The Slap on the Side of the Head
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The Slap on the Side of the Head
As I've written before, the market keeps me humble. When I'm
feeling like I've pretty much got things figured out (in late
February, say) the market has been more than willing to take a
little time out of its busy schedule to deliver a quick slap to the
side of my head. I understand; it's nothing personal. I sell a few
stocks, letting the market know that I've received the message. And
now all I have to do is build a new watch list while I wait for the
lump on the side of my head to heal.
Like I said, the market and I get along fine.
But I know that there are investors out there who aren't getting
Every time I look at the chart showing the recent performance of
the PowerShares Golden Dragon Halter USX China ETF (
), it hits me again.
The Golden Dragon is an ETF that represents all Chinese stocks that
trade on U.S. exchanges as ADRs (American Depositary Receipts). I
use it in Cabot China & Emerging Markets Report to gauge how
investors are feeling about my investment universe. The green line
is the 25-day moving average and the red line is the 50-day moving
average. When the Golden Dragon is below its moving averages, the
trend is down and I advise a more defensive stance. Here's a three
month chart that shows the peak in early March and the way PGJ has
been bouncing downhill ever since.
What you see following the peak on March 7 is a visual
representation of the slap the market was kind enough to deliver to
the side of my head. It's been a serious one, now in its 10th week,
and it has pushed me to reduce the stock exposure of the Cabot
China & Emerging Markets Report's portfolio to just 40%.
But I know that there are investors out there who haven't been
willing to listen to what the market is saying. They feel the slap,
but they don't get the message. They just sit, watching their
losses increase and wishing they knew what to do.
I talked to a financial advisor the other day who told me what he
liked most about Cabot's growth advisories. I liked the phrase he
used and I want to share it with you.
Participate and Protect
He said "you allow investors to participate and protect." He was
talking about the market timing disciplines like the Cabot Emerging
Markets Timer that give us explicit signals about when to start
reducing our exposure to the market and going to cash. Not to
belabor the point, but the "protect" part is the discipline that
signals us to get out of stocks and into cash.
I know it sounds like the motto on the door of a police cruiser
("Cabot Market Police: We Participate and Protect."), but it's just
the simple truth. Staying dry when it rains is every bit as
important as making hay while the sun shines. So open up your
umbrella if you're still standing out in the rain.
On a completely different subject, I want to give you a heads up
about the second Cabot Investment Conference that will be held here
in Salem in August. It's an event that brings all of Cabot's
analysts together to talk about how they see the markets doing, how
they are positioning their portfolios, their best tips and
in growth stocks, value stocks, income stocks, small-caps and
It's a full couple of days with group presentations, breakout
sessions with individual analysts and panel discussions of top
picks. And it will give you a chance to talk with the Cabot