Water Skiing Teaches Two Investing Lessons

Living on a lake in New Hampshire has afforded me the opportunity to try activities that I might otherwise not have attempted. Among those activities are water skiing and wakeboarding, which have become two of my favorite pastimes.

I’ve been water skiing for several years, having first learned how to snowboard and snow ski as a kid, and I eventually tried wakeboarding. But after a wakeboarding accident caused a very bloody nose, sidelining me for the remainder of one summer, I went back to water skiing full time.

Recently, I have been trying to learn to slalom (use only one water ski). I’ve been water skiing, running and riding my bicycle more in anticipation of trying to slalom this weekend.

Patience and Flexbility

In addition to physical strength, I know another thing I’ll need is patience. Water skiing and wakeboarding are hard work and one of the keys to success is patience. You have to wait in the sometimes-frigid water to get in just the right position. If you’re just learning the sport, it often takes several tries to get up behind the boat. And those tumbles that take you down hard can be quite grueling on both the body and mind.

It definitely takes a lot of patience to accept being slammed into the water several times a day, often having your gear come off in the process. But once you get up and are cruising along, it’s all worth it, even getting a bloody nose or two.

The other thing that’s very important is to be flexible. Bending the knees and elbows and holding your back in just the right position is key to getting up, and staying up, on water skis. Without those things in line, you have little hope of having a successful run.

Lessons Apply to Investing

You also need to be patient with the weather and body of water you’re skiing on. Sometimes it rains when you set your alarm for 6 a.m. (to avoid the crowds) and other times the water is just too choppy to get in a good run. But trying to battle those forces of nature won’t get you very far; in fact, you’ll probably just get hurt.

So last weekend, when I was water-skiing, I got to thinking about how this relates to the market right now. We’ve been in a bear market for about nine months and some investors are getting impatient. We get a lot of calls and emails from people who want to dive back in before its time. We also get calls from people who’ve held on to stocks they’ve fallen in love with for too long … but that’s another story.

There are many things I’ve learned about investing since starting work at Cabot, but two of the most important are the need to be patient and the need to be flexible. Those are two lessons that could serve many investors well right now.

The best thing to do now is to build a watch list and prepare for the next bull move. It’s coming, and if you follow your investing system you’ll be ready when it does. But it takes patience to wait for a solid buy signal and the inability to wait for it causes many investors to jump in and out of the market at exactly the wrong times.

There are also investors who are inflexible in their views on certain stocks, even after they’ve taken a hit that warrants selling. Our editors often caution about falling in love with stocks and how this can take an otherwise rational person do irrational things. The key is to follow your investment system and be flexible. If a stock is telling you to sell, do it.

So be patient and flexible, the editors here are preparing for the next bull move, and you should be, too.

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Letters from Readers

Last week, I asked readers to let us know how they are coping with the rising costs of food and fuel, and I have included some of the more interesting responses below.

“We recently gave all of our employees a $300 gas card. You would have thought we gave them the world. They were so appreciative and thankful. I’m sure this is an indication that high gas cost is of major concern to middle America. I don’t believe our elected officials fully realize the seriousness of four-dollar gas.”–D.A.

“To answer your question, in an ambiguous way, my family is cutting back and then again it is not.  We are talking about cutting back on spending and I have started to cut back, but I don’t believe my wife is.
 
I work out of my home office, and drive very little, so rising gasoline prices have had little impact on me.  My wife drives about, but doesn’t really have to, so can cut back without much impact.
 
Yes, food prices are high and getting higher.  However, we already eat too much and cutting back would be good (not bad).  For the most part, we eat top-grade meats and probably too much at that, so it wouldn’t hurt for us to eat more rice and beans.  This diet modification is in the talking stage as we haven’t actually made any changes.
 
The thing that is really impacting us is the rise in educational costs.  I am working on another masters degree (an MBA) and my employer foots less than half the annual bill.  Prices are increasing at 7% compounded annually, but my employer hasn’t increased its subsidy cap in more than 6 years.
 
This isn’t the end of our educational woes as we are sending my 14 year-old son to a private high school this year.  The price tag is at least $10,000 and is growing (it seems) every week.  I set up a spreadsheet to start tracking all the misc. and regular expenses so that I can make a good decision next year about sending him to the same school again.
 
College tuition costs exceed $15,000 even at state schools now and I assume that they will increase at roughly the same rate as my graduate courses.
 
