Three Investing Resolutions for 2019

As 2018 winds down, I have a few investing resolutions for the New Year. But first, let’s talk about what’s happening with the current market (hint: yuck!).

Investing in Stocks? Humbug!

The state of the market is dire enough to send even the hardiest of growth stock investors in search of the bourbon bottle and a glass of eggnog to put it in. Since the markets took their big tumble in October, the S&P 500 has made a couple of meaningful attempts at a rally—October 30 through November 7 and November 26 through December 3— but has been turned back each time.

I know I should be looking for the silver lining or finding the patch of blue, but this really isn’t at all a hopeful market. If the S&P, which started the year at 2,684, finds support right here (December 18), it’s on course to finish the year with a loss of just over 4%. But on Monday, the S&P also dipped below its old February 9 intraday low of 2,533, marking a new low at 2,531.

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Here’s a chart of the S&P’s progress through the year.

One of my investing resolutions would be to keep plenty of cash on the sidelines until this chart improves.If you’re just starved for hopeful words, here they are, although it’s not the unicorns and rainbows kind of good news that I’d like to deliver.

The good news is that investors are finally getting tired, worn out, discouraged and ready to throw in the towel. The VIX Volatility Index, which spiked in February but settled down to complacent levels from May through September, is back near its multi-month highs, showing that investors are really feeling anxious enough to do some real selling. And that’s what has to happen for the market to finally hit bottom and get started with the basing process that will lead to the next positive phase. Until a bunch of people have the hope squeezed out of them, that can’t happen.

So, like I said, it’s not the good news you wanted, but it’s the good news you need.

If you’ve been following the advice of Cabot’s growth advisories (Cabot Growth Investor and Cabot Emerging Markets Investor), you have been watching the pummeling the markets have taken with a little bit of smugness, because you have had a growth portfolio with a huge allocation to cash. Cabot Growth Investor has been as high as 90% in cash in recent weeks and Cabot Emerging Markets Investor was as high as 75% in late November.

So, the market looks like it wants to put a piece of coal in your stocking this year, and your best defense has been to tell the market to get stuffed and stop returning its phone calls.

And the ultimate good news is that, whatever happens, the cash-rich portfolio is ready for whatever the markets throw at us in the tag end of 2018 and the uncharted territory of 2019.

And since this is my last Cabot Wealth Daily column for 2018, I’m going to jump the gun a little and tell you what my proposed New Year’s Investing Resolutions will be for 2019. And you’re welcome to use these investing resolutions or lose them as you wish. But they’re really not bad. (Note: I recommend these same resolutions every year at about this time, but it’s never a bad idea to repeat good advice.)

Three Investing Resolutions for 2019

First, when you get back to buying stocks, resolve to set a loss limit as soon as you buy a stock. This means, for instance, that if you buy a stock at 30, you will make a note that says: “Sell the stock if it closes below 25.5.” Make a note of it and keep it where you will see it often. If you prefer a 10% loss limit, write down “Sell at 27.” Making the note makes it official; it says, “I will not absorb any more big losses this year.” But your resolution is just to make the note and keep it where you can see it. Explicit goals make action easier.

Second, you can resolve to read one investment book this year. You don’t have to try to turn yourself into Warren Buffett (on the value side), Peter Lynch (on the growth side), or Gordon Gekko (on the wild side). Just pick one book and get through it. Carlton Lutts, the founder of Cabot, used to say that all he needed from a book was one good idea. You might consider Invest Like a Shark by James DePorre or Inside the Investor’s Brain by Richard L. Peterson or even Jim Cramer’s Stay Mad for Life, by guess who. Reading what successful investors write will help you think like successful investors think.

And third, resolve to review your results at the end of every quarter to see how you’re doing. Remind yourself with a note on your wall calendar, Post-it note or your iPhone. But make sure you give your portfolio a reality check at least a few times a year to see if your strategy (whatever it is) is working. And while you’re at it, you can see how you’re doing with your other resolutions. That will help to keep yourself focused on the good ideas you had in January.

I don’t have a sponsorship deal with the Post-it note company, but I guarantee that if you actually write the two sticky notes I recommend, you’ll be amazed at how useful they are.

Timothy Lutts

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