It always surprises me how many of the self-proclaimed investing pundits, experts and “gurus” (a term I really can’t stand) make their stock in trade by constantly pitching doom and gloom when the reality is that we’re in a selective bull market, a classic stock picker’s market.
I mean, I understand it. In the hierarchy of human motivators fear and greed are at the top of the heap, and fear edges out greed. That is human nature. So, fear sells.
But fear isn’t productive. Fear breaks down trust which makes our economy less efficient. Fear causes us to take precautions, buy insurance, and other protections that don’t produce anything and actually take up valuable time and resources. In the extreme, fear drives enormous expenditures on defense. Imagine the impact on our economy if those resources were used for innovation, infrastructure, education, healthcare.
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I’m not suggesting all of these actions are wasteful or unnecessary. I’m simply emphasizing that fear unleashes energy, but it’s negative energy that rather than improving our quality of life is a drag on it.
Taken to an extreme almost anything can be bad but in moderation, greed is a motivator that makes our economy more efficient and spurs innovation and productivity.
More importantly when it comes to investing, in the long run, the stock market goes up. It always has and, for all practical purposes, it always will.
This tendency of so many to stoke fear was prominently on display over most of the past eight months when many analysts continued to emphasize the negative even as mostly positive signs kept accumulating. Here’s my scorecard:
Ed’s Stock Market Scorecard
| Economic Development | Good News | Bad News |
| Inflation falling, now below historic average | X | |
| Bank failures | | X |
| Quick response to bank failures restores confidence, contains damage | X | |
| Strong jobs reports (good as long as it doesn’t fuel inflation) | X | |
| Increased infrastructure spending | X | |
| Energy costs falling | X | |
| Food costs still high | | X |
| Actions of the Fed have followed what they’ve announced | X | |
| Lots of money still on the sidelines | X | |
On top of all of this, for a variety of reasons the third year of a Presidential administration historically is good for investors.
But, getting back to the stock picker’s market, the emerging bull market, which many are saying started in January but actually has its roots last October, is not lifting all stocks equally. Three years ago, you could throw a dart at a list of growth stocks and be pretty confident you could turn a profit on whichever you hit. That’s no longer the case.
Much of the lift early in the year was on the back of a very small group of stocks. That has broadened out now, but you still need to beware. At this point, the rebound for some stocks is mostly behind them and it’s too late to buy now. Others are just simply going to lag as the economy continues to choose winners and losers. And of course, some of the stocks that have already rebounded will likely see some pullbacks along the way.
For example, this is nowhere more true than with small-cap stocks. The indices for the sector are not having a great year (yet?). But there have been many big winners for a seasoned small-cap stock picker.
I don’t know many experts who fit that description better than Tyler Laundon, Chief Analyst for Cabot Small-Cap Confidential and Cabot Early Opportunities. He’s been finding big winners and last I heard every single stock in his small-cap portfolio was up. Most substantially.
Now I freely admit my bias on this subject, but Cabot has assembled a team of analysts who are among the very best stock pickers in the business. Each has his or her own specialty and has put their personal spin on the Cabot Wealth system, but they are capable of outperforming the market under almost any conditions.
But the current market environment is where they really shine. That’s because these really are the conditions where you’re not blindly buying, or you’re not buying heavily into a specific sector. There are winners and losers everywhere and those who have proven they can find the former and avoid the latter do well. That’s what stock picking is all about.
I know 2022 pushed many investors to the sidelines, and as I write this there is still a lot of money, even institutional money, sitting out of the market. That’s a mistake since they’re missing a time when many stocks are breaking out.
Similarly, this is not the time to count on your index funds to help you because the strong performers are getting watered down by the stocks that remain weak.
For now, the best way to ride this bull market is an expert stock-picking approach.
Yours for successful investing,
Ed
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