Weekly Stock Market Video
Playing Hunches
Doubt All Before Believing Anything
In Case You Missed It
---
In this week's Stock Market Video, Cabot Market Letter editor
Mike Cintolo discusses the recent distribution in the market and
advises investors to back off a bit. But you should avoid
throwing the baby out with the bathwater, as there remain many
growth and commodity stocks that are setting up well. Stocks
mentioned include
Michael Kors (
KORS
), Range Resources (
RRC
), IAC Corp. (
IACI
), Seadrill (
SDRL
), Gap Inc. (
GPS
)
and various exchange-traded funds. Click below to watch the
video!
I'm a woodworker, but my style of woodworking doesn't generate
much sawdust. I don't use power tools and I don't buy lumber. My
raw materials are provided by the firewood, mostly oak and maple,
that fills my New Hampshire woodshed, and my basic tools are
knives and gouges. I'm so committed to my simple tools that I
feel like I'm cheating when I pick up a handsaw or a plane, but I
deal with it.
I guess you'd say that I'm a woodcarver, but I don't work with
spruce or basswood or any of the other softwoods that are happy
to be scooped like ice cream. I also don't carve little figures
of Santa Claus or fishermen or birds or chains, not that there's
anything wrong with those admirable subjects.
My projects mostly begin when I look at a piece of firewood
that I'm about to throw onto the fire and I see something in the
grain or the color or shape of the wood that suggests that there
might be something interesting in there.
I'm not mystical enough (or delusional enough) to suggest that
the thing hidden inside the wood actually speaks to me. But
somehow the notion takes root in my brain that there might be a
tiny chair or a table or a spoon to be found in the chunk of dead
tree I'm holding.
Accordingly, I give the piece of firewood a reprieve from the
flames, put it aside and go looking for what I thought I saw in
it.
I don't even average one project a year. There is too much
lawn and garden work when the days are long, and in the colder
months, my wife is not fond of the gnawing-rodent sound of a
carving knife taking tiny bites of seasoned hardwood, so in the
spirit of comity, I can't carve during the time we watch TV
together.
But the compulsion to create is strong, and I keep at it.
My choice of projects really amounts to a hunch. I suspect-on
the basis of absolutely no evidence-that something good will come
of the choice I've made. Plus, if the project doesn't turn out,
the failure can still serve its original purpose in the
fireplace.
---
Many people like to make decisions based on hunches; sometimes
they're called "educated guesses" and sometimes "feminine
intuition." And there's some experimental support for the idea
that snap judgments often prove quite sound.
The vagueness of hunches only becomes a problem when you start
to use them to decide how to put real money at risk.
This happens all the time in the stock market, most frequently
when potential investors decide that they know what the stock
market is going to do in the future. Or they read about a stock
and they just know that it's going to be a real moon shot.
Right now, the investing world is filled with people who know
that markets are just about to fall off a cliff. Maybe they have
some evidence (a guy on a cable channel in a really good suit or
an astrologer who's never, ever been wrong), or maybe they just
feel it in their bones that things are going to get unimaginably
worse.
These people who are prepared for the end of the world as we
know it are offset-though not currently balanced-by a group of
equally convinced investors who just know that the markets are
gathering themselves to spring skyward in a massive rally that
will deliver unimaginable wealth to anyone with the sense to see
it coming.
All I have to say about this is that when we get a true
consensus among investors that things are as bad as they could
possible be and they'll never get any better, that's when the
markets will turn back up. And ditto in reverse for the
enthusiastic optimists.
I really hope I'm not harping on this too much. It's easy to
sound like a crank when you're expressing skepticism.
But the long history of Cabot provides plenty of evidence that
markets top when people are at their happiest and markets bottom
when people are most depressed. That's both a historical fact and
a demonstrably logical certainty.
So the lesson there is to look at what the market is actually
doing, not what you're afraid/hopeful that it will do. Any guess
about the future of the market is just a hunch. And while hunches
can lead to interesting and useful carving projects, they don't
really have a place in stock investing.
---
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
clicking here.
Doubt All Before Believing Anything
Tim's Comment:
The original quote, by Sir Francis Bacon in "The Advancement of
Learning," is this: "If a man will begin with certainties, he
shall end in doubts; but if he will be content to begin with
doubts he shall end in certainties." The condensed version above
can be traced to Humphrey B. Neill, who in his book, "Tape
Reading and Market Tactics," wrote, "As Sir Francis Bacon wrote
nearly three hundred years ago: Doubt all before you believe
anything! Watch your idols!" In any event, this button tells us
that skepticism is a valuable trait that can ideally lead to
further knowledge.
Editor's Comment:
I've always thought that any opinion, if it's held so strongly
that you never question it, can turn into a chain that keeps you
from moving or a ring in the nose that you can be led around by.
Maybe that's why my favorite bumper sticker of the last year is
"Don't believe everything you think."
---
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 10/8/12 - Stock Market
Performance from a Different Angle
Rick Lehman, editor of
Cabot Options Trader
, uses this issue to look at the long-term performance of the
stock market, and the possibility that recent trends may foretell
a lower growth rate than has historically been the case.
Cabot Wealth Advisory 10/9/12 - In Investing,
It's the Recipe That Counts
In this issue, Robin Carpenter, the statistical brain behind
Cabot ETF Investing System
, compares the System to the home production of ice cream as he
remembers it from his childhood; get the recipe right, turn the
crank and you get your treat.
Cabot Wealth Advisory 10/12/12 - How the Best
Investors Buy Growth Stocks
Mike Cintolo, the sage of
Cabot Market Letter
, uses this issue to discuss how much of a good growth stock you
should buy, paying special attention to the dangers of taking
bites that are too small. Stock discussed:
Michael Kors (
KORS
)
.
Sincerely,
Paul Goodwin
Editor of
Cabot Wealth Advisory
and
Cabot China & Emerging Markets Report