Investing Wisdom of the Ages


The world was different back in 1963.   

Coca-Cola introduced Tab, its first diet drink.

George Wallace became governor of Alabama, proclaiming, "Segregation now, segregation tomorrow, and segregation forever!"

John F. Kennedy, and then Lee Harvey Oswald, were assassinated.

And the Dow Industrials finished the year at 764.

1963 also marked the occasion of the first Contrary Opinion Forum in Vermont, a gathering helmed by author Humphrey B. Neill (The Vermont Ruminator) and money manager Jim Fraser and dedicated to exploring the utility of contrary opinion in the investment field.

The following year my father, Carlton Lutts, attended the annual gathering, a feat he repeated some thirty-five times in the following decades.

I began attending in 1986, and over the years I've learned a lot ... and forgotten a lot.  Over the years, I've also acquired--and kept!--94 of the lapel buttons that have been distributed at the Forums, each one bearing a pithy statement that is usually applicable to the business of investing.

These 94 buttons adorn the wall of my cubicle, providing inspiration ... and sometimes reminding me that I still have a lot to learn.  And today I'm going to write about four of them.

"Doom & Gloom Sells; Optimism Pays."

In the news biz they say, "If it bleeds, it leads."  People are attracted to bad news, especially when it's happened to others.  Good news, on the other hand, is boring, and it won't sell newspapers.  But to be a good investor, you've got to look for the good news, even learn to anticipate the good news, as optimists do.  That's because stocks go up more on the anticipation of progress than on the news of progress.

"Excitement is Highest as the Roller Coaster Goes Over the Top."

My father loved this one.  The message: When everyone's excited, the market's usually near a top, at least shorter-term.  As I write this, I can clearly remember the euphoric state of mind of my colleagues and customers at each of the past five major market tops.  And just as clearly, I know that state of mind will recur at the next major market top.  When it comes, you should mentally begin to prepare for the coming bear market.

"Patience Precedes Profits."

Alliterative and simple.  Patience means waiting to buy until a growth stock sets up in a high-potential pattern.  Patience means waiting to buy until your value stock gets cheap enough.  And patience means holding patiently as your stock climbs, until you get an exit signal.

"Wisdom Begins With Wonder."

This saying has been attributed to Socrates, and as a proponent of never-ending education, I like this one a lot.  Of course, wonder is only the first step.  After wonder comes research, analysis, synthesis, experience and then (sometimes), wisdom.

In the near future, you'll be able to see all the buttons, as well as explanation, on our Web site.  When they're there I'll let you know.


There's one more button on my wall that says, "Winds Blow Hard On High Hills."  I don't find it particularly applicable to investing, but it is certainly applicable to real life.  Just ask Tiger Woods, Mark Sanford and Elliott Spitzer, to name a few.  Wealth is nice (though it won't buy happiness), but fame can bring added challenges.


As to the stock market, I want to start by reviewing my column of March 8, four weeks ago.

On that day, the title of my Cabot Wealth Advisory was "Six Hot Chip Stocks for the Spring Bull Market."  In the article, I told you why chip stocks were a good bet at this point in the market cycle, and I highlighted six that were attractive at the time.

They were Atheros Communications ( ATHR ), Cree ( CREE ), NetLogic Microsystems ( NETL ), Power Integrations ( POWI ), Skyworks Solutions ( SKYW ) and Volterra Semiconductor ( VLTR ).

And how have they done since?  

Very well, up an average of 7.9%, while the S&P 500 is up 4.2%.

And on March 22, I mentioned CREE again, saying it "looked terrific."

Well, I hope you listened because today CREE vaulted more than 8%, breaking out of a beautiful tight base (the kind Cabot Market Letter editor Michael Cintolo loves) at 70 and pushing close to 77.

The "news" that sparked this move was an analyst upgrade.  But the stock would never have made the move if it didn't already have so many of the qualities we look for, including strong sales and earnings growth, huge mass markets, great institutional sponsorship and a tight chart pattern.  I touched on many of these qualities a month ago, when I wrote this:

"Cree ( CREE ) is a leading manufacturer of LEDs (light-emitting diodes).  These are the lights that will eventually take over from incandescent and compact fluorescent lights because they are far more efficient and last far longer.  The company has grown revenues every year of the past decade but one (2007) and it maintained profitability throughout 2008 and 2009.  In the latest quarter, revenues grew 35% to $200 million, while earnings jumped 90% to $0.38 per share.  After-tax profit margin was 20.1%."

All that still applies.  The only difference is that CREE has just completed a textbook one-month base.  With this new breakout, the uptrend is alive and well ... and there's more upside ahead.

To get regular current advice on the stock, I recommend a subscription to Cabot Market Letter, edited by Michael Cintolo.  Mike recommended the stock to his readers back on March 10, when it was trading at 70.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: ATHR , CREE , NETL , POWI , SKYW , VLTR

Cabot Heritage Corporation

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