The Truth About Cabot
What Would Warren Buffett Do?
A Warren Buffett-Style Value Stock
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The Cabot offices are in a beautiful brick building, originally constructed for the City of Salem as a branch library, using WPA money, in 1933-1934.
At the back of the building is a concrete access ramp.
The ramp is not original; we added it when we bought the building 20 years ago. Back then, all our communication was done by mail, and we moved a lot of paper.
Today, though, the ramp doesn’t get much use: most of our communication is done digitally (via email, text-message or website).
The point is, when the digital age came along, we changed. And overall, I like the digital age, because it allows us to communicate more quickly with readers, and at a lower cost, too.
But there are some aspects of this digital age that aren’t better.
For example:
I increasingly find myself reading stories online—frequently earnings reports—that are so terribly written they might have been written by either a machine (computer program) or a person for whom English is not a native language. And increasingly, I find that these stories actually are written by machines.
The machines are fast, and once programmed properly, they’re accurate. The Associated Press, using a machine named Automated Insights, has been able to increase its output of earnings reports stories from 300 per quarter to 3,000.
But when I read a story, I’d like some human insight into the story behind the numbers. And when I don’t get it, and instead get writing that is lifeless or just plain bad, I feel tricked.
Similarly, when I click on a headline but then find a story that’s been chopped up and distributed over many pages, making me click page after page after page, I know the website operator is working to artificially boost its number of page views to get a better rating from Google—and I feel used. Sometimes I even stop reading.
But sometimes—like today—I have to admit that Cabot, in our quest to attract new subscribers, can push the envelope a bit too far when it comes to marketing.
Marketing is necessary; that’s indisputable. If we didn’t work to attract new subscribers, our business would slowly shrink, as it would with any company.
The goal of our marketing is to get people to give our advisories a try, of course. And we know that once they do, most will stick around, some for many years … and that’s how we make money; not by having someone subscribe for six months or a year, but for 10 or 20 years, and thankfully we have many subscribers who have done just that.
However, to get someone in the door (in particular someone who doesn’t know us or trust us quite yet), our marketing has to provide some incentive for them to give us a shot—whether that’s a low price or a special report or some new, urgent piece of advice. In other words, our marketing has to grab the reader’s attention.
And while I can rationalize that it’s all for a good cause—after all, we do want to provide as many people as possible with high-quality, useful investing advice, and I do want to pay my employees a decent wage—sometimes we try new approaches that we regret afterward.
Two weekends ago, for example, we sent out an email saying “The End is Near,” asking you to subscribe to one of our advisories. Fear tactics are not our usual style—a fact that several readers pointed that out—and in hindsight we wouldn’t do it again.
But here’s the thing:
Current subscribers to Cabot advisories have gotten to know us and trust us, so they respond well to intelligent, logical reasoning; but people who don’t know us yet need more encouragement. Some of that can be done with money-back guarantees, some of it can done with a reduced price, and some can be done by highlighting very exciting stocks that could hit big.
And then, when we get new subscribers, we work to encourage them to become long-term subscribers by always writing our advisories with as much clarity and honesty as possible.
That’s the way we’ve operated in recent years.
But the world is always changing (just as the stock market is always changing), so there will undoubtedly be changes coming to our marketing, too. And if they work as well as I believe they will, our sales efforts will focus less on the “Get in Now Before It’s Too Late!!” kind of writing, and more on the logical, well thought-out reasoning that has been a hallmark of our publications for many decades.
New Website
One change already well underway is the rollout of our new website, which went live just two weeks ago.
The new site is designed to be more informative than the old. It has a great search function. It has a feedback tab so you can help us make it better. And its educational section, still in development, is designed to help us achieve our goal of making visitors better investors, and, ideally, becoming regular Cabot subscribers.
The new website replaces old long-copy sales pages with informational pages, which prioritize knowledge over hype. (If you like these, and vote with your pocketbook by ordering from them rather than the sales pages, we’ll know we’re on the right track.)
Very soon the website will have news stories on stocks of current interest, written by real, thoughtful people, who provide insight into current market developments.
And this week we’ll add guides you can download to get a feel for our advisories before you buy.
