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Investing is Not as Complicated as Most People Make It

This simple-works-best approach, even in the cutthroat world of the NFL, struck a real chord with me. For years, I’ve believed in keeping it simple when it comes to investing … which is hard to do these days when you can read so many opinions on TV and the Internet.

Drink Requests (Seriously!) Investing is Not as Complicated as Most People Make It

A Big-Cap Biotech Leader ---

Drink Requests (Seriously!)

I’m just back from a great week-long vacation with the family and extended family down in Cape Cod—we were a couple of doors down from one beach, less than a mile from another, and had a great pool right at our house, where we (including my now swimming-obsessed five-year-old) spent most of our time.

During afternoon pool time, I was the designated bartender, mostly serving margaritas (I make mine with white tequila, Cointreau, lime juice and some club soda) and curacao coolers (dark rum, Rose’s lime juice, Cointreau and club soda), with some dark and stormys mixed in for those who like sweeter drinks.

But I’ve been serving those refreshers for few years now. My question to you: Do any of you have another easy-to-make summertime (or even autumn) cocktails that would be good for a party, boat trip or something similar? I’m not talking about manhattans or martinis, and I’m not too interested in complicated recipes—just something refreshing while you have a few friends over to enjoy the last weeks of summer.

Give me a shout if you have any ideas at mike@cabot.net.

I brought along one book to read on vacation: The Art of Smart Football, by Chris Brown, his second book. If you’re at all interested in football strategy, this is a great read (his other book was, too), as Brown writes in bite-sized chapters (many were originally online articles that were adapted for the book) that make for relatively easy reading. Throw in some history of the game, and how some tactics have evolved to the present day and it’s hard to put the book down.

One thing that struck me, though, while reviewing all the latest permutations of offensive and defensive tactics and philosophy that NFL coaches and coordinators implement after thousands of hours of study, is how simple the underlying strategies are.

For instance, the opening chapter is all about Pete Carroll’s (Seattle’s head coach) defensive system. Amazingly, he runs a form of “Cover 3” (three deep defenders), which is one of the simplest and oldest coverage schemes that was popular back in the 1960s and 1970s. He’s done a few tweaks, and the result is the NFL’s best defense during the past couple of years.

Then there’s Peyton Manning. Whether he was on the Colts for about a decade or with the Broncos during the past couple of years, he’s led one of the NFL’s best offenses. But also one of the simplest—each receiver’s pattern plays a role in stretching the defense to its breaking point. But the number of plays Manning actually runs is just a couple of dozen, versus the hundreds in most playbooks.

There’s even a story in the book about New Orleans head coach Sean Peyton, who had to serve a one-year suspension a few years ago due to “Bountygate.” During that year, he coached his sons’ Pop Warner football team and unsurprisingly, they did very well. But interestingly, one other team handed his team huge losses twice during the year.

What was the system that destroyed Peyton? The single wing, which features a super-tight formation, unbalanced lines and lots of faking. And by the way, it’s literally the oldest offensive system in football!

Investing is Not as Complicated as Most People Make It

This simple-works-best approach, even in the cutthroat world of the NFL, struck a real chord with me. For years, I’ve believed in keeping it simple when it comes to investing … which is hard to do these days when you can read so many opinions on TV and the Internet. Nevertheless, all the efforts by investors to dive into the smallest details in order to predict what’s going to happen to the market or an individual stock usually don’t work. In fact, they often hurt because they investors’ attention away from the few key points that matter.

I think I do a pretty good job of sticking with our KISS system (Keep It Simple, Stupid!), but this just reinforces the importance of sticking with—and mastering—the basics of growth stock investing.

How does this apply today? Well, the intermediate-term trend of the market remains sideways, and making (and keeping) money in growth stocks has been challenging, to say the least. Thus, the simple response to this is what I’ve been writing for the past few months—be selective on the buy side, honor your stops and hold a cash cushion on the sideline (I’m around 30% in cash now in Cabot Growth Investor).

If (when) the evidence changes, then I’ll advise a change in stance. Until then, I’m not getting overly bullish or bearish. As for individual stocks, I’m also keeping it simple—I’m focusing on stocks with good stories, great growth numbers and resilient charts. And, preferably, these stocks have good liquidity, too, telling you that lots of big investors own them.


A Big-Cap Biotech Leader

Encouragingly, there remain a good number of these to consider. One of my favorites is Celgene (CELG), a big-cap leader in the biotech space. Here’s what I wrote about Celgene in Cabot Top Ten Trader a couple of weeks ago:

“Celgene remains a blue-chip biotech firm, but instead of solely on a handful of big-selling drugs (blood cancer drug Revlimid is its top seller), the firm also spends a ton of money partnering and acquiring with smaller biotech firms—essentially a venture capital arm to the company that, through ownership in these smaller firms and rights to sell a few potential blockbusters in the years ahead. That’s the main reason why the stock has reasserted itself in recent weeks—first, Celgene invested $1 billion in Juno Therapeutics, taking a 10% equity stake and getting international rights to Juno’s innovative cancer treatments that both firms expect will be approved in 2020. Then, last week, Celgene made a huge move, buying out Receptos for $7.2 billion, which has an extremely promising drug called ozanimod (now in Phase III trials) that should be approved in 2018 for ulcerative colitis and multiple sclerosis. Throw in the fact that management also pre-announced a better-than-expected second quarter, and nudged up their long-term earnings guidance (they now expect at least $13 of earnings per share in 2020, up from an estimated $4.75 this year), and the big investors have more reasons to believe the company can grow at 20% to 30% rates for many years to come. This remains a big story.”

In this tricky environment, I’m not pound-the-table bullish on anything, but as long as the market holds together, I think CELG can do very well as the story plays out. If you want my continuing thoughts on the stock (including when to buy more or sell some), I recommend that you give Cabot Top Ten Trader a try.

A growth stock and market timing expert, Michael Cintolo is Chief Investment Strategist of Cabot Wealth Network and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.