Stock Market Video
Fighting the Odds
Consensus Conclusions Create Careless Consequences
In Case You Missed It
---
In this week's Stock Market Video Paul Goodwin looks at the
major market indexes and sees a potential shift to a positive
direction. Much will depend on how the vote in Greece goes this
weekend. If the indexes turn up, we could get a new buy signal
soon. But, as we point out again and again, there's huge risk in
trying to anticipate a market shift. Patience (and working on your
watch list) is the only prudent course right now. Paul discussed
some stocks with good stories, including
Amazon (
AMZN
), Mellanox (
MLNX
), Monster Energy (
MNST
)
and
Expedia (
EXPE
)
. Click below to watch the video!
---
If you want to defy the odds, go to Las Vegas; at least you'll get
to see some good shows and enjoy some wonderfully quirky
architecture while you lose your money. I think that lots of people
enter another world when they get off the plane at McCarran
International Airport, and in their minds, the dollars in their
pockets turn into Monopoly money.
If you go to Las Vegas, you have to be aware that you are entering
the most tightly engineered mechanism for separating you from your
money ever created. Every aspect of the casino experience, down to
the pattern of the carpet and the level of light and noise, has
been studied obsessively to find out what will induce you to make
bets when the odds are not in your favor.
You know the odds aren't in your favor because they are available
for you to look at. And you have to know that the longer you play
the higher the probability that you will lose. It's just the law of
statistics, but it's still The Law.
But what if you could turn the table of Vegas? That's happened in
the past, when statistically minded teams of smart kids showed up
and began to count cards at the blackjack tables. The result?
Casinos banned them from playing ... forever.
The one area I know of where you can actually put the odds on your
side is in stock market investing. And specifically, I'm thinking
of the Cabot approach to market timing.
The basic idea is to avoid the markets when they are in a downtrend
and jump in when they are trending up. It's a simple matter of
looking at indexes that represent the performance of groups of
stocks, and observing whether they're above their 25- and 50-day
moving averages. (You can see the details on how this works by
clicking here.
)
Think about this for a minute. If you were at a craps table in Las
Vegas and there was a little light on the table that told you when
the odds had shifted in your favor, what would you do? Personally,
I'd sit there with my hands in my pocket until the light went on.
You might also think about it in terms of a sailing ship getting
ready to leave the harbor. Traditionally, sea captains would wait
until the tide was going out before lifting the anchor. Any captain
who tried to get under way while fighting the current would soon
have been an ex-captain.
Investing in growth stocks (and that's the style that I use)
requires a big helping of discipline with a side order of patience.
Markets will try to pull you in before the odds are truly in your
favor. And you'll be tempted to jump the gun and roll the dice
before the light goes on.
Don't do it. Odds are you'll regret it. And, as Las Vegas teaches
us, you can't really fight the odds.
---
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
clicking here.
Consensus Conclusions Create Careless Consequences
Clever. It means simply that groupthink can never bring
above-average performance. Decades ago, the marketing people at IBM
popularized the phrase, "No one ever got fired for buying IBM
equipment." Trouble is, those people who opted for the safety of
the herd never got beyond middle management. [Editor's Note:
Investing is a risky business, but managing that risk by following
what the herd is doing just creates new risks. Consensus is just
one more way of being wrong with confidence. Thinking for yourself
isn't comfortable, but the rewards are great.]
---
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 6/11/12 - My Favorite Travel
Stock Today
In Monday's CWA, Tim Lutts approves of private businesses taking
over the job of launching satellites and servicing the
International Space Station. Featured stock:
Concur Technologies (
CNQR
)
.
---
Cabot Wealth Advisory 6/14/12 - Retirement? What's
That?
In this issue, I wrote about the age of the Boomer generation and
how well-prepared they are for retirement ... or not. Featured
stock:
Home Depot (HD)
.
Have a good weekend,
Paul Goodwin
Editor,
Cabot Wealth Advisory