A Straight Answer About Sina

Stock Market Video

A Straight Answer about Sina

This Week’s Fortune Cookie

In Case You Missed It

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Stock Market Video

In this week’s review, I point out that not much has changed in the market for a while. The major indexes are all stuck in sideways ranges as investors try to sort out the and fallout of a Greek default, the timing and size of a Fed interest rate increase and the future of the stressed-out Chinese economy. It’s not a market that’s rewarding index, sector and industry investors. I look at four industries that are actually getting support from economic conditions and give a couple of examples of sound stocks in each industry.

A Straight Answer about Sina

On June 18, I received this email from a subscriber to Cabot China & Emerging Markets Report, the investment advisory for which I’m Chief Analyst.

“Paul, Morningstar changed SINA to sell today. They think that WeChat will replace Weibo [which Sina owns] as the preferred system in China and that the moat is very narrow. I have a $1,300 gain in it. Do you think it is losing share and should be sold?”—[a subscriber]

Here’s the chart showing how Sina.com (SINA) has been acting since the beginning of the year. You can see that the stock was essentially dredging the bottom in March, but caught an updraft in early April, followed through to the upside, then consolidated through May. A new rally on huge volume began on June 1.

Here’s what I wrote back to my subscriber, slightly edited.

“I don’t subscribe to Morningstar, so I haven’t heard the particular analysis about Sina’s competitive stance in the social messaging space that you’re referring to, but I’ve seen plenty of others.

“My advice would be to ignore the analyst’s claims and follow the chart instead. If investors agree with Morningstar, the stock will fall and that will show up in the chart. Similarly, if an accusation from a short-selling specialist (who have targeted several Chinese stocks in recent months) or an upgrade from an analyst gets traction, the stock’s chart will reflect that.

“Your options are 1) sell half of your position to book partial profits and lower your exposure, 2) hold and watch what the stock does, using a mental stop at 54 or 56, depending on how defensive you want to be. (If you’re long-term bullish on the stock, you might even go as low as 52, to give it more room for volatility; it’s up to you.) 3) Sell the whole thing right now and enjoy the gain.

“Whatever you decide to do, I think your decision should be based on the chart, rather than a prediction made by an analyst. The chart will reflect everything that analyst knows, plus everything all the other analysts know and more importantly what all the investors in the world believe. The chart is reality; the downgrade based on projections is a guess.”

Since I sent my advice, SINA has continued its controlled correction. There doesn’t seem to be a stampede to get out of the stock, as the decline is similar to its May consolidation.

I want to point out a couple of things about this question and answer exchange. First, I think it’s unusual (and maybe unique) for any major producer of investment advisories to respond directly to this kind of question from a subscriber. And SINA isn’t even a stock in the Cabot China & Emerging Markets Report’s portfolio!

Second, just about any stock that’s in the public eye will be the source of a constant flow of information and opinion, sometimes positive, often not. Stories and opinion pieces are the stuff of daily life for anyone paying attention to stocks, especially growth stocks.

Trying to sort out the useful news and views about stocks from the meaningless blather is like the old joke: “We know that 50% of the things that get written about stocks are valuable and 50% are worthless. Unfortunately, nobody knows which is which.”

Fortunately, the chart is neither news nor opinion. It’s just the truth, graphically presented. So remember that when you’re evaluating your next potential buy or sell.

And if being able to get an opinion from a knowledgeable expert (who doesn’t have an axe to grind about any particular stock) sounds like a good idea, you might consider taking a subscription to Cabot China & Emerging Markets Report or one of the other Cabot investment advisories. We’ve been at this for over 40 years, and we’re happy to be of service.

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Fortune Cookie

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

Mike’s Comment: I like to keep it simple in the stock market, but many investors are way too simplistic—I often find myself telling a new investor “if making money were that easy, we’d all be rich ... and that isn’t going to happen.” Solutions to the market’s complex puzzles can’t be expected to be easy, though with practice and some dedication, you can crack the code.
Paul’s Comment: When it comes to solving problems, simplicity is easy to sell, but hard to deliver. Any time someone tells you that they have a simple solution to any problem in a system with more than two moving parts, you should automatically start backing away. Easy solutions get lots of politicians elected, but only the public’s poor memory gets them re-elected. And with a system as complex as the stock market, simplicity is almost guaranteed to be a mediocre compromise.

--- In case you didn’t get a chance to read all the issues of Cabot Wealth Advisorythis 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 6/22/15 – Road Trip, Part Five

Cabot Stock of the Month’s Chief Analyst Tim Lutts wraps up his series on his Great Midwestern Adventure driving tour with 10 observations on points of interest, from beer to Bass Pro Shops. Stock discussed: Hain Celestial Group (HAIN). Cabot Wealth Advisory 6/23/15 – Dividend Aristocrats

Roy Ward, Chief Analyst of Cabot Benjamin Graham Value Investor, discusses companies that have raised their dividends every year for the past 25 years and how they stack up against their peers. Stock discussed: W.W. Grainger (GWW).

Cabot Wealth Advisory 6/25/15 – Are You Making This Common Portfolio Management Mistake?

Chief Analyst Chloe Lutts Jensen of Cabot Dividend Investor writes in this issue about how diversification can actually harm your portfolio. She also shows how to use diversification to protect against potential threats like rising interest rates. Stock discussed: Horace Mann Educators (HMN).