Stock Market Video
If It Seems Too Good to Be True
Healthy Snacks for the Investing Brain
In Case You Missed It
In this week’s Stock Market Video, I point out the obvious, which is that we are still in a bull market despite recent choppy action. Letting the 25- and 50-day moving averages guide you on when to be bullish and when to play defense is a reassuring thing. Bull markets are always nervous and jumpy, but don’t get shaken out by volatility. Stocks discussed include: DIRECTV (DTV), Pandora (P), Eagle Materials (EXP), Home Depot (HD), TripAdvisor (TRIP), CTrip.com (CTRP), Santarus (SNTS), and Regeneron Pharmaceuticals (REGN). Click below to watch the video!
If It Seems Too Good to Be True
Mark Twain once said that it’s not what people don’t know that hurts them; it’s what they know that’s not true. The Internet is swarming with stories about all kinds of atrocities, tragedies, outrages and every other kind of bad behavior right down to simple rudeness.
The problem is that many of them aren’t true.
This morning, when I got to work, I had an email asking me (and 52 other recipients) to boycott Starbucks. The reason, the message explained, was that Starbucks had refused to support U.S. troops in Iraq.
According to the story, a U.S. Marine had sent a letter to Starbucks saying how much he liked the company’s coffee and asking for some to be sent to his unit. The reply from Starbucks, again according to the message, was to the effect that the company didn’t support the war, nor anyone in it, and that they wouldn’t send any coffee.
It’s a shocking story of behavior that’s at least unsympathetic and possibly unpatriotic … but it’s NOT TRUE!
Fortunately, as the X-Files used to reassure us, The Truth Is Out There.
There is a truly great website called snopes.com that collects the rumors, legends and myths that swarm the Internet and tries to determine whether they’re actually true. Snopes’ researchers say that they first encountered the Starbucks story in late April 2004. They subsequently contacted Sgt. Howard C. Wright, the Marine who sent the original email, for confirmation and found that he couldn’t produce the disrespectful letter his buddy had supposedly received from Starbucks. No record of such a correspondence could be found at Starbucks either.
Sgt. Wright has since written a letter retracting his allegation and asking that people both stop circulating the original and send a copy of his denial to everyone who got the complaint.
But still it circulates, just one of the persistent Internet hoaxes that keep circulating despite all efforts to stamp them out.
This is sad, but hardly surprising. The mother of all urban legends is a message (still circulating in one form or another) about a British boy dying of brain cancer who wants to receive enough greeting cards from all over the world to earn a place in the Guinness Book of World Records before he dies.
The story was originally true … back in 1989. What’s more, his plan worked. The 1997 edition of Guinness says that by May 1991, he had received 33 million cards.
But the boy (whose name I won’t use for fear of giving new life to the legend), who was nine years old at the time, had successful surgery and is now a healthy man of 28 who really doesn’t want any more cards from anyone, anywhere, ever again.
The story, however, refuses to die. The boy’s name has been misspelled all kinds of ways; the story has been transferred to other boys (and girls, including some in the U.S.); the desired object has shifted (business cards or get-well cards, for instance); and even the means of transmission has morphed (including one version that brought so much mail to the Children’s Wish Foundation International of Atlanta, that it was forced to move its headquarters to escape the deluge). The Guinness book has given up on the whole idea, retiring the category from its publications. The British government has even given the original address of the family’s home its own postal code so they can manage the seemingly perpetual flood.
The technical term for emails like the one I received about Starbucks is glurge, which includes all the inspirational stories of miraculous escapes, stunning coincidences (… or are they?!) and touching appeals that now clog the Internet, just as they used to clog snail-mail boxes. There’s nothing like a good sentimental story that allows people to feel good for doing something inconsequential (like sending a card or just forwarding a message).
So what’s the connection with investing? (You knew there had to be one, right?) I’m not sure. It’s probably something mundane like: If it seems too good to be true, it probably is. That applies to the stories of companies as much as to tales of people.
I once heard a story from my doctor about a new drug in late-stage clinical trials that was going to virtually conquer diabetes. He had heard about it from a representative of a big pharmaceutical company during a sales call. He asked me to check it out to see if this was a great investment opportunity. I did … and it wasn’t. But if my doctor hadn’t asked me about it, it’s likely that he would have bought some of the stock, which may be just what the drug rep had in mind.
My advice? Know your sources, do your due diligence and don’t send either flames or glurge to your email contacts without confirming things for yourself, no matter how satisfying they are.
Healthy Snacks for the Investing Brain
Note: Now that we’ve run through the entire set of Contrary Opinion buttons, I’m going to start selecting interesting quotations, snippets of advice and other odd bits of wisdom. I’m calling it Healthy Snacks for the Investing Brain, but I’m sure you can help me find a better (and shorter) name. Email your suggestions; If I use the name you suggest, I’ll send you a copy of one of my favorite investing books.
“Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Templeton
Tim’s Comment: Easy to say, very difficult to do. For example, the best time to buy stocks recently was late 2008-early 2009, when people were so afraid the mortgage meltdown would take down banks that they took money out of the banks. The last think anyone wanted to do then was invest in stocks! Today, by contrast, the news is much better and the stock market appears to be much less risky—and that makes experienced investors worry. Having said all that, it’s impossible to pick market tops and bottoms with consistency, even when combining sentiment with fundamental and technical tools. Sentiment may tell you the environment is ripe for a turn, but charts confirm it.
Paul’s Comment: Templeton was a legendary value investor, and the quote is beautifully written. As a growth investor, I’m not so sanguine about identifying “the time of maximum pessimism.” But I know that sitting in cash during a downtrend is a very warm feeling, and that having cash puts you in the driver’s seat when markets get going again.
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.
Roy Ward, editor of Cabot Benjamin Graham Value Investor, writes about some reassuring research showing that this bull market has a while to run. Roy also talks about his A-List Dividend report. Stock discussed: HCP Inc. (HCP).
In this issue, I write (as I do every Spring) about how growth investing is like golf. Each activity is demanding, fascinating and humbling, and doing each well requires a high level of commitment. Stock discussed: Giant Interactive (GA).
Editor Tim Lutts of Cabot Stock of the Month examines the question many investors have been asking: Can you still buy Tesla (TSLA) after it has soared over 200% in the last 10 weeks? Tim’s analysis of short- and long-term fundamentals and the stock’s chart shows that you can still buy … if you have a long-enough investment horizon.
Have a great weekend,
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report