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Limited Time Anniversary Price Rollback
Cabot Small-Cap Confidential is celebrating its three-year
anniversary and in honor of it, we're rolling back the price.
Cabot Wealth Advisory subscribers can save $450 by subscribing by
October 1, 2010. Don't delay-
there's only one week left to save
A few weeks ago, I brought you the first part of a
question-and-answer session with Cabot Small-Cap Confidential
Editor Thomas Garrity. Today, I have the second half. Enjoy!
What are your thoughts on the three-year anniversary of Cabot
I'm feeling highly energized about the three-year anniversary of
Cabot Small-Cap Confidential, especially when I think about our
loyal readers. When we first started the newsletter, my goal was
to share my proven investment strategy with subscribers. And
we've done that and more. We know that readers have a choice
about where to get their investment advice and we've always aimed
to make Cabot Small-Cap Confidential the #1 choice for investors
interested in that asset class.
We don't piggyback on the hot stock of the day, but work to
ferret out the next big stocks long before Wall Street has heard
of them. We focus on stocks that follow the Law of Large Numbers
and give our investments time to mature. We always seek to
recommend companies that are on the cutting edge technologically,
as that's where small-cap fortunes are made! I've very much
enjoyed sharing these ideas with readers over the last three
years and look forward to many more.
Where do you see the market, and small-cap stocks, for the rest
Small-cap stocks as an investment class have traditionally been
ignored because of their volatile nature and perceived risk, a
phenomenon I see changing in the years ahead. It's true that in
times of business instability, investors are routinely unwilling
to accept higher risk. When fear is the prevalent emotion,
institutional and retail investors alike flee small-caps and put
their money to work in large-caps, which are perceived as safer.
Unfortunately, despite the Fed's accommodating monetary policy of
the past two years, a broad economic recovery in the U.S. and
around the world is unlikely right now. So an investment strategy
directed at economically sensitive companies, like large-cap
stocks, which may have historically driven equity market gains
because of low interest rates and freer money supply, could now
pose a higher risk.
I recommend investing in small-caps to capitalize on these
challenges. Consider for a moment that companies routinely add to
their workforces when they have confidence in the economic
outlook. Job market numbers do not suggest that businesses are
investing in human capital. I believe that companies are now
working on getting the highest returns on their infrastructure
investments in technology and equipment. Investing in technology
can yield cost savings to the bottom line, while potentially
moving a business forward. So recurring investments in technology
to bring about change will be a major theme. Given this type of
spending, small-cap companies should exceed market expectations
in terms of investment performance. And I expect the Russell 2000
growth index to expand, approaching a 10% or 11% aggregate return
for the entire year.
What would you say to an investor who has been scared off by this
summer's volatile market?
My first piece of advice is that whenever you invest in the
market, you need to assume some risk. This is true in all areas
of investing, whether it's saving for college or retirement. In
my own experience observing the stock market for over 30 years,
I've come to notice that everyday investors fail to invest monies
when stocks are cheap and end up buying equities at their highest
When you're ready to put a toe in the water (hopefully now), the
next thing to consider is the type of company you wish to invest
your money in. Make certain that the company you plan to invest
in has plenty of cash on the balance sheet. And look for evidence
that this company has a business model and product that will
prove successful for years to come.
Finally, you must decide how much of your money to invest in a
given stock. Consider allocating some initial funds to the stock
and gradually adding more based on news about the company, its
competitors, its addressable markets and the degree to which the
company's financial operations (earnings performance and other
metrics) exceed the criteria you had for making the investment in
the first place.
How does economic climate factor into your stock picks and
outlook on the market?
Leadership is the watchword with respect to how economic factors
influence my investment selection. I will always invest where
technological change is defining the next generation of business
opportunities and in those companies whose business models will
likely exceed market expectations.
In short, invest in the company with the largest market share in
a flourishing sector. Chances are if the company is top dog, it
has the know-how to re-invent itself if necessary and already has
products that are used by many customers. Because we choose
dominant players, they typically have proprietary products that
present barriers to entry for competitors. With such a presence,
these companies tend to enjoy pricing power within their
marketplace. In addition, we favor businesses that operate as
though their revenues were an annuity payout. Whether they're
peddling a printer cartridge or a disposable medical catheter,
cash resources available to invest in R&D for new products is
always a concern. In summary, we'll continue to recommend
investments only in business niches where the Law of Large
Numbers applies and the risk/reward scale is clearly skewed in
the direction of high rewards.
What are your favorite sectors right now?
You saved the best question for last! The themes I'm most
interested in now are: home entertainment, data, mobility,
alternative energy and medical breakthroughs.
In home entertainment, we're looking at semiconductor companies
that make it easier to process information faster, help content
providers deliver more variety and enable content to be displayed
in a new interactive medium. This is an area in which people
spend a great deal of time and every content provider and
technology company wants to make you happy and entertained at
home. So it's our job to find the semiconductor companies that
will make that home entertainment experience cheap to deliver and
maintain its popularity. For example, Cabot Small-Cap
Confidential recommended a technology company that makes
multi-threaded processors, which enable more applications to run
from a device like the set-top box on your television.
Now, more than ever before, video content is clogging data
networks, which is exciting to us because such circumstances
create opportunities for investment. Companies that can unclog
network pipes by enabling video dissemination in a cost-effective
manner will be in high demand.
Another theme involves the popularity of mobile devices. The
challenge now is that all of the applications running on these
portable devices drain battery life. We'll seek out companies
that can lower the power requirements of mobile devices.
While the high price of oil and the pollution created from
burning fossil fuels is a problem, the situation excites me.
Alternative energy is another area we're enjoying researching for
investments. And in the field of medicine, we're interested in
telemedicine, electronic medical records and any drug or device
that can reduce health care spending.
Please click here to learn more about investing in small-cap
stocks and how to take advantage of our
Limited Time Anniversary Price Rollback
when you subscribe before October 1!
In this week's Stock Market Analysis Video, Cabot China &
Emerging Markets Report Editor Paul Goodwin says the stock market
remains in a strong uptrend, but it's still not time to get all
the way invested. Paul says there is still a high level of
anxiety among investors. Stocks discussed include: Lululemon
), NetApp (
), Rediff.com India (
) and Under Armour (
Watch the video!
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