cash, nibbling on some DY (preferably on dips of a couple of points) could work. The best idea, though, is to take a no-risk subscription to Cabot Top Ten Trader—that way, you’ll not only know when the market’s trends really turn up, but you’ll know exactly what stocks are the new leaders, where to buy them and how to manage them. Click here to order.

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A growth stock and market timing expert, Michael Cintolo is Chief Investment Strategist of Cabot Wealth Network and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.