Keep Calm and …? What?

Keep Calm and … What?

Back in 1939, as Great Britain was preparing for what would become World War II, the British Ministry of Information designed and printed a poster that exhorted its readers to “Keep Calm and Carry On.” With its snappy white text on a cheery red background, the poster was intended to appeal to Brits’ sense of stability and courage. 2.5 million copies were printed, but they were never actually distributed. They were first held in reserve until after some big air raid or other catastrophe, then they were pulped and recycled as too expensive.

In 2000, the owner of a small bookshop in Northumberland found one of the few surviving copies of “Keep Calm, etc.” and hung it up in his shop. So many customers admired it that the shop started to print and sell copies.

And you know the rest.

Today, you can buy just about any printable product you want with some version of Keep Calm on it. Some memorable examples include “Keep Calm and Have a Cupcake” (with a cupcake image replacing the lovely Tudor crown of the original), “The Keep Calm and Play Louder Tour” (for the British pop band McFly), Keep Calm and Hate Microsoft” (with the Apple logo on top), “Keep Calm and Chive On” (for a fairly dodgy website) and a ton of others. Needless to say, the creativity of the imitators is frequently not of the highest order, although my one-time personal favorite— “Stay Alive and Avoid Zombies” — still seems funny to me.

The Keep Calm meme is probably just about played out now. It only takes a few years (sometimes months) for a phenomenon like this to zoom from edgy originality to pop phenomenon to yesterday’s news. (The simmering trademark lawsuit caused by some British firm’s trademarking of the phrase in 2011 is a clear sign that it’s so, like, yesterday.)

But I’m determined to try to squeeze one last drop of good out of the whole phenomenon.

If you follow the market, you’ve no doubt noticed that the major indexes have been having a hissy fit in recent days, with the S&P 500 Index and the Nasdaq Composite actually dropping below their 50-day moving averages on Thursday. When those indexes (and a few others) fall below those averages, we consider the intermediate-term trend of the market to be down, and that means putting an end to most new buying and calling for tighter loss limits on all growth portfolio holdings.

My own “Keep Calm” poster is intended to reassure you that the stock market’s world is not coming to an end. Despite what you may hear from economists and stock pundits, nobody really knows how long this correction (if it is one) will last, or how deep it will go.

Your best guide to how to handle your individual stocks is the same as your guide to determining whether the market is in an uptrend or a downtrend.

Read the Chart!

If you learn what it has to say, the chart will tell you when to sell your stocks and when it’s safe to start buying again. As a guide to selling, look for a stock that crosses below its 25- or 50-day moving average on above-average volume. Look also for a move below natural support, especially if it’s below a previous support level.

If you get in the habit of zipping through the charts of your holdings every few days, you will get a sense of how they are doing as a group, which will tell you something about the broad market as well.

(This doesn’t apply to your value stocks, your core holdings or your income stocks. Those can sit out any correction without much supervision.)

So here it is, your Official Cabot Keep Calm Poster. Display it proudly to let people know that you know what’s going on in the market and you’re ready for anything!

In this week’s Stock Market Video, I look at the dodgy state of the market and see plenty of reasons to be cautious. There’s no reason to head for the lifeboats, but it’s a good idea to reduce or eliminate new buying and keep your current holdings under close scrutiny. I also look at some stocks that have great stories, which is a good qualifier for candidates on your watch list. Click below to watch the video. 

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: It’s true in many personal endeavors, from completing college, to quitting smoking to succeeding on a diet. And it’s also true in investing, where discipline means both the system that you (should) follow and your ability to actually stick to that system, despite feelings that argue otherwise. In the many decades that I’ve been watching the behavior of individual investors, I’ve seen those feelings impede accomplishment time and time again.

Paul’s Comment: My take on this apparently simple saying is a little different from Tim’s. I’ve recently read research showing that discipline (self-control, ability to tolerate delayed gratification or whatever you want to call it) is an exhaustible resource. You can force yourself to do something (or not do it), but the more discipline you use, the less you have; it’s renewable, but not infinite. To me, this means that your investing discipline should be as close to your natural inclinations as possible. If you’re a natural value investor, it will be exhausting (and probably costly) for you to try to discipline yourself to the laws of growth investing. And vice versa. So try to pick an investing style that suits your personality; it will pay off in the end.

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 9/22/14 — Is the Market Rigged Against Small Investors?

Chief Analyst Tim Lutts, the man behind Cabot Stock of the Month, writes in this issue about the advantages that individual investors actually enjoy over large institutional investors. Stock discussed: HealthNet (HNT).

Cabot Wealth Advisory 9/23/14 — What We Learned from Alibaba’s Trading

In this issue I write about the trading action during Alibaba’s first few days of trading and who wound up actually making money after the dust settled. Stock discussed: Seaspan (SSW).

Cabot Wealth Advisory 9/25/14 — My Favorite IPO of the Year

Mike Cintolo, Chief Analyst of Cabot Market Letter, writes about the importance of IPO bases, the pause that many stocks take after they come public that sets them up for further advances. (Hint: BABA hasn’t formed one yet.) Stock discussed: GoPro (GPRO).

Have a great weekend,

Paul Goodwin
Chief Analyst, Cabot China & Emerging Markets Report
And Cabot Wealth Advisor


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