Keeping Score on Your Investments

Stock Market Video

Gold, Silver, Bronze

This Week’s Fortune Cookie

In Case You Missed It

In this week’s Stock Market Video, Mike Cintolo discusses the resilient market and the unusual number of upward earnings gaps in recent weeks—both of which are bullish. He give some advice on how to buy into extended stocks and names a few leading stocks at attractive entry points. Click below to watch the video!

Gold, Silver, Bronze

The Winter Olympics are a wonderful spectacle, rich with triumph and tragedy, stories of overcoming obstacles and an endless pageant of physically gifted young people performing astonishing feats of strength and coordination. Plus, it’s fun to watch people fall down.
The Olympics also presents a wonderful stage for commentators to grapple with issues that arise out of the Sochi venue: Russia’s repressive leadership, human rights record and international relations. Personally I suspect that at least part of the coverage of the protests in Ukraine is a result of the shifting of the global eye toward the region.

I haven’t spent my usual amount of time glued to my TV set this year, and I think I know why. The coverage has grown so formulaic that I’m almost insulted by it. How many montages have we seen of adorable kids growing in size and skills over the years? How many shots of adoring parents backed up with tales of their sacrifices and devotion to their young athletes? How many profiles of rival teams and individuals hyping up their upcoming confrontations? And has there ever been a hint of controversy that they don’t jump on like a chicken on a junebug?

I’m not saying that I liked it better when we just got raw footage of run after run, but this “up close and personal” emphasis has gone way too far for me.
But I digress. What I really want to talk about is keeping score.

Keeping score is an Olympic obsession, of course, with gold, silver and bronze medals certifying success. Some athletes are over the moon with happiness at nabbing a bronze and some (U.S. women’s hockey team) are crushed with sadness at getting only silver.

In investing, there are no medals. The only reason to invest your money is to make it grow into more money, and that’s not the kind of contest that produces first, second and third places.

So, how do you know how well you’re doing? It would be easy if you were running a mutual fund, each of which has a benchmark index associated with it. Many of them have a stated goal of beating the S&P 500 Index (or the Nasdaq or the Dow or the Wilshire). But in a bad year for the major indexes, that means that the fund can claim victory by doing only a little less badly than its stated benchmark.

But the performance of the broad market since the end of the Great Recession in 2009 has made it pretty easy to beat those indexes by a wide margin. So if you’re actively managing at least part of your own money, it’s important to have a personal goal in mind. If you’re an aggressive growth investor, you might target a 20% annual return over many years, though with some sour years interspersed. If your risk tolerance leads you to value investing, you might have a goal of no losses and a combined return of 10% from price appreciation and dividends.

We talk a lot about your investing personality, and that’s not just talk. If you have correctly aligned your portfolio’s strategy with your own risk tolerance, level of aggressiveness and willingness to do the research and management of your individual holdings, you’re likely to be satisfied with your results.

Personally, while I realize that value investing offers lower risk and lower management requirements, I’m drawn to the intellectual challenge and higher potential returns of aggressive growth investing. And I’m willing to absorb the occasional loss to get the enjoyment of a big win.

I’m always astonished when I hear investment experts say that it’s not possible to beat the market in the long run. One version or another of the Efficient Market Hypothesis has been circulating for decades, telling you that the market is so efficient at discounting all of the available information that an individual investor can’t hope to keep beating it.

And yet, we do.

Obviously I think it’s a good idea for anyone who wants to take the challenge to have a time-tested, trustworthy ally like one of the Cabot investment advisories to show you the ropes.

But you should also be doing some serious introspection to understand your own investing personality before you start. When you know that, your road to your own personal gold, silver and bronze will that much easier.

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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 Lutts is out of the office this week, so I’ve asked our growth guru Mike Cintolo to step in for him. 

Mike’s Comment: Because all of us investors are most concerned with the here and now, there’s always the urge to form an opinion … and then back it up with a big bet. After all, the sudden, spectacular success story is what grabs our attention, whether it’s a long bomb for a touchdown, a lottery winner or the guy who bet against housing debt back in 2008. But in reality, the best investors take their time when testing new ideas, often starting with a small position and then building over time. They’re not fearful of risk, but they manage it carefully.

Paul’s Comment: While I appreciate this Ashanti proverb’s optimism, the problem is that many people do exactly that. People test the thickness of ice by walking on it and check to see if a gun is loaded by pulling the trigger. And, of course, they react to strong market moves by making huge bets on risky stocks. Oh well, I guess some people will only learn caution from broken bones or a flat wallet. And the stock market is always happy to give expensive lessons.

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 2/17/14—How Investing is Like the Olympics

Tim Lutts, chief analyst for Cabot Stock of the Month, talks about a recent pharmaceutical acquisition that gave a profit, but removed a larger opportunity. Tim also talks about the importance of youth in both the Olympics and investing. He gives the eighth in his series of disruptive stocks. Stock discussed: Workday (WDAY).

Cabot Wealth Advisory 2/18/14—Today’s Gold Medal Stock Pick

In this issue, value expert Roy Ward of Cabot Benjamin Graham Value Report discusses his love for sports, but points out the investing isn’t a game. Investing requires attention and a consistent strategy. Stock discussed: Arris Group (ARRS).

Cabot Wealth Advisory 2/24/14—Protecting Against a Worst-Case Scenario

In this issue, our options expert, Jacob Mintz of Cabot Options Trader, gripes a bit about winter and discusses how you can use options to protect your portfolio from the kind of black swan events that can’t be foreseen.

Have a great weekend,

Paul Godwin
Chief Analyst, Cabot China & Emerging Markets Report
And Editor of Cabot Wealth Advisory


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