Best Investing Resolution for 2015

Happy New Year!

The Best Investing Resolution for 2015

An Online Search Giant

To start this issue of Cabot Wealth Advisory I’d like to touch upon a topic about resolutions. And let me be blunt: New Year’s resolutions are mostly a bunch of crap. They’re the Chihuahua of your intentions barking at the Great Dane of your habits. They’re usually more of a wish that something would happen than a firm resolve to make it happen.

And why is that?

First, change is painful. We do the things we do because our character, our experience and our surroundings push us in a particular direction. And in order to change, we have to step outside ourselves, get off the worn path and leave old habits behind.

But habits have a way of protecting themselves. They’re comforting and rewarding in very attractive ways. In a stressful world, our habits offer us easy choices with little or no thinking. And that’s leaving out the resentment we feel when (heaven forbid!) someone else (!) suggests that we might benefit from a change. We can become attached to our bad habits, proud even. After all, they make us who we are!

And since everything we do is connected to everything else, changing one thing often requires changing everything around it. Going to the gym means giving up whatever you were previously using that time for. Taking up carrots as an afternoon snack requires leaving the pleasure of the Snickers bar behind. And on and on.

Plus, of course, your friends are always ready to drop a little chocolate on your desk when they see you reach for the baggie of veggies. Change (yours) is painful for them too.

An even bigger obstacle to change is that most of us don’t know how to keep our resolutions under control once we get started. We’re always tempted to shoot for weight loss, plus an exercise program, plus spending less money, and on and on. As long as the change is just on paper, why not shoot for the moon?

My whole point is that actually changing is no walk in the park, even if your resolution is to take more walks in the park.

Still, change is possible! Experts say the first step to a successful resolution is identifying the habit you want to change and the new path you want to take as accurately as possible, and then writing it down! Even better is sharing your resolution with others, especially people who can help you achieve your goal.

Since writing about growth investing is my thing, my first suggestion for readers who want to improve their growth investing performance is to do a quick review of your results from 2014. Did you buy stocks without enough research? Hold on to your losers too long? Sell out for smaller profits than you might have had? Pay too much attention to talking heads on TV? Own too few stocks, or too many? Or just couldn’t pull the trigger on either buys or sells?

Once you identify the one behavior you’d like to change in 2015, make your plan.

This next part is important! Be sure that your plan incorporates the smallest possible change that will get you to your goal. If your planned change is going to require you to change who you fundamentally are, it’s not likely to happen. The people who experience major life changes are usually victims of catastrophes or those who have bottomed out from their bad habits. And you don’t want either of those to happen.

So keep it small and keep it simple. Better to take on one small change you can actually stick to than attempt a major life overhaul that will have you back on the couch eating Cheetos in two weeks.

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My stock pick today is one you’ve probably heard of. It’s an online search giant (market cap is $80 billion) that owns a dominant market share and makes money hand over fist.

No, it’s not Google. It’s the Google of China, which is Baidu (BIDU).

Baidu is astonishingly similar to Google, which is no accident. The company was founded by a Chinese scientist whose patented Rankdex site-scoring algorithm inspired Larry Page to invent Page Rank, the foundation of Google’s empire.

Baidu owns about 80% of the Chinese search market (by revenue), and has survived several challenges to own the game to that degree. The company actually beat Google in head-to-head competition before Google left the Chinese market behind. And when Qihoo 360 grabbed a chunk of Chinese mobile search, it took Baidu a couple of quarters to get off its duff and make the transition to mobile.

A look at Baidu’s revenue growth will tell you a lot. After a scorching 92% surge in 2011, annual revenue growth slowed to 57% in 2012 and 47% in 2013. But quarterly growth in 2014 has been 59% in Q1, 57% in Q2 and 52% in Q3, so there’s a solid rebound afoot. Earnings per share are massive, $5.14 in 2013, with 2014 estimates projecting 22% growth and 2015 looking for 37% growth.

All in all, Baidu is a hugely successful company that dominates its market, which is itself both huge and growing. More and more Chinese people are getting online, with mobile devices swamping PCs as the method of choice. And since Baidu has its mobile strategy firmly under control, the prospects are excellent.

BIDU has soared from 83 in April 2013 to 250 in November 2014. The pullback since November is due to the dubiousness of investors about China, not Baidu. But with BIDU trading now at around 229, with a base that stretches back to July, this looks like a good spot to get started.

If you’d like to get continuing updates and advice about BIDU and other Chinese and emerging market stocks, your New Year’s resolutions should include a subscription to Cabot China & Emerging Markets Report, which I write.

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Once again, happy New Year to all of you wonderful readers of Cabot Wealth Advisory! I look forward to another year of writing for you, reading your comments, answering your questions and following the market right along with you. May 2015 bring us all great opportunities and satisfying results!


Paul Goodwin
Chief Analyst, Cabot China & Emerging Markets Report
and Editor of Cabot Wealth Advisory

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