How (and When) to Jump Off a Cliff

Stock Market Video How (and When) to Jump Off a Cliff

Stock Market Video

How (and When) to Jump Off a Cliff

No Matter Where You Go, There You Are

In Case You Missed It

In this week’s Stock Market Video, I looked at how close the market might be to a new buy signal … but not yet. The long-term trend is up, but the corrections along the way have been too severe to allow any rational growth investor to stay in the market. Stocks discussed: HollyFrontier Corporation (HFC), Lions Gate Entertainment (LGF), Domino’s Pizza (DPZ), Silver Wheaton (SLW) and Williams-Sonoma (WSM). Click below to watch the video!

Cabot Heritage Corporation, Paul Goodwin

How (and When) to Jump Off a Cliff

The Fiscal Cliff, which our esteemed members of Congress wanted no part of before the election, is now near the top of every list of online headlines and first for discussion on every market review, whether broadcast or blog. And the level of emotional and political distress that this is causing among the more rational members of our national legislature is fun to watch.

The most committed of the ideologues of either the left or the right feel no anxiety at all, of course. If a rigid adherence to extreme principles has any advantages, a smug self-assurance has to be one of them.

I think it’s useful to remember why we found ourselves in this situation in the first place. In 2011, Congress was deadlocked over legislation to raise the public debt ceiling. One side insisted that any increase had to be balanced by automatic, across-the-board spending cuts, many of which would begin in January 2013 … which would coincide with the expiration of the Bush tax cuts.

Nobody wanted either of those actions to take place! Across-the-board cuts would inevitably take funding from everyone’s favorite programs. And the expiration of the tax cuts would also hit every constituent group of every member.

At this point, the two sides in Congress were like the two mountain men who met on a road. One of them had a squirrel gun and a jug of moonshine, and he handed the jug to the other and leveled the gun at him. “Take a drink,” he said. The other man drank, then wheezed and grimaced, saying, “That’s terrible!” “Sure is,” said the first man, “now you hold the gun on me.”

Congress is now in the process of holding a gun on itself, with members hoping that the direness of the consequences of inaction will insulate them from the displeasure of their constituents when they violate their announced principles.

It’s still not a good way to run a country.

As the long-running dramas that have been hobbling the major stock market indexes finally run their course—earnings season and the U.S election are over; the Fiscal Cliff and the Eurozone crisis are inching toward resolution—we have to look toward what will come next.

And given the determination with which investors have been pushing markets higher since 2009, I have to assume that we’re due for a real bull market. That means a market with real leaders, some rallies that head for the skies and reasonable corrections that act more as buying opportunities than punishment. Investors are ready for this to happen. The real test of character for eager growth investors will be to wait until it actually gets underway before jumping in with both feet.

Remember that the market is a very tough teacher. It tests first and teaches afterward. And that can be expensive.

Mark Twain said that the difference between the right word and almost the right word was the difference between lightning and a lightning bug.

And the difference between a bull market and almost a bull market is similarly glaring. Only it costs more.

Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

No-Matter-Where-You-GoNo Matter Where You Go, There You Are

Tim’s Comment: Attributed to Confucius, but popularized by Buckaroo Banzai, it means what it says. You can’t run away from yourself, so it’s worth taking time to master yourself. And in investing, this is critical, because it’s your own human foibles that are the biggest obstacles to investment success.

Paul’s Comment: Mastering yourself is a tall order, and I’ve always aimed a little lower … just understanding myself. That’s still not falling-off-a-log simple, but the rewards of understanding who you are as an investor are substantial. If your investment style matches your temperament, your chances of success are much higher.

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 11/26/12 — Have Interest Rates Finally Bottomed?

In this issue, Cabot Stock of the Month editor Tim Lutts looks at the exodus from dividend-paying stocks caused by fears of higher tax rates next year, and finds that it makes no sense. Stock discussed: Bank of Montreal (BMO).

Cabot Wealth Advisory 11/27/12 — Handicapping Uncertainty

Options expert Rick Lehman, editor of Cabot Options Trader, explores the market’s dislike of uncertainty and the risks and opportunities presented by market volatility. Rick sees a possibility that the market hasn’t completely priced in the possibility of another recession.

Cabot Wealth Advisory 11/29/12 — How to Invest in Big Data

Chloe Lutts, editor of Dick Davis Digests, digs into the subject of Big Data—the enormous amounts of information that companies collect and store, and how it can be used. Stock discussed: Tibco Software (TIBX).

Have a great weekend,

Paul Goodwin
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report


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