It is actually the education costs that are changing our lifestyles.  I refinanced my house at a lower rate (no cash out) and have started reducing the number of graduate courses that I take per year to raise cash to (help) pay for my son’s schooling.  We probably won’t replace any vehicles for 8 years. (They are all debt free now.)  In addition, I am reducing periodical subscriptions, book purchases, and other unnecessary expenses to help keep from borrowing money for educational purposes (both mine and my son’s).
 
Lord willing, my son will win some scholarships to college which will help a lot.  But it will be 7 lean years until my son finishes college.  If the educational cost trend continues, his senior year in college will cost 50% more than it would today – and today’s prices are out of sight.
 
Retirement savings is also squeezing us.  In theory, I could retire with a full pension in 4 years, but given my educational liabilities, it is likely that I will work until age 68 (10 years from now).  As I’m sure you know, even pensions from large multinational companies plus social security are not near enough to provide an adequate living in retirement.  I suspect that if more people were paying adequate attention to their retirement needs, they would be squeezed MUCH harder than the squeeze induced by rising food and oil prices.
 
According to Dr. Plasker’s “The 100 Year Lifestyle”, p. 5, there are currently over 50,000 centenarians in the US and by 2050 there will be over 400 million of them world-wide (2 million of them living in America.)  (I will not be among them as I will only be 99 in 2050.)  Even if one works until age 70, retirement of 30 years would reduce all but the largest savings accounts to a pittance (in real terms).  In my opinion, both company pensions and social security (including Medicare) cannot be relied on over the very long term.  All this is why I am saying that most people would be squeezed much harder were they to adequately attend to their retirement needs.
 
Sorry, I’ve rambled too long!
 
Best regards,
B.B.”

I also received a very complimentary letter regarding the creation of the blog:

“Elyse Andrews,
What an excellent idea. I hope you don’t get buried in incoming frivolous drivel like this note from me. Still, I couldn’t let this pass without telling you this is a great idea. I hope all enjoy it.
Regards,
M.Y.”

Thanks again for all the letters. Please feel free to write to us via email or check out our new blog at www.iconoclast-investor.com.

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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, we have links below to each issue.

Cabot Wealth Advisory 7/28/08 – Happy Chinese and Unhappy Americans

On Monday, Timothy Lutts wrote about a Pew Research Center survey, released last week, which revealed that 86% of Chinese are content with their country’s direction. Meanwhile, here in the U.S., only 20% of Americans are optimistic about their future. But Tim is firmly convinced the long-term trend of the U.S. economy–and thus the U.S. stock market–is still up, and that the market will reflect that by climbing out to new highs eventually. And the time to invest is when public perception is lowest, which seems to be right now. Stock featured in this issue: Myriad Genetics (NSDQ: MYGN). Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/07/How-to-Invest-in-America.aspx

Cabot Wealth Advisory 7/30/08 – Conviction or Stubbornness?

On Wednesday, Paul Goodwin wrote about how having convictions is a desirable quality in life, but when it comes to growth investing, the most important thing is following the rules. Paul also discussed his excitement about the freestyle wrestling events at the upcoming Olympics and a Chinese stock that he thinks may go from mild to wild. Stock featured in this issue: American Oriental Bioengineering (AOB). Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/07/Follow-the-Rules.aspx

Cabot Wealth Advisory 7/31/08 – A Great Biotech Stock

On Thursday, Timothy Lutts wrote about how the calendar was formed–from its origins to how it’s used by various groups today. He also detailed the list of stocks hitting new highs in the market and, more specifically, the medical and biotech stocks he has his eye on. One of which was Myriad Genetics, which Tim recommended on Monday, and another was Celgene, which was recently featured in Cabot Top Ten Report. Stocks featured in this issue: Myriad Genetics (NSDQ: MYGN) and Celgene (NSDQ: CELG). Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/07/Great-Biotech-Stock.aspx

Editor’s Note: If you have a lot of patience, Cabot Benjamin Graham Value Letter might be the right investing publication for you. It uses the teachings of Benjamin Graham to buy undervalued companies and hold them for one to two years. This system works well in any market and has handed investors 20% gains for nearly 80 years. Click the link below to find out more.

http://www.cabot.net/info/bgv/bgvir01.aspx?source=wc01

Until Next Time,

Elyse Andrews
Editor of Cabot Wealth Advisory

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