A Look Back at Cabot Market Letter

A Look Back at Cabot Market Letter

Markets Are Never Wrong

In Case You Missed It

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Monday marks a special day for us at Cabot: It’s the 39th anniversary of the first issue of Cabot Market Letter, our flagship newsletter. In honor of this anniversary, I’ve interviewed Timothy Lutts, Cabot’s publisher and the son of Cabot’s founder, Carlton Lutts. He’s going to tell you about how Cabot got started (and where the name came from), as well as his favorite investing story and top investing rules. Next week, I’ll have a Q&A with Cabot Market Letter’s current steward, Michael Cintolo. Enjoy!

1.) Can you explain the history of Cabot?

My father, Carlton Lutts, wrote the first Cabot Market Letter in October 1970.  He was educated as an engineer, but he loved the stock market, and he wanted to share his ideas about investing with people.  At first, the Cabot Market Letter was a part-time effort–he kept his day job–but after two years the newsletter was bringing in enough money that he could quit his regular job and devote himself to the enterprise full-time.

2.) What stocks were recommended in the first issue of Cabot Market Letter?

The first issue recommended buying Crown Cork & Seal, Maytag, Cabot Corp., Ford Motor of Canada, Mattel, Kaufman & Broad, Adams-Mills and Beech Aircraft.  I was a teenager then, and worked on the Letter with my four siblings, doing tasks like typing addresses on envelopes, folding, stuffing and mailing.  In the early days we, (along with other neighborhood children) were paid in ice cream sundaes.

3.) Is there anything else of particular interest from that first issue?

My father has always been a big proponent of market timing–investing aggressively when the market is strong and holding cash when the market is weak. That first issue featured his Cabot Trend Lines (a market-timing indicator) on page 4, and those same Cabot Trend Lines are still a major component of our market timing system; now they’re found on Page 6.  They helped protect our subscribers from losing a lot of money in 2008 and I’m confident they’ll continue to do their job for years to come, regardless of any fundamental changes in the economy.

4.) What are some of the most important lessons your father taught you?

My father has always been an optimist, not a complainer. He likes to say, “Problems are opportunities in work clothes.”  In fact, the first issue of Cabot Market Letter was titled, “It’s Time to Be an Optimist.”  Admittedly, that was, in part, a market timing call.  He’d just received a buy signal on the market (there was a huge market bottom in June 1970), and he wanted to get people buying so they could profit from the bull market.  But the title also reflected his life’s philosophy.

5.) What are your thoughts on the 39th anniversary of Cabot?  

That we should have a big party next year on the 40th and then aim for the 50th!  No, seriously, my main thought is that I’m fortunate that I can get up in the morning and come to work each day to do a job I love surrounded by people I like working with.  I was lucky to be able to work alongside my father for 18 years, learning about investing, marketing and running a publishing business.  I’m lucky that every day in this business I learn something new, and I help someone new.  And I’m lucky that for the past couple of years my daughter, Chloe, has been working behind the scenes doing editorial work, and that she’s now going to take a more visible role in the organization as editor of the Dick Davis Digests.  She’ll be the third generation in the family business.

On the customer side, I’m proud that Cabot has been able to adapt to the changes of the past four decades and is now able to supply the best independent investment advice possible to a growing number of subscribers … all over the world.  

6.) Where did the name Cabot come from?

It’s a long story, but here’s the abridged version: My father’s father, also named Carlton, was a metallurgist who worked at the Charlestown Navy Yard in Boston.  While there, he co-invented and patented an improved anchor chain for ships (if you Google patent 1,974,827 you can see it), and when the Navy ordered a lot of chain in the 1930s, the royalties began rolling in.  In 1941, my grandmother Grace, who had a “money mind,” convinced him to use those royalties to buy “the old Cabot farm” in Salem.  The farm had once belonged Joseph Sebastian Cabot, who was mayor of Salem from 1845 to 1848, but in the Depression the owners had fallen on hard times.  Today there are nine homes on the farm, full of my relatives … 34 of us when everybody’s home.  And to answer the question, when it came to choosing a name for his stock market letter, my father concluded that Cabot was a more marketable name than Lutts.

7.) What are your top investing rules?

