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How to Profit from Global Connectivity

Humphrey B. Neill became famous in the late 20th century as “The Vermont Ruminator.” In the early 20th century Neill had a successful career at Wetsel Market Bureau, and in 1931 he wrote a popular book called Tape Reading and Market Tactics--The Three Steps to Successful Stock Trading. However, it was...

Humphrey B. Neill became famous in the late 20th century as “The Vermont Ruminator.” In the early 20th century Neill had a successful career at Wetsel Market Bureau, and in 1931 he wrote a popular book called Tape Reading and Market Tactics—The Three Steps to Successful Stock Trading.

However, it was the latter part of his career that got him his nickname. Neill retired to Vermont and published another book in 1954, The Art of Contrary Thinking. He also began annually hosting the Contrary Opinion Forum. Today, Neill is remembered (though not on Wikipedia, surprisingly) as one of the fathers of contrarian investing, and for saying, “When everyone thinks alike, everyone is likely to be wrong.”

Moving to Vermont, 300 miles from Wall Street, probably helped Neill become a better contrarian. In the 1950s, if you weren’t in downtown Manhattan, you didn’t even have to try to ignore minute-to-minute market chatter: there wasn’t any. A once-a-day newspaper would contain most of the information there was to absorb or ignore. So thinking differently from the conventional wisdom probably wasn’t too hard.

Today, by comparison, there are multiple TV channels and infinite websites dedicated to talking about stocks, accessible everywhere. For the next few months, I’ll be travelling around Europe, and I’ll have access to all the same information I usually do in New York City. Right now I’m in Rome, over 4,000 miles from Wall Street, and I can track the second-to-second fluctuations of the market (the Nasdaq just went up two-tenths of a point as I wrote this) in near-real time. My Dick Davis Dividend Digest and Investment Digest subscribers won’t even know I’m here (until they read this).

There are obvious downsides to our constant connectivity. It makes it much harder to be a contrarian, and to take a long-term perspective. It also changes the nature of investing by making day trading (and even minute- and second-trading) possible. Intra-day news can cause wild swings in stocks that could blindside an investor in Vermont who only received information from the daily Wall Street Journal.

But if you can discover a way to tune out the chatter—not turning on the TV is an easy fix—connectivity is mostly great. It’s the reason I’m able to do my job from Europe as well as I can from New York.

So far, working from Europe isn’t that different from working in New York. Being six hours ahead of everyone in the office is actually convenient. And unlike Humphrey Neill up in Vermont, I can still communicate instantly and keep an eye on the market 24/7 thanks to Gmail, Google Voice, Skype, eFax and Google and Yahoo! Finance. The only problem I’ve having so far is that when I go to Google, I’m redirected to google.it, which gives me results in Italian. Thinking back to what it was like to be in Europe only 10 years ago (remember calling cards?) I’m impressed by the level of connectivity I’m able to maintain from halfway around the world.

Of course, this connectivity revolution has been a boon not only for remote workers like me, but also for investors who jumped on board early. Google is the obvious heavyweight in the space, and smart investors have been able to more than double their money in the stock at multiple points. Skype’s IPO, still on hold, will likely be a barnburner once it happens.

But for investors looking to buy today, what’s the best way to profit from increasing connectivity?

One stock that looks good today is Rackspace Hosting (NYSE: RAX). Rackspace owns servers that host cloud-based websites and applications. While cloud-computing mania has died down a bit in the investor community lately, the sector is still growing like wildfire. As Michael Cintolo wrote in a recent profile of Rackspace in Cabot Top Ten Trader, “Today, fewer than 2% of the top 500,000 most-visited websites are hosted in the cloud, leaving lots of room to grow as companies begin to think of computing power as a service, rather than a capital expense.” That’s not to mention the needs of an increasingly mobile workforce, myself included, who need their data and applications to be available globally.

Rackspace hasn’t been recommended in my newsletter, the Investment Digest, since January 2010. But it’s stayed visible in several of our contributors’ newsletters the entire time, and will probably show up again soon. Cintolo, who also wrote the recommendation that originally appeared in the Digest, still thinks it’s a good buy here. In an April 15 update, he wrote:

“Rackspace Hosting has also consolidated, with no volume selling during its 12-day pause. This can be a choppy stock, though it’s calmed down lately, which is a positive. It looks buyable in the 40-42 area, with a stop at 38 or a bit higher. Earnings are likely out in the first week of May.”

Like the cloud computing sector itself, RAX has already come far, but it has even further to go.

Wishing you success in your investing and beyond,

Chloe Lutts

Chloe Lutts Jensen is the third generation of the Lutts family to join the family business. Prior to joining Cabot, Chloe worked as a financial reporter covering fixed income markets at Debtwire, a division of the Financial Times, and at Institutional Investor. At Cabot, she is a contributor to Cabot Wealth Daily.