In my last Cabot Wealth Advisory I talked about the difference
between value investing and growth investing, and why it's
important to invest in a way that's consistent with your investing
So, let's suppose that you have done your introspection and you've
figured out that you're a growth investor (a good choice, at least
from my point of view!). This means that you're prepared to
buy stocks that are in strong uptrends and sell them quickly when
they show signs of deteriorating performance.
The Internet will be happy to introduce you to any one of a half
dozen online brokers, all of whom have made it quite easy to set up
a trading account. Fill in the blanks. Send in the
check. You're good to go.
And now you've done your homework and you're ready to make your
first stock purchase.
You'd think that the next question would be, "How many shares of
this stock should I buy?"
You have a tiny bit more homework to do before you actually hit the
The real question is "How aggressive a growth investor do I want to
(If you were a value investor, you would want to buy lots and lots
of different stocks. Value investors seek to minimize risk
and one way to control risk is to spread it out over a large number
of investments. That way, any holding that tanks won't drag
down your results too much.)
As a growth investor, the most aggressive stance you could take
would be to take your entire allocation and buy one stock.
That way, an 10% appreciation of that one issue would raise the
value of your portfolio by 10%.
Of course, the converse is also true.
We consider the Cabot Market Letter's Model Portfolio to be fully
invested when it has 12 holdings. That's a moderately
The Cabot China & Emerging Markets Report has a portfolio
that's considered to be maxed out when it has 10 stocks.
That's even more aggressive than the Cabot Market Letter.
With 10 stocks, if one of our holdings goes up 10%, the value of
our portfolio goes up 1%.
So, if you want to be an aggressive growth investor, you should
(mentally) divide the value of your growth allocation into ten
equal-dollar amounts, and use that as your full position
amount. Then you let the price of the stock decide how many
shares you buy.
If you have $10,000 allocated to aggressive growth and you want to
add a stock that's trading at 10, you will wind up with 100 shares
worth $1,000. If you want to grab some Intuitive Surgical (
), which is trading at around 327 as I write this, you will
purchase three shares.
Don't let the old idea of 100 shares being a full position fool
you. That's a holdover from the days when you had a real
human broker who did the buying for you. He would get a small
price break for buying a round-numbered lot, which he might have
passed along to you.
But the big electronic online houses don't give a rip how many
shares you buy.
So there's your answer to the question "How many shares should I
Chinese civilization has been around for a long, long time.
That's a fact.
But Chinese civilization has also largely remained in China, as the
emperors over the centuries apparently didn't see any reason to
mess around with the rest of the world. China had everything
it needed, and blocking the rest of the world out must have made
sense to the absolute rulers who guided the Middle Kingdom.
There is one legendary period that forms an exception to this
exclusiveness, and that's the early 15th century, when the Chinese
sent out seven naval expeditions that were larger and more powerful
than anything the west could muster. The first of these
expeditions, with an official count of 317 ships and 28,000 men,
set off in 1404, and the last in 1433. With 62 treasure ships
boasting, according to records of the time, nine masts and a length
of 416 feet, the first fleet sailed into the Indian Ocean, seeking
peace and friendship and distributing gifts from the Chinese
emperor. (The Niña, the Pinta and the Santa Maria of Columbus
could all have fit inside one of these ships.)
By the seventh voyage, the Chinese fleet had reached at least as
far as Mogadishu in Africa, having visited Hormuz on the Persian
Gulf, and had brought back many wonders, including a giraffe,
envoys from 30 states who came to pay their respects to the
emperor, and an enormous number of trade goods. The voyages
also suppressed pirates, made war on land when necessary,
established permanent colonies and trading relations and mapped the
coastline from China to Africa.
One of the most fascinating aspects of the Chinese voyages of
discovery was its leader, a Muslim named Zheng He, who served the
emperor Zhu Di. Zheng He was a eunuch whose father had been
killed by the Chinese army. He caught the eye of someone in
the court who saw to it that he received an education and he became
a trusted advisor to Zhu Di and later the greatest admiral in
Zheng He died during the last of the great voyages and was buried
at sea, presumably along with the box that he always had at his
side, and which contained the private parts he had been separated
from at an early age.
The ships he commanded were left to rot, as the attention of the
new emperor (Zhu Di had joined his ancestors in 1424) was shifted
to the threat of the Mongols to the north. The Confucian
scholars, who were always in competition with the court eunuchs for
influence, regained the upper hand and they disliked both trade and
the outside world. It was forbidden to build any ocean-going
vessel, and constructing a multi-masted ship was a capital offense
for a while. The energy, manpower and intellectual work that
had gone into the assembly of the fleet was refocused on
construction of The Forbidden City and restoring the Great Wall.
Like everything about China, the story of Zheng He has become
fodder for controversy. The state just opened a $50 million
monument to him, and critics of China accuse the state of using him
as a propaganda figure.
I don't know. If I were a leader of China and found a Muslim
who had served the emperor with distinction and had ruled the waves
as Zheng He did, I sure as heck would make some hay out of it.
The withdrawal of China from the big-time maritime world for
hundreds of years probably wounded the country deeply.
Certainly it contributed to the insular backwardness that left the
Middle Kingdom vulnerable to the depredations of the Western powers
that wracked the country in the 19th century.
I can only wonder what might have happened if the Chinese had
turned their eyes across the Pacific and gained a foothold on the
west coast of North America as Columbus and the Europeans began
their push from the east.
If I were forced to produce an investing lesson here (since this is
an investment advisory), my takeaway would be that world history,
like the market, demands that you do everything well. If,
like China, you have a seacoast, you need a fleet. If you
have hostile neighbors, you need an army. Likewise, your
exposure to the market, whether it's in the form of stocks,
options, exchange-traded funds (ETFs) or index funds, requires that
you pay attention on all fronts.
The threat in a downtrending market is holding on to losers.
The threat in bull markets is not getting heavily invested in the
leading stocks. But just like history, the market will test
you on all fronts.
An interesting random news story essentially picked today's stock
for me. I had attended a presentation for L&L Energy (
) last month, but I didn't see anything about the stock that
indicated to me that it was ready to take off.
Then I saw an August 10 PR Newswire story announcing that Norman
Mineta-a former U.S. Secretary of Transportation under George W.
Bush and Secretary of Commerce under Bill Clinton-had joined
L&L Energy's board of directors.
If this was a cheap trick intended to borrow a little credibility
from a former high-ranking official of the U.S. government, I have
to admit that it worked. At least it got me to take another
look. And I liked what I saw.
L&L Energy is basically a Chinese coal company, producing both
thermal and coking coal. But it has one key difference from a
The company has realized that it can acquire existing mines more
cheaply than it can dig new ones. And since the government of
China has announced that it wants to shut down all mines that
produce less than 300,000 tons per year, it's a great environment
for acquisitions. L&L, which was formed originally to
help Chinese companies access U.S. capital, has already acquired
three operating mines, two coal-washing facilities, a coking
facility and a coal wholesale and distribution network in China.
L&L's coal washing yields cleaner-burning coal and plans are
already underway to increase capacity.
With triple-digit growth in both revenues and earnings in the last
three quarters (plus a P/E ratio of just 9), LLEN looks like a good
way to play a country that uses nearly 43% of the global total of
coal burned every year and gets 71% of its total energy from the
For Cabot Wealth Advisory