"Safe" Investing and Lagging Indicators
We Have Met the Enemy, And He Is Us
Stock Market Video
In Case You Missed It
A few weeks ago, I saw a documentary film called "Frontrunners,"
about the election of a student union president at Stuyvesant High
School in New York City. My wife and I both love a good
documentary, and this was easily one of the more interesting ones
we'd seen. (I also heartily enjoyed "Freakonomics" awhile back, but
that's a different topic.)
Anyway, I mention "Frontrunners" because one of the campaign
promises of the winner of the student union election was the
establishment of a completely safe investment account for the
student union. This would allow the student union to grow their
income without having to spend money putting on fundraising events.
One of his opponents criticized the idea on camera prior to the
election, commenting there was so such thing as a completely safe
investment account---an idea that's both true and false at exactly
the same time.
Let me explain: It's well known that every investment account or
investing system involves
element of risk. What changes is the amount of risk built into the
system. Value investing systems, for example, can be very low-risk.
Investing in growth and momentum stocks, on the other hand, can
entail higher risk. (Growth and momentum stocks also have the
highest profit potential, which for many investors justifies
Because of this risk built into every investing system, the
statement that there is no such thing as a safe investment account
is 100% true. There's always a risk when you put money in the
market, and you always have the potential to lose money.
However, you can lower risks with investment vehicles such as
mutual funds and exchange-traded funds (ETFs) which have built-in
diversification by having small positions in dozens or hundreds of
Today, I want focus on ETFs, arguably the most sensible of the no-
or low-fee investment vehicles out there today. The reason for this
is right in the name--they're traded on the open market, so you
purchase an ETF the same way you'd buy stock in
There are ETFs tied to the performance of indexes like the Dow
Jones or the S&P 500, ETFs tied to sectors such as energy,
health care and basic materials ... and even ETFs tied to
individual countries such as the
Market Vectors China ETF (
With so many options, how do you choose? You could spend hours
poring over each and every ETF on the market before you decide
where to place your money ... or you could enlist the aid of
someone like Robin Carpenter, editor of
Cabot ETF Investing System
, who follows ETFs for a living.
Cabot ETF Investing System,
by the way, has earned triple the returns of the S&P 500 over
five years. If you are interested I encourage you
to click here and give the newsletter a try.
The Bureau of Labor Statistics released the March jobs report on
April 6, revealing the U.S. economy only added 120,000 new jobs in
March while the unemployment rate held more or less steady. This is
a drop from February, which had net growth of 240,000 new jobs (the
initial number was 270,000 but the government cut about 30,000
employees after the report came out).
Stocks closed sharply lower on Monday after the lower-than-expected
jobs numbers (analysts had expected roughly 205,000 new jobs),
because the market was closed for Good Friday when the jobs numbers
I admit to a certain fascination with the Pavlovian response to
lagging indicators such as the jobs report. If an economic report
is released and it's below expectations, then the broad market
declines. If it's above expectations, then the broad market
increases. It's as if the whole of Wall Street is the dog in
Pavlov's experiment and when the "dinner bell" of a good economic
report rings, they immediately start salivating for their meal.
My problem with lagging indicators, however, is two-fold. My first
issue is that, in my opinion, a broad economic indicator such as a
jobs report doesn't tell a specific-enough picture to warrant
trading on. Better to look at the performance of your individual
holdings before making a decision whether to buy or sell.
reported first-quarter results this past Thursday that beat
expectations on earnings per share--$10.08 versus expectations of
$9.65. If I had holdings in Google, which I don't, it's results
like this that would govern my trading decision more than a
broad-market indicator like the jobs numbers.
My second problem with lagging indicators is right in the name.
Trading on lagging indicators is one of the clearest examples of
the old phrase "hindsight is 20/20," wherein you recognize the
decision that should have been made well after the situation has
I prefer to look forward, rather than back, when it comes to the
market. That's when the SNaC (story, numbers and chart) method,
talked about before
, comes into play. Better to look at the fundamental aspects of
your stock than a broad-market indicator to see how your portfolio
That's just my two cents, and you're welcome to disagree with me. I
encourage it, in point of fact, and would love to hear your view on
lagging indicators or any other topic covered in Cabot Wealth
Advisory. Simply write me at firstname.lastname@example.org with your views. Who
knows? I might even print your response.
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
We Have Met The Enemy, And He Is Us
Walt Kelly first used the quote "We have met the enemy and he is
us" on a poster for Earth Day in 1970, expressing his belief "that
we are all of us responsible for our myriad pollutions, public,
private and political." For investors, the button is a clear
reminder that we are our own worst enemies, continually allowing
the mirror emotions of fear and greed to over-rule our intellect.
In this week's Stock Market Video,
Cabot Top Ten Trader
Editor Mike Cintolo says to expect choppiness in the short term,
but higher highs are coming. Stocks discussed:
), Priceline (
), Equinix (EQIX), Chipotle Mexican Grill (CMG), Salesforce.com
(CRM), LinkedIn (LNKD), Rackspace (RAX), Sourcefire (FIRE),
Continental Resources (CLR), Pioneer Natural Resources
National-Oilwell Varco (NOV)
. Click below to watch the video!
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 4/9/12 -- Suggestions for How
to Keep Jobs in the U.S.
Cabot China & Emerging Markets Report
Editor Paul Goodwin shared 17 of the best suggestions from readers
about how to keep jobs in the United States. The ideas touched on
six main themes: Tariffs/Protectionism, Education, Deregulation,
Innovation, Curbing Greed and Anti-Union sentiment
Cabot Wealth Adivisory 4/12/12 -- The Conservative
Cabot Market Letter
Cabot Top Ten Trader
Editor Mike Cintolo wrote about the Conservative Aggressive style
of investor, and also discussed the two ways to go about managing
your portfolio during a market decline. Featured stock:
Cabot Wealth Advisory