Stock Market Video
The Market Wants To Take Your Money
Life Is Understood Backwards Lived Forwards
In Case You Missed It
In this week's video, Mike Cintolo talks about how the market
remains in a tricky middle ground-the major indexes are holding
up amidst terrible economic news and some new leaders are
emerging ... but the market also isn't making much progress and
some high-profile leaders have blown up. He recommends sticking
with a basic half-in, half-out posture. Stocks mentioned include:
), Under Armour (
), Mellanox Technologies (
), SolarWinds (
), eBay (
Pulte Homes (PHM)
. Click below to watch the video!
Stock market old-timers will often tell newbies that "The market
wants to take your money," which, on the face of it, isn't all
that credible. After all, lots of people make lots of money on
Wall Street. Still, there's something to the warning, and the
quicker you learn about it, the quicker you can start printing
your yearly results in black ink, rather than red.
The education of a stock investor isn't exactly the stuff that
Hollywood movies are made from. (No, that's not what Wall Street
was about!) There's not a lot of excitement in digging into
business models, studying chart patterns, and tracking revenues
Investing does have its moments, of course. I'm thinking
specifically about how some of the action in the stock market in
the past couple of months has looked like Matt Damon driving a
Mini-Cooper down those stone steps in Paris in The Bourne
And there are always a few exhilarating days every year when
markets take off, giving you the same thrill that you got when
the Millennium Falcon first went into hyperspace in Star Wars:
But I digress. The point is that learning to invest in stocks
isn't a barrel of laughs.
On the other hand, it's a tough world out there, with lots of
people working more than one job and scrambling just to stay even
with their mortgage and the bills … and not even managing that.
It's hard to get ahead.
This feeling of powerlessness sends some people to convenience
stores in search of lottery tickets or to a gambling casino,
where the odds are astronomical (in the first case) and
inexorable (in the second). In those cases, at least, people know
the odds are against them.
Unfortunately, desperation also sends some people to the stock
market … with the same results. People who go into stock
investing in desperation often bring with them the same mindset
(and the same lack of preparation) that accompanied them to the
lottery window or the blackjack table. What they learn is that
(as the title of this section notes) The Market Wants To Take
Some people treat this truism as a general warning about equity
investing. They don't believe that the market is actively,
forcefully, and intentionally trying to take their money away.
They're wrong, and here are three reasons why.
- Institutions want to take your money away. Large institutional
investors control a wide majority of the equity capitalization in
U.S. and global markets, and they count on individuals being both
over-enthusiastic and over-discouraged. The individuals who push
stocks up the last 10% or so to their tops are setting the table
for institutions to sell and begin the stock's decline. And the
last individuals who finally capitulate and sell a stock down to
its low are tying a bow on the gift package for institutions, who
will then quietly begin to buy up the discounted bargains.
- The bandwagon wants to take your money away. It's hard to
commit to putting a chunk of cash into a stock. As a result, a
lot of investors wait to invest … and then they wait some more,
trying to be sure that the stock they're buying is the real deal.
Eventually, as the stock rises, more and more people are
reassured by the stock's performance into actually pulling the
trigger. It's fun to grab a piece of one of these stocks that's
going through the roof, and some people actually make some money
this way. But the last few people who jump on the bandwagon
are doomed to go over the cliff with it. It's the law.
- Good stories want to take your money away. Every great stock
has a great story. Stories are how entrepreneurs win
funding for their startups and how rising companies get the
capital to expand. The trouble is that a lot of absolute mutts
have stories that make them sound like the next Apple and Google
and Microsoft all rolled into one. The guy who starts telling you
about his favorite stock at a party will probably give you 95
cents worth of story with just a nickel's worth of information
about the company's revenues and earnings and the performance of
There are other things in the market that want to take your
money, but you get the picture. So what can you do about it?
As any of our long-time readers know, the answer is: have a
If you like the idea of buying stocks at a discount and then
holding on for years while they appreciate to fair value (the
Warren Buffett way), then you are a value investor and you should
follow that system. You'll make money.
If you're more comfortable with the idea of buying
dividend-paying large-cap stocks that are closely tied to the
progress of the U.S. or global economy, then you're a blue-chip
buy-and-hold investor, and that's exactly what you should do.
You'll make money.
If you cherish the thrill of finding hot, young stocks that are
climbing like rockets and riding them to huge gains-and you can
tolerate-and minimize-the losses that inevitably accompany this
strategy-then you're a growth investor, and you should stick to
your guns. You'll make money.
Whatever system you use, a strict sell discipline needs to be an
integral part of it. If you ever forget that the market actively
wants to take your money, the value of your portfolio will be
glad to remind you.
Editor's note: If this Cabot Wealth Advisory seems familiar,
it's because I wrote it back on March 10, 2008-reminding us that
the importance of having an investing system is timeless. If
you'd been following Cabot Market Letter, for example, back in
2008, you would have enjoyed a memorable 381% profit in First
Solar (among others) before turning defensive in the fall.
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
Life Is Understood Backwards Lived Forwards
Danish philosopher Soren Kierkegaard said, "Life can only be
understood backwards, but it must be lived forward."
Hindsight is 20/20, but because we cannot undo the past, we can
only learn from it and hope to apply those lessons going forward.
The good news is that even as the world moves forward, the world
of investing moves in identifiable patterns that are based on
human nature … driven by fear and greed. And the more you pay
attention to the actions of the market and the mood of its
participants, the more you can use the experiences of the past to
profit in the future.
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 7/23/12 - How to Kill a
Tim Lutts wrote that fertilizer stocks have been doing well this
year due to the drought, rapidly rising prices for corn and a
growing global population. Featured stocks:
CF Industries (CF)
Cabot Wealth Advisory 7/26/12 - My Sure-Fire
Value Investing Methods
Roy Ward's sure-fire method to find stocks that will outperform
the market in the next year or two is to ferret out high-quality
stocks with low PEG (Price Earnings Growth) ratios. Featured
Reliance Steel & Aluminum (RS)
Have a great weekend,
Cabot Wealth Advisory