Cut losses short.  Respect the market trend.  And beware the consensus opinion.

There’s nothing new about these rules.  If you read investing classics like “Reminiscences of a Stock Operator” by Edwin Lefevre, you’ll learn the same thing.  But year after year there are new investors who learn these lessons the hard way … or don’t learn at all.  Part of my job is to try to prevent that, to teach investors these lessons before they learn the hard way.

The past couple of years have provided ample opportunity to use these rules.  In the bear market, anyone who cut losses short and moved to cash didn’t get hurt too badly.  And anyone who respected the market trend got back in fairly early in the rebound.  By late March it was clear the market’s short-term trend had turned up, and by early April it was clear the long-term trend was up, too.  So our readers were buying.  But the news was so horrible that most individual investors stayed on the sidelines.  They were unable to part from the consensus opinion, and thus they missed most of the six-month advance.

8.) What is your favorite stock of all time and why? What is your favorite investing story?

The first stock I ever bought was Mylan Labs, and I did well in it, in the early days of generic drugs.  But I wouldn’t own it now–it’s too big.

My favorite story is about a company named Summit Technology.  Back in 1988, a local copywriter told us about a little company that had developed a laser surgery machine that would carve your cornea so you could throw away your glasses.  It was called the excimer (for excited dimmer) laser.

So my brother, my father and I took a trip to the firm’s facility (you couldn’t call it a factory) in Watertown, Massachusetts, a short half-hour away.  We met the founder and President, David Muller, had a short tour, and came away impressed about the potential for this machine.

But the stock wasn’t going up, so we couldn’t recommend it in the Cabot Market Letter!  Still my father was intrigued; he wrote about that stock eight more times before it strengthened and we finally recommended it as a buy in August 1989.  (The symbol was BEAM.)

A week after we recommended it, the stock was up 67%!

And the story gets better!  In December 1989, my brother had his eye corrected by the Summit machine, for free, as a “guinea pig” in the FDA test.  Two months later, I did the same.  We each had just one eye done, and focused thereafter using monovision, in which one eye does the near work, while the other does the far work.

Finally, a year later, my father had the procedure done, too, but by then the FDA had approved the machine so he had to pay.  And in the years that followed, millions of other patients paid, too, as the procedure became mainstream.

We sold Summit in March 1996 for a profit of 443%.  And in 2000, Summit was acquired by the eye care giant, Alcon.  But by then the business was mature.  The big profits were all in the early days when there still skeptics … that’s the way it always is!

9.) Any final words?

In the immortal words of Jesse Livermore, which are carved in the mantel of the fireplace next to my desk, “Markets are never wrong; Opinions are.”

Find out whether Cabot Market Letter (or one of our other investment newsletters) is right for you by taking our simple quiz at http://www.cabot.net/Home/Subcontent/Which-Publication.aspx

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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, I have links below to each issue.

Cabot Wealth Advisory 10/5/09 – It’s Tough to be Really, Really Rich

On Monday, Paul Goodwin wrote about “The New Normal,” a phrase that’s supposed to reflect the changed economic landscape following last year’s epic meltdown. Paul also discussed the people on Forbes list of Top 20 Richest Americans. And Paul finished by writing about a Chinese stock that’s ready to break out. Featured stock: AsiaInfo Holdings (ASIA).

http://www.cabot.net/Issues/CWA/Archives/2009/10/Tough-to-be-Rich.aspx

Cabot Wealth Advisory 10/8/09 – Why Conde Nast is Dying

On Thursday, Timothy Lutts wrote about the recent announcement that Conde Nast is shutting down publication of Gourmet and other magazines. Tim focused on two big changes that will greatly affect the future and a stock that is poised to benefit from one of them. Featured stock: Echelon (ELON).

http://www.cabot.net/Issues/CWA/Archives/2009/10/Conde-Nast-Dying.aspx

Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

Editor’s Note: The stock market recently had its best quarter since 1998–with the Dow and the S&P 500 both surging 15%! There’s never been a better time to invest. And to get you started, we’re bringing you a special anniversary offer for Cabot Market Letter, which has been helping investors profit since 1970. Order by the end of October and get the rest of the year free! Click below to get started today.

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