Stock Market Video
The High Price of Avoiding Risk
This Week's Fortune Cookie
In Case You Missed It
In this week's Stock Market Video, Mike Cintolo gives his
thoughts on how to play the overall market, and discusses which
sectors (and ETFs) are looking strong and which ones have topped
out. The good news is that Mike believes many growth stocks are
acting resiliently; he reviews the top handful of names on his
watch list, including
Tesla Motors (
Click here to find out
Mike's stock recommendations, as well as his thoughts on what you
should do next.
The High Price of Avoiding Risk
If there is one great truth about investing, it's that risk
and reward always present themselves as a team. You simply cannot
get a clean shot at reward without risk sitting on your shoulder
the whole time.
In the modern era of stock investing (which I take to mean the
last decade of the 20th century until now), we have had some of
the most neck-snapping moves in a relatively short time that the
market has ever experienced. Two major bubbles, Tech and Housing,
have inflated, burst and left a trail of damaged portfolios in
their wakes. And the market has then recovered each time.
For many investors, the only logical reaction to this
volatility is to avoid the stock market completely. I have one
friend who, whenever he accumulates some cash, just buys a bond.
He reasons that the capital preservation (with the peace of mind
that it brings) and the small interest that accrues makes it a
Maybe so. But that's true only if your level of risk avoidance
is so high that you're not willing to tolerate any risk at
Plus, as I've tried to explain on a couple of occasions, he's
missing the gains that are possible when an informed investor
participates in a bull market. Missing out on the possibility of
big gains is called opportunity risk, which illustrates once
again that every strategy comes with some kind of risk
In his Cabot Wealth Advisory on June 6, Mike Cintolo talked
about the risk that comes from using a tight trailing stop on a
strong growth stock. If the stock corrects (as growth stocks
frequently do), you can get stopped out of the stock and miss a
chance at really sizable gains when the stock gets going
In Chloe Lutts Jensen's Wealth Advisory on June 5, she
discussed the up- and downsides of Bitcoins, the virtual currency
that has popped up in headlines over the last few months. As
Chloe points out, the big gains (16 cents to $240!?), have been
matched by equally large corrections.
In just about any story you read about stocks, bonds, old
coins, wine, art, gold, platinum or any other asset class, a
responsible author will always review the potential downside. And
for every Antiques Roadshow treasure you hear about, you know
there are many others who bought the wrong thing or bought at too
high a price.
But in the final analysis, the best you can do is accept that
risk is always going to be there and strike the best balance
between risk and reward that you can.
There is a sweet spot somewhere between sitting on the beach
under an umbrella wrapped in a blanket and never getting your
feet wet and jumping into the water without knowing what's under
And, just to point out the obvious, for investors who want to
have some calm, experienced advice on how to manage risk in any
kind of market and in any kind of equity investing-growth, value,
options, small-caps, ETFs or emerging markets-there is a Cabot
advisory that will help you find the right balance.
You can find them here
This is the first week of
, the feature that replaces our Contrary Opinion Buttons. Every
week, Tim Lutts and I will pick a text that has something to say
about investing and we'll do our usual dueling commentaries. I'm
always happy to hear your thoughts or your suggestions for a
saying or quotation that you'd like to see discussed.
"The pessimist complains about the wind; the optimist
expects it to change; the realist adjusts the sails."
William Arthur Ward, college administrator, writer
Pessimists have no fun; they don't enjoy life. I'm an optimist,
so by definition, I'm always expecting the wind to improve. But I
do recognize the value of trimming sails, and the wisdom of being
a realist, and I wholeheartedly recommend changing in response to
those winds-for those who have the ability to change.
Calling someone a "trimmer" (meaning someone who trims his sails
in response to the wind) is sometimes intended as an insult,
implying that the person changes his principles in response to
challenging circumstances. No doubt having an ironclad set of
principles is an admirable thing. But not in the stock market.
Staying invested in a bear market makes as much sense as staying
outside during a downpour because you refuse to let the weather
boss you around. Make sure that your principles include one that
counsels getting out of the market's way when the sirens
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 6/3/13-Take Some Profits
Tim Lutts, who skippers Cabot Stock of the Month, is delighted
by all the recent good news, but recognizes the danger in
everybody feeling good. He counsels taking some profits. Tim also
admires the recent record of our value guru Roy Ward, editor of
Cabot Benjamin Graham Value Investor. Stock discussed:
Cabot Wealth Advisory 6/5/13-Is It Time to Buy
Chloe Lutts Jensen, editor of Dick Davis Dividend Digest,
sorts out the appeal (and dangers) of Bitcoins, the virtual
currency that has experienced skyrocketing value. With that
increase in value has come a wave of security issues. Chloe tells
you how to treat them.
Cabot Wealth Advisory 6/6/13-The Next
Editor Mike Cintolo of Cabot Market Letter talks about how
using tight trailing stops can kick you out of positions that
will later become big winners. He also writes about a Chinese
tech company that has the potential to be the next Baidu. Stock
Qihoo 360 (
Have a great weekend,
Cabot China & Emerging Markets Report
Cabot Wealth Advisory