Investors: Know Yourself

Stock Market Video

Investors: Know Yourself!

This Week’s Cookie

In Case You Missed It

In this week’s Stock Market Video, I talk about the recent surge in the market’s strength that has given us a new buy signal. I also talk about the large number of high-quality companies whose stocks are breaking out of very long basing structures. Click below to watch the video.

Investors: Know Yourself!

The 87th running of the Oscars Derby will reach its climax on Sunday night, with millions of people around the world watching. While many viewers in the U.S. Eastern Time Zone will toddle off to bed before the Best Picture award is announced, many others will be on board for the whole lovely mess, from the handicapping shows to the red carpet through every musical number and technical award, all the way to the exhausting end.

And I’ll be one of them.

I’m not ordinarily a big fan of awards shows. I regularly ignore the Golden Globes, the People’s Choice Awards, the Grammys, the Emmys (day- and prime time), the Tonys, the Obies, the CMAs and the flood of lesser award pageants.

But I’m a movie guy at heart, someone who has been leading film discussions at my local art-house theater for more than 20 years. I take movies seriously. And while I realize that the Oscars are as much about marketing and PR and massive advertising campaigns as they are a serious, high-minded attempt to reward the best films of the year, my loyalty to the Oscars is unshaken. It’s the only award show I allow myself to wallow in, and I love it.

But my love for movies and the Oscars isn’t going to help you make any money in the stock market, and that’s what Cabot Wealth Advisory is all about.
The point of my Oscar story is that I figured out a long time ago what my tolerance for awards shows in general was, and how I felt about the Academy Awards in particular.

And I haven’t questioned my own preferences since.
I saw a quotation the other day that said, “If you don’t know who you are, the market is an expensive place to find out.” (It’s from The Money Game by Adam Smith). And that’s certainly true.

If you think you’re a long-term investor who buys and holds for the long term, the market will often test you with a quick 10% drop in something you just bought. If you’re a true long-term investor, you won’t even blink. In fact, you might not even notice, because you aren’t checking the stock’s price every day.

But if normal volatility causes you to exit a position that was supposed to be held for years, you have two options. You can 1) get a grip on yourself and tighten up your long-term investing disciplines, or 2) consider the possibility that you are actually temperamentally better suited for a more active investment strategy.

I know that some readers think it’s silly to carry on about the importance of investors finding their investing personalities.

But it’s really no different from a young athlete discovering which sport they are suited for. Those who find that they have a taste for hitting people migrate toward football, rugby and hockey, while those with good hand-eye coordination are drawn to tennis and other racket sports or the challenge of hitting a baseball. Meanwhile, those with blazing speed wind up running track.

And some people find that they have no athletic talent at all.

In stock investing, those who enjoy paying attention and constant action drift toward the growth end of things, from the extremes of day trading and swing trading to the still-aggressive strategy of concentrated-portfolio trading.

The people who are more comfortable with less demanding strategies will inevitably cluster at the value end of stock investing along with the income investors and bond buyers.

Some investment experts try to pigeonhole clients by age, recommending that younger investors allocate heavily to growth funds. As clients age, advisors recommend cutting down on growth and moving toward the conservative end of the spectrum, increasing exposure to lower volatility investments as retirement approaches.

If you have an investment advisor and that’s what they tell you, that’s probably what you should do. There’s no sense in paying a professional and then ignoring what they advise.

But I will continue to advise the people I talk to that the single greatest factor in your investment strategy should be your own investment personality. It’s vital for those handling their own money that their investment choices match their temperament.

Otherwise, it’s almost impossible to follow the rules of the chosen method. You can’t manufacture patience; you can’t think straight when volatility is higher than you’re comfortable with; and you can’t pay attention to the rules when you’re bored.

Know thyself. And when you know yourself, you’ll probably find a Cabot investment advisory that will put experienced, like-minded professionals on your side. And that’s the best combination of all.

And just by the way, if you’re wondering how to get an intensive introduction to the full spectrum of stock investing strategies, you will find the Cabot Investors Conference, being held this year on August 12 through 14, is the perfect solution. The Conference brings investors from all over North America to listen to Cabot’s analysts discussing how to research, buy, manage and sell the strongest stocks in the market. I’ll be there talking about the shift in emerging markets away from the BRIC stocks and toward new leadership and many other topics.

It’s fun, it’s enormously useful and it brings you to Salem, Massachusetts in the heart of the New England summer. You can find out more about the Conference (and Extra Early Bird pricing!) by clicking here.

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: There’s no proof that Keynes said this; his observation, made in 1931, was cited/paraphrased by Albert J. Hettinger, Jr. in a commentary prefacing Milton Friedman’s “The Great Contraction, 1929-1933,” published in 1963. Nevertheless, it’s a thought I wholeheartedly agree with. Knowing that markets are moved by humans, and that humans are susceptible to a variety of psychological forces that render them “irrational,” the most rational policy is one that accounts for their irrationality! At Cabot, this most frequently means reading stock charts.

Paul’s Comment: Most of the people I know like to think of themselves as rational, especially the men. Most males want to believe that they’re more logical than the next guy. But stock markets are not logical, even in the long run, when prices are supposed to fall in line behind revenues, earnings and margins. Keynes knew that markets love to laugh at rational predictions and that the best strategy is to follow the market where it leads, whether it makes sense or not.

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 2/16/15 — The Final Revolutionary Stock

In this issue, Tim Lutts, Chief Analyst of Cabot Stock of the Month, writes about his contrarian love of shoveling snow and the value of contrarian thinking. Tim also gives the 10th (and last) in his series of Revolutionary Stocks. Stock discussed: Zillow (Z).

Cabot Wealth Advisory 2/17/15 — Insights from Investing Icons

Roy Ward, Chief Analyst of Cabot Benjamin Graham Value Investor, looks at advice from a half dozen or so of the greatest investors of all time (including Warren Buffett and Peter Lynch) to get at the secrets that made them rich. Stock discussed: Synaptics (SYNA).

Cabot Wealth Advisory 2/19/15 — 7 Growth Stock Catalysts

In this issue, Nancy Zambell, editor of Investment Digest and Dividend Digest, talks about the kinds of events that can kick growth stocks into a higher gear. Stocks discussed: Tableau Software (DATA), Rite-Aid Corporation (RAD) and GrubHub (GRUB). 


Paul Goodwin

Chief Analyst of Cabot China & Emerging Markets Report 

and Editor of Cabot Wealth Advisory


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