Growth Stocks for Your Watch List: Stock Market Video
How to Be a Market Optimist
This Week’s Fortune Cookie
In Case You Missed It
In this week’s Stock Market Video, Mike Cintolo discusses the continuing improvement in growth stocks, as well as some of the new breakouts he’s seen during the past couple of weeks. With earnings season coming up, Mike cautions everyone to keep their feet on the ground, but with the evidence still improving, he’s growing more bullish and highlights a handful of leading stocks that are near good entry points. Click below to find out the growth stocks on Mike’s watch list.
How to Be a Market Optimist
With major equity indexes toying with all-time highs, it’s fair to say that people are feeling pretty good about the market right now. There’s a ton of advice out there on what stocks to buy and how to handle them.
But there’s also an undercurrent of cautious advice from market commentators, warning that stocks may be getting a little extended, that valuations are too high for safe value buying and that [INSERT YOUR FAVORITE FEAR HERE] is going to upset the apple cart and send stocks lower. Probably a lot and probably soon.
So, how is it that such an apparently healthy market can generate so much skeptical or even downright pessimistic advice? One way to tell market novices from market pros is that as markets move higher and higher, the novices get happier and happier and the veterans get gloomier and gloomier.
If this seems to you like one of those cheap ironies of the sort that wind up on bumper stickers and coffee mugs, I’m here to tell you that you’re wrong. It’s nothing more than the absolute truth.
It doesn’t mean that the pros aren’t happily making money on growth stocks. That’s what investing professionals do in bull markets.
But part of being an investing professional is learning to control both your fear and your enthusiasm. Controlling your fear positions you to jump back into a market that has been mauled by the bear for months on end. The professional investor will have been watching the market correction from the safety of a large cash position and biding his time. And when the market finally turns up, he will come out of his bomb shelter prepared to buy the leaders of the new bull market as they appear.
Meanwhile, back in novice territory, the amateurs have been watching their portfolios’ death spirals in a state of deepening despair and mourning their diminishing balances. This is what novices do. They’re like civilians who find themselves in a boxing ring with a real boxer. They get hit over and over again. It doesn’t occur to them that they can just leave the ring.
And when they are lying, out cold, on the ring floor, the market bottoms and begins to turn up again.
At Cabot, we don’t have any predictions about what’s going to happen in equity markets, national economies or world affairs. For those of us on the growth side, all of our attention is focused on understanding what’s happening right now! The future will sort itself out eventually, and all we have to do is stay in step with the market.
But what does staying in step with the market actually mean?
Here’s a very concrete example. One year ago, the PowerShares Golden Dragon Halter USX China (PGJ), which is the basis for the Cabot Emerging Markets Timer, had just finished a correction from 22 to 19, pulling it below both its 25- and 50-day moving averages. With a negative reading from its market-timing indicator, Cabot China & Emerging Markets Report was 35% in cash.
Just five months later, with many Chinese stocks building strong bases, the Report was back to 100% full investment and the portfolio featured stocks with gains of 95%, 89%, 54%, 52% and two with 23%. The capital we saved by going to cash when the market was trending against us came in very handy when buyers came roaring back.
Right now, I can say that things in China look pretty good. Sure the country is facing huge problems, including pollution, inflated real estate, corruption, protests and a slowing economy.
But the Cabot approach to adjusting our level of aggressiveness to match the main trend of the market means that I don’t have to try to figure out what will happen. All I have to do is watch.
If the Chinese market goes south, I will advise my subscribers to sell-often taking significant profits-and we will wait for China (or one of the other emerging markets) to get back on track. And then we will step back on the escalator and move higher.
As a market veteran, I know that the market will do what it wants, and that eventually the market will want to correct, perhaps a little, perhaps a lot. That’s why I’m not jubilant about the way things are going; I know they will change, and the longer things go up, the more likely it becomes that they will go down.
But I already know what I will do when that happens, so I’m not really pessimistic. Just realistic.
And I will just point out that having a subscription to a Cabot investment advisory (and I think Cabot China & Emerging Markets Report is a great choice!) can make you a market veteran as well, with years of experience helping you to make good decisions. Get more details here.
Tim’s Comment: I attended the wedding of one of my nephews last Saturday and when I learned the couple was heading to Montana for their honeymoon, I recited my favorite Frank Zappa lyric: “Moving to Montana soon. Gonna be a Dental Floss tycoon.” He didn’t know it. Doesn’t matter. What does matter is that progress requires deviation/change and change is often uncomfortable for people. But if you want better results from your investments, you need to change something!
Paul’s Comment: Frank Zappa was one of the musical heroes of my youth, although he often made me as uncomfortable as he did others. Frank was resolute in his rejection of convention and his pursuit of his modernist musical goals. But in the end, his music was performed by symphony orchestras and he was an economic advisor to the new government in Czechoslovakia. Frank deviated from the norm a lot, which would have made him a great growth investor (if he had given a monkey’s elbow about such stuff).
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 Stock of the Month’s Chief Analyst Tim Lutts issues a warning that everything you know may be wrong, at least if history is anything to go by. Tim also reveals the seventh in his series of “Stock to Buy and Hold Forever.” Stock discussed: WhiteWave Foods (WWAV).
Roy Ward, Chief Analyst of Cabot Benjamin Graham Value Investor, writes in this issue about the lesser-known value measure called Net Current Asset Value, and how it can find low-risk investment candidates. Roy gives a list of qualified stocks that he will eventually screen to find new recommendations for his report.
Options master Jacob Mintz of Cabot Options Trader writes in this issue about how your friends’ health problems can affect how you see your own odds of having the same problems. He also discusses buying options on market volatility, which is a trade the whales use to lower risk.
Have a great weekend,
Chief Analyst, Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory
P.S. Cabot Options Trader’s membership is now open!
We’re celebrating the re-opening of Cabot Options Trader with 60 days free. Learn how to create yield and increase returns with calls, puts and covered calls. With step-by-step instructions, there’s no experience needed! Don’t miss your chance to reserve your spot. Get more details here.