How Cabot’s Market Timing Works

This Week’s Stock Market Video

How Cabot’s Market Timing Works

Fortune Cookie

In Case You Missed It

Market volatility exploded this week, and the results weren’t pretty. But if you’ve been listening to our warnings about risk control over the past month, you were probably able to minimize the damage.

Once you’ve practiced market timing and benefited from it, the benefits are obvious.

But many people still don’t believe in it!

And I’ve finally figured out why.

Cabot’s market timing is tough to understand because mutual fund companies have spent millions of advertising and brochure-writing dollars over the years convincing their investors that market timing is both impossible and positively injurious to your portfolio’s value.

We here at Cabot, on the other hand, have been successfully employing market timing disciplines for decades as part of our growth investment strategies.

So who’s right?

Well, as often happens with difficult philosophical questions, it comes down to a matter of definition.

When the big investment companies warn that you can’t time the market, they’re saying that you can’t anticipate what the market will do in the future. And I agree; that’s as true as true can be.

So if you’re investing in an index fund and you’re trying to jump in just in time to participate in a rally-or jump out in time to avoid a big correction-you probably are doomed to failure. Markets love to entice the unwary to try to call a bottom, yet they’re never so low that they can’t go lower. And they’re similarly perverse with fooling people about how long rallies can last.

The reason Cabot’s market timing indicators actually work is that they have nothing to do with predicting the market’s future. They’re only concerned with accurately describing what markets are doing right now.

Now you may be saying to yourself, “What’s the big deal about saying what markets are doing now? Anyone can do that.”

Well, not really. Do you know how many days markets have to go up to constitute a new bull market? How many weeks? Do you know what constitutes a retest of a previous low and what’s a new downturn? Can you distinguish between a correction within a longer uptrend and a full-on downtrend?

The strength of Cabot’s market timing indicators is that they are based on making all the mistakes that investors make in trying to time markets. And if, over a period of over 44 years, you made all those mistakes and gradually eliminated everything that didn’t work, what you would be left with would probably look very much like the Cabot market timing rules.

Our market timing indicators won’t tell you what stocks to buy. Stock selection is an entirely different set of skills.

But even if you have done all the research and found what looks like a perfect stock, you need to know what the market’s doing before you hit the BUY button on your online brokerage account.

If you don’t, it will be like trying to walk up the DOWN escalator. You can do it, but the odds will be so shifted against you that any advantage you might have gotten from your diligent research will be squandered.

Once you finally tumble to the idea that a growth investor needs a healthy market just as much as a sailboat needs a fair breeze, the importance of real market timing-not that crystal ball reading the future stuff that passes for market timing among the ignorant-becomes as obvious as a petunia in an onion patch.

In this week’s market video, Cabot president Timothy Lutts addresses this week’s big market selloff, where it came from and what’s likely to come next. Click below to watch Tim’s view on the market.

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: One of the greatest football coaches of all time knew what he was talking about. And just as dedicated practice-including the recognition and correction of common errors-can make a better football player, it can also make a better investor.

Mike’s Comment: The only people who buy at the bottom and sell at the top are the liars, goes one famous market saying. And it’s true: Nobody will never buy and sell stocks perfectly. But that doesn’t mean you shouldn’t study perfection! We regularly look at past huge market winners, or mega-market turning points, trying to see where stocks would have been best bought or sold, to guide us in the future. It’s no different than case studies at Harvard; you might not become a billionaire like the businessman you’re studying, but that doesn’t mean those studies won’t benefit you greatly.

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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 10/6/14 – The Legacy of du Pont 

In this issue, Cabot Stock of the Month’s Chief Analyst Tim Lutts tells the fascinating story of the du Pont family and the company Eleuthere Irenee du Pont began back in 1802. Stock discussed: E. I. du Pont de Nemours and Company (DD).

Cabot Wealth Advisory 10/7/14 – Writing Options on Stock Trades 

Options expert and Cabot Options Trader and Cabot Options Trader Pro Chief Analyst Jacob Mintz shows us how to buy options on growth, value, Chinese, dividend and small-cap stocks recommended by other Cabot analysts. Options discussed: GoPro (GPRO), Avago Technologies (AVGO), United Technologies (UTX), Baidu (BIDU) and Church & Dwight (CHD).

Cabot Wealth Advisory 10/9/14 – Focus on the Process, Not Just the Result 

In this issue, Chief Analyst of Cabot Market Letter and Cabot Top Ten Trader Mike Cintolo explains why following your investment process will always deliver stronger results. Stock discussed: Medivation (MDVN).


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


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