Shift the Odds with Market Timing

Stock Market Video

Fighting the Odds

Consensus Conclusions Create Careless Consequences

In Case You Missed It

In this week’s Stock Market Video Paul Goodwin looks at the major market indexes and sees a potential shift to a positive direction. Much will depend on how the vote in Greece goes this weekend. If the indexes turn up, we could get a new buy signal soon. But, as we point out again and again, there’s huge risk in trying to anticipate a market shift. Patience (and working on your watch list) is the only prudent course right now. Paul discussed some stocks with good stories, including Amazon (AMZN), Mellanox (MLNX), Monster Energy (MNST) and Expedia (EXPE). Click below to watch the video!

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If you want to defy the odds, go to Las Vegas; at least you’ll get to see some good shows and enjoy some wonderfully quirky architecture while you lose your money. I think that lots of people enter another world when they get off the plane at McCarran International Airport, and in their minds, the dollars in their pockets turn into Monopoly money.

If you go to Las Vegas, you have to be aware that you are entering the most tightly engineered mechanism for separating you from your money ever created. Every aspect of the casino experience, down to the pattern of the carpet and the level of light and noise, has been studied obsessively to find out what will induce you to make bets when the odds are not in your favor.

You know the odds aren’t in your favor because they are available for you to look at. And you have to know that the longer you play the higher the probability that you will lose. It’s just the law of statistics, but it’s still The Law.

But what if you could turn the table of Vegas? That’s happened in the past, when statistically minded teams of smart kids showed up and began to count cards at the blackjack tables. The result? Casinos banned them from playing … forever.

The one area I know of where you can actually put the odds on your side is in stock market investing. And specifically, I’m thinking of the Cabot approach to market timing.

The basic idea is to avoid the markets when they are in a downtrend and jump in when they are trending up. It’s a simple matter of looking at indexes that represent the performance of groups of stocks, and observing whether they’re above their 25- and 50-day moving averages. (You can see the details on how this works by clicking here.)

Think about this for a minute. If you were at a craps table in Las Vegas and there was a little light on the table that told you when the odds had shifted in your favor, what would you do? Personally, I’d sit there with my hands in my pocket until the light went on.

You might also think about it in terms of a sailing ship getting ready to leave the harbor. Traditionally, sea captains would wait until the tide was going out before lifting the anchor. Any captain who tried to get under way while fighting the current would soon have been an ex-captain.

Investing in growth stocks (and that’s the style that I use) requires a big helping of discipline with a side order of patience. Markets will try to pull you in before the odds are truly in your favor. And you’ll be tempted to jump the gun and roll the dice before the light goes on.

Don’t do it. Odds are you’ll regret it. And, as Las Vegas teaches us, you can’t really fight the odds.

To learn more about investing in growth stocks with the Cabot Market Letter click here.


Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Consensus Conclusions Create Careless Consequences

Clever. It means simply that groupthink can never bring above-average performance. Decades ago, the marketing people at IBM popularized the phrase, “No one ever got fired for buying IBM equipment.” Trouble is, those people who opted for the safety of the herd never got beyond middle management. [Editor’s Note: Investing is a risky business, but managing that risk by following what the herd is doing just creates new risks. Consensus is just one more way of being wrong with confidence. Thinking for yourself isn’t comfortable, but the rewards are great.]

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 6/11/12 – My Favorite Travel Stock Today

In Monday’s CWA, Tim Lutts approves of private businesses taking over the job of launching satellites and servicing the International Space Station. Featured stock: Concur Technologies (CNQR).

Cabot Wealth Advisory 6/14/12 – Retirement? What’s That?

In this issue, I wrote about the age of the Boomer generation and how well-prepared they are for retirement … or not. Featured stock: Home Depot (HD).

Have a good weekend,

Paul Goodwin
Editor, Cabot Wealth Advisory


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