Ten Words that Will Make You a Smarter Investor

Stock Market Video

Ten Words that Will Make You a Smarter Investor

This Weeks Fortune Cookie

In Case You Missed It

In this week’s Stock Market Video, Mike Cintolo says that the market had a near-miss this week, looking ready to roll over on Wednesday. But the reaction to the Fed’s tapering announcement breathed new life into stocks and gave the major indexes some freeboard. None of this changes our stance, but it keeps us from turning defensive, letting us watch the market’s top performers for signs of breakouts from their trading ranges of the past six or eight weeks. Seeing those breakouts would be a signal to increase our exposure to the market. Click below to watch the video!

mike cintolo, stock market video

Ten Words that Will Make You a Smarter Investor

“The race is not always to the swift, nor the battle to the strong, but that’s how the smart money bets.”—Damon Runyon

Like most really good quotations, Damon Runyon’s memorable reworking of Ecclesiastes 9:11 exists in a bunch of different versions. It’s one of my favorites in the cynical, wised-up style, taking a sentimental bubble of optimism that basically says, “Anything is possible!” and puncturing it with a jab of common sense.

Runyon was a sportswriter and a lifelong gambler, so his use of “smart money” was no accident. The shady characters he wrote about—the ones that formed the basis for the musical “Guys and Dolls”—all wanted to believe that they were savvier and more clued-in than the average mark, square or schmo.

Well, wouldn’t we all like to believe that? There are lots of people who want to be right even more than they want to be rich.

If you’re one of them, today’s your lucky day, because I’m going to give you one rule that will allow you to gain a reputation as a very savvy individual indeed, at least when you’re talking to a group of growth investors.

Here it is. In just 10 words.

Market goes up, get in. Market goes down, get out.

Those words are the basis of the Cabot market timing philosophy, an approach that has consistently won the Cabot Market Letter a spot near the top of the list for all market timers.

You wait for the market to go up before getting in for the same reason sailing ships wait until the tide is going out before they leave port. It’s also the reason people who want to go to a higher floor step on the up escalator rather than the one going down.

Of course it’s still possible to find advancing stocks when the markets are going down. If you had bought stock in the biomedical company Amgen (AMGN) in March 2008 at 39, you could have sold it a year later, when the market bottomed, at 52. But believe me, with the S&P 500 Index plummeting from 1342 to 667 (a 50% drop, which is the equivalent of a haircut that stops at your beltline) during the same period, it was anything but easy to find winners at the time.

So why am I telling you this? Two reasons. First, it’s because the tide of the market is now up, but there are a few warning signs flashing, telling us to lighten up on buying and pay especially close attention to the action of our individual stocks. The major indexes are either hitting new all-time highs or multi-year highs. But the choppiness of many growth stocks and the narrowing of market leadership are typical of times when pullbacks have begun in the past.

Translation: Escalator going up, but signs a top may be near. Note, however, that we aren’t trying to predict when (or if) a correction will begin. We’ll just wait for it to happen. And if it doesn’t, and the cautionary signs turn out to be wrong, we will have stuck with our growth stocks during a bull market. And that’s how money gets made.

But the second reason is even more important. It’s that this market rally will continue until it brings in so much hot money, late money and over-enthusiastic money that there’s no one left to do any buying. And at that point, stocks will begin to tip over into corrections and our market timing indicators will tell us that it’s time to head toward cash.

When the correction has run its course, there will be an entire smorgasbord of attractively priced stocks available to those who can recognize a new leg of this bull market in its infancy.

Just as getting out of a down market saves you money, getting into a new up market makes you money. And Cabot’s growth disciplines will tip you off about the new bull market buy signal while the dumb money is still groaning and holding its head, wondering what hit it.

So there you have it, a recipe for smartness in just 10 words. Market goes up, get in. Market goes down, get out.

And if you’d like to have a trustworthy advisor to tell you which way the escalator is running (and when it changes), a no-risk trial subscription to a Cabot growth advisory (like my Cabot China & Emerging Markets Report) will make sure you stay smart.

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Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

Tim’s Comment: Strategically, this makes great sense. By responding to the enemy’s movements—rather than making plans—Mao-Tse-Tung (or any warrior) can minimize damage and maximize progress. And the same holds true in the investing world. If you continually monitor the actions of the broad market and your stocks—rather than holding preconceived notions of what they’ll do—you’ll minimize your losses and maximize your gains!

Paul’s Comment: Growth investors are fighting a kind of war, and Mao’s famous dictum about guerrilla war is very apt. If you buy when markets are going up, sell when they’re going down, preparing to sell as bulls tire and preparing to buy after a bear phase, you’re likely to be on the road to great results. Getting in line with the major trend of the market is always the best thing to do.

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 12/16/13—Is the Market Rigged Against Small Investors?

Cabot Stock of the Month editor Tim Lutts writes in this issue about the advantages that individual investors have over large, institutional investor, the main one being the ability to get in and out of positions quickly.

Cabot Wealth Advisory 12/19/13—A Big Announcement or Two

Chloe Lutts uses this issue to introduce Nancy Zambell, the new editor of Dick Davis Digests. She also writes about her excitement at the upcoming debut issue of Cabot Dividend Investor, her new income advisory for those seeking safe, low-maintenance retirement income.

Have a great weekend,

Paul Goodwin
Chief Analyst, Cabot China & Emerging Markets Report
And Cabot Wealth Advisory

P.S. I’m going to be presenting a program on China at the World MoneyShow in Orlando, Florida on January 30, just before dinnertime. The World MoneyShow is a major gathering of investors of every stripe, including gold bugs, day traders, dividend investors, growth investors and vendors of every kind of investment software and service imaginable. The conference kicks off January 29 and ends on January 31. If you need an excuse to go to Orlando to build up your strength to get through February, I’m glad to provide it. I hope to see you there. 

Click here if you’d like more information.


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