Stock Market Video
The Best Advice on Managing Portfolio Risk
When Complacency Reigns We All Get Wet
In Case You Missed It
In this week's stock market video, I note that the short-term
trend of U.S. stock markets has now turned down, giving us a
caution light for any new buying and a signal to kick the
underperforming and losing stocks out of our growth portfolio. I
emphasize the influence of the market on even the strongest stocks,
and point out how some stocks stand up to the downward pressure and
some cave in totally. Reacting accordingly is a necessary investing
skill, and sooner is better than later. Stocks discussed include:
Biogen Idec (
), Cabot Oil & Gas (
), Activision Blizzard (
), FleetCor (
, and many others.
Click here to view my opinion
on the market's most recent action and my advice on how to preserve
The Best Advice on Managing Portfolio Risk and a Few
Words on the Boston Marathon Bombings
Although you may not think about it in this way, you are
constantly assessing risk in your life. Sometimes it's about
trivial things like the risk of getting the wrong change back after
buying something for cash or the risk of flicking spaghetti sauce
onto your shirt at lunch. That's why I count my change and stuff a
napkin into my collar.
Then there are the bigger risks that we try to get a handle on,
like sneaking through an intersection that's (technically) a red
light, climbing up almost any ladder for any reason and defending
the value of our investment portfolios from the vagaries of the
Much of what I do at Cabot is aimed at either finding the
strongest stocks to recommend to subscribers to Cabot China &
Emerging Markets Report or managing the risk to the Report's
portfolio. Looking at company stories, digging into revenue and
earnings trends, analyzing charts, taking the temperature of
international economies and following the trends in U.S. markets;
that's what I do.
And over all the years I've been doing this, the one thing that
hits me between the eyes, over and over, is that the biggest
influence on the success of your stock portfolio is the general
trend of the broad market.
What that means is that your risk of losing money in the stock
market is always highest when the market itself is in a
I want to repeat that, because it's probably the single most
important rule of growth stock investing. If you want to make money
by having the price of your stocks go up, the single greatest
influence on your results will be the general trend of the
A bull market can make you feel like a genius. And a bear market
can make you feel like there is a very nasty demon taking a
personal interest in seeing you lose money and be miserable.
Cabot's growth disciplines have lots of rules that have been
refined over four decades of trial and error. Yes, lots and lots of
error. But that's how the market works. Losing money is a great
motivator for learning.
Cabot's short-term trend-following indicators have just turned
negative, which is big news. The editors of our growth stock
advisories are looking critically at their portfolios with an eye
to kicking out the weakest stocks and putting marginal ones on very
short leashes. And that's because we know that the correct response
to a market in a downtrend is to lower our exposure to stocks and
hold our assets in cash. Bears feast on fat stock prices, but they
don't eat cash.
And that, in a nutshell is the best advice I can give you about
managing risk in a growth stock portfolio.
But I also want to say a few words about the recent bombings in
My wife and I used to sing in a chorus that practiced every
Monday in a church near the Boston Marathon finish line. I've
walked around picking up discarded mylar blankets that are handed
to finishers and mingling with the happy crowds of (very) late
finishers on Boylston Street on the way to rehearsal. I've even
applauded some of those finishers, figuring that people who need
hours and hours to finish probably need the encouragement more than
the light-footed gazelles who get on television.
Like most people, I was deeply angered by the bombings and moved
by the outpouring of comfort and support from the people of Boston
for the stranded runners who could neither finish the race nor
return to their hotel rooms. It feels very personal to have walked
right over the spots where each bomb exploded.
And yet, this attack won't change my assessment of the risk of
going to Boston or walking down Boylston Street. I know that the
most dangerous thing I do, in the short run, is to commute 57 miles
to work every day and back. And in the long run, my riskiest action
is just to keep getting older.
The Boston Marathon bombing might seem like a logical act to
someone who is sick in the head, or like an emotionally correct act
to someone who is sick in the heart. But I refuse to concede my
enjoyment of the world-and where I go in it-to such people.
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
When Complacency Reigns We All Get Wet
This button is simply an alternate way of expressing the classic
contrarian sentiment. When all is rosy and everyone is happy, that
means that all investors who might buy stocks have bought stocks,
and thus there is no more fuel to push stock prices higher. At that
point, all it takes is a whisper of bad news, or even apprehension
of bad news, for selling pressures to overpower buying pressures
and start the market on a downward slide … during which we all get
wet (unless we quickly go to cash or sell short).
Personally, I think this particular button is just an excuse to
make a bad pun (reigns/rains), but it's certainly a valid
sentiment. Markets are always prepared to use your weaknesses
against you, and complacency is high up on the list of things Mr.
Market is prepared to penalize. Question everything! Pay attention!
That's the recipe for success.
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 4/15/13-Five Pillars of
Robin Carpenter, editor of
Cabot ETF Investing System
, runs down some strategies that will improve your trading results,
including getting specific, writing your strategy down, making a
report of your results, getting an outside audit and revising
Cabot Wealth Advisory 4/16/13-Boston Marathon
Bombing Changes Everything
Tim Lutts of
Cabot Stock of the Month
gives his thoughts on the Boston Marathon bombing, the big bear
market in gold and the world-changing potential of "the
unforeseeable and the incalculable." Stock discussed:
Tesla Motors (
Cabot Wealth Advisory 4/18/13 - Options
Volatility at Earnings Season
In this issue, Jabob Mintz of
Cabot Options Trader
pins down the uncertainty that earnings season brings to the
pricing of options just before and after earnings reports. He gives
the examples of
JP Morgan Chase (JPM)
, which beat on earnings, and
, which disappointed, and how options could have helped lower
Have a great weekend,
Editor of Cabot Wealth Advisory
and Cabot China & Emerging Markets Report