After you work with someone for well over a decade, you begin to see how they think—about everything from stock charts to major political events. So when I looked at this morning’s headlines about President Trump’s “fire and fury” warnings and Kim Jong Un’s subsequent threats to attack U.S. bases on Guam, I had a pretty good idea of what Tim Lutts, Cabot’s President, would have to say. And I was right.
Tim’s comment was that the dreaded military showdown between the U.S. and North Korea was unlikely to actually happen, precisely because it was the biggest worry on everyone’s mind.
As Tim sees it, the most obvious problem, the one dominating the headlines, attracts the attention of all the best thinkers. They put their massive brains to work on the problem and explore all the possibilities and assess all the possible solutions. And they usually come up with a workable answer.
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So Tim doesn’t sweat the headlines.
What Tim sees as the biggest threat to the market is the crisis that nobody foresees, the problem that comes out of left field when nobody is looking. It’s the invisible problem that slips in the back door while everyone is manning the barricades at the front door that does the real damage.
That’s the thinking behind Tim’s conviction that global warming will eventually be solved by human ingenuity. A big, high-visibility problem eventually attracts the efforts of the best minds, and when that happens, unexpectedly powerful solutions are found.
The major stock market indexes, although they showed a bit of a negative reaction on Wednesday—the S&P 500 was down 1% at one point, but held above its 25-day moving average—there was nothing resembling panic.
Here’s what the S&P chart looked like around 1:00 pm on Wednesday.
Tim Lutts’ approach to crisis headlines may look like a kind of optimism, but that’s not really what it is. Rather, it’s a considered judgment, backed up by decades of observing the market, of how stock markets actually move.
And Tim’s advice about how to handle any potential crisis is exactly the same as mine: Watch the stock charts. Keep a close eye on the charts of the stocks in your growth portfolio and watch closely to see if the major market indexes are holding above their 25- and 50-day moving averages. React to what you see in those stock charts, not to what you see in the headlines.
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