Improved Customer Service
Over the past two and a half years, Andre Arsenault has professionalized our customer service department, to the point where one recent subscriber wrote, “You have the best customer service of any company that I have dealt with, bar none.”
If you have any questions, Andre’s team would love to talk with you.
But we’re working to get better still, and our customer service department is now producing videos, which will soon be on the website, that will help readers understand our services and navigate our website even better.
More Targeted Marketing
This is one I really am excited about, because I think it’s a win-win for everyone. In the coming year, we’ll strive to make our marketing more targeted and relevant. That means you’ll see fewer ads for advisories you have less interest in, and instead you’ll receive more offers and deals for advisories that you want to try, or if you already subscribe, offers to sign up for long-term (four- or five-year) subscriptions. And of course, that’s good for our business, too.
I know we have great products and advice to offer. So I want our marketing to be as effective as I can make it so more people find out about it. And if I can manage that while avoiding promising too much (or selling too often), I will have done my job. I want you to know that that’s my goal. I look forward to continuing to bring you the information that will make you a more successful investor.
Stay tuned for more changes in the months ahead.
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Moving to the market, the main trend remains up, but as always, there are crosscurrents.
Growth stocks are having a hard time following through on breakouts, companies whose earnings disappoint are seeing their prices fall rapidly as hot money bolts for the door, and energy stocks are mounting a comeback attempt—though no one knows how far it will go.
In sum, it’s a bull market, but not one that rewards easily, and many growth investors are becoming frustrated by their general inability to make—and keep—profits.
But there is one investing strategy that works in all markets, and given that this past weekend saw the Berkshire Hathaway annual meeting where Warren Buffett was once again treated like a god, I think it’s appropriate to feature a Buffett-type stock that anyone can buy.
What Would Warren Buffett Do?
As I write, Warren Buffett’s Berkshire Hathaway (BRKB) is down about 6% year-to-date. It’s probably at a good entry point.
But for investors who like a little more involvement in their value investing, Cabot offers Roy Ward, whose Enterprising Model is up 5% since the start of the year.
More importantly, since the model’s inception on 3/10/05, Roy’s Enterprising Model has provided an impressive return of 165.4% compared to a return of 74.3% for the S&P 500 Index.
Today’s stock was selected using Roy’s Graham-Buffett methodology. Ben Graham was Warren Buffett’s teacher at Columbia University. He wrote several classic books on value investing. And I have no doubt that Isaac Newton’s famous quote, “If I have seen further it is by standing on the shoulders of giants” applies thoroughly to Buffett’s building on the lessons taught by Graham.
(By the way, Roy Ward is a second-generation disciple of Ben Graham—Roy’s professor at Babson College was also a student of Ben Graham at Columbia.)
General Motors (GM)
We all know General Motors. With $154 billion in revenues, its market capitalization is a lowly $57 billion. Debt is a factor, of course, as is the hard truth that the company’s revenues peaked back in 2006, and growth has been in the low single digits in recent years.
But the stock pays a dividend of 4.1%, which is nothing to sneeze at.
And its price-earnings ratio is just 10, though earnings are projected to grow 49% this year and 12% next year.
And nobody loves GM!
This is a key point, given that the cardinal rule of value investing is to buy when no one likes a stock, and sell when everyone likes it.
Here’s a recent chart of GM, doing nothing exciting.
Now, I don’t expect anything revolutionary from GM in the years ahead (though I do expect progress on their all-electric Chevy Bolt, which is addressing a small but fast-growing market). But I know that Roy’s system works, so I think that in a couple of years, GM will be substantially higher.
So, if you’re a long-term investor and you want to put some money to work for a couple of years in a place where it’s almost certain to do better than it would in the bank, you could simply jump in and buy the stock here; it’s trading just a few points above its 200-week moving average.
But even better would be to become a regular reader of Cabot Benjamin Graham Value Investor, where every week Roy Ward will update you on all his picks, including his legendary Maximum Buy Prices and Minimum Sell Prices, which are updated for his Top 275 Value Stocks in every issue.
Yours in pursuit of wisdom and wealth,
Timothy Lutts
Publisher, Cabot Wealth Advisory
