Stock Market Video
Three Reasons for Owning Individual Stocks
This Weeks Fortune Cookie
In Case You Missed It
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In this week’s Stock Market Video, Mike Cintolo says that the market’s intermediate-term trend has turned back up ... though he’s really not seeing a major change in the overall environment. He’s still leaning bullish, holding top stocks and looking to buy on dips. Mike also highlights a few potential emerging sectors, and goes over potential new buys. Click below to watch the video!
Three Reasons for Owning Individual Stocks (that you may not have thought of)
In 2002, the Investment Company Institute, the industry group for mutual fund companies, found that just about half (52.7 million or 49.5%) of all U.S. households owned stock in some way. But just 21 million households (fewer than 20%) owned individual stocks outside their 401(k) plans and other mutual funds.
I know that much has changed since 2002, but I’m betting that those figures are still in the ballpark.
And that’s because owning mutual funds is easy. If you own a chunk of a fund that owns a basket of stocks, you don’t have to watch the daily movements of stocks and make decisions about buying and selling. (The mutual fund companies certainly work hard enough to discourage you from taking much initiative with your investments.) Plus, if you have a tax-deferred mutual fund, you don’t have to consider the tax consequences of capital gains.
Personally, I have the bulk of my retirement savings—what’s left of it anyway—in exactly the same kind of mutual funds as most people. They are mostly a legacy from my days with earlier employers, and I mostly just let them be.
But I also own individual stocks. And I think there are some really good reasons for getting in the game.
Here they are.
1) Owning stocks is real.
Facebook, Twitter, UTube, Second Life, chat rooms, massively multiplayer online role-playing games and every game console joint ever made may be fun, even addictive. But running your life online doesn’t make or lose a thing.
But if you own a stock, you’re joined at the wallet to the fortunes of the company that issued it. It’s real money, and you can make actual money at it. You can also lose money, but that’s part of being real. You can’t hit restart or (command/option/escape) and make it go away. Real risk, real opportunity. There’s nothing like making a decision and having it lead to real consequences.
2) Owning stocks gives you a chance to test yourself.
It’s one thing to watch the markets in a general way. And you may find yourself making some interesting adjustments to your mutual fund allocations during the open enrollment at the end of your company’s plan year.
But owning stocks allows you to test yourself against Warren Buffett, Gordon Gekko and Jesse Livermore, the Speculator King.
How good are you at picking the nuggets out of the gravel? Do you have the nerves to wait out a market correction and the gumption to follow a sell discipline? If you’re willing to pay for the class, the market will be more than happy to give you exactly the grade you deserve. It can be a humbling experience, but also personally rewarding, especially as you learn and improve.
3) Owning stocks is fun.
It amazes me all the time that people go to Las Vegas knowing that they’re probably going to lose money … and yet they enjoy themselves. But then that’s what huge fountains, famous headline acts and billions of dollars of advertising and fantasy architecture will do for you.
The stock market, on the other hand, just has the boring old ticker. Stocks and indexes go up and they go down. You supply the fireworks.
But if you’ve ever talked to a growth stock investor who owns a stock that has just doubled in six weeks, you’ve probably seen something akin to real joy. (Yeah, I know that it’s nothing compared to parenthood, finding true love and sinking a hole in one, but you have to work with me here.)
I also know that it may not be fun if you’re desperately playing catch-up, trying to get your retirement funds back up to where they should be so you can quit a job you don’t like and head for the ivy-covered cottage in which you hope to live out your golden years. I’m not saying it’s fun for everyone. But for people who prefer investing to wood working or collecting Pez dispensers, it can be a hugely enjoyable thing to do.
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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: Not even Ben Bernanke, in many ways the Economist-in-Chief of the U.S. economy, can make an economy do what he wants it to. But we’re happy to blame him when things go wrong.
Paul’s Comment: Jean-Paul Kauffmann, a French author who spent five years being held by kidnappers in Lebanon, has got this exactly right. And so does Tim. While we can pick an economist and make him the head of the Federal Reserve Board, he still won’t have much more control over the economy than a typical weatherman does over the weather. There just aren’t enough points of control for a U.S. official to use to turn this aircraft carrier.
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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, there are links below to each issue.
Cabot Wealth Advisory 9/9/13—The Best Revolutionary Stocks: Tesla (TSLA)
Tim Lutts, Cabot Stock of the Month analyst, gives a short history of electric cars dating back to the late 19th century. Tesla has brought glamour back to electric autos, making it Tim’s eighth revolutionary stock. Stock discussed: Tesla Motors (TSLA).
Cabot Wealth Advisory 9/10/13—Top Ten All-Star Stocks
In this issue, I argue that gaining frequent coverage in Cabot Top Ten Trader is a real badge of honor. And if you look at the companies that have made 20 or more appearances, you have a great All-Star list of stocks. Stock discussed: Netflix (NFLX), Intuitive Surgical (ISRG), Green Mountain Coffee Roasters (GMCR), Baidu (BIDU). (If you’d like to see the whole list of All-Stars, reply to this email and I’ll send it to you!)
Cabot Wealth Advisory 9/12/13—Why and How to Time the Market
Mike Cintolo, chief analyst of Cabot Market Letter, details Cabot’s approach to market timing, which follows trends rather than trying to predict them. This kind of market timing will get you into every bull market and out of every bear. Stock discussed: Pioneer Natural Resources (PXD).
Have a great weekend,
Paul Goodwin
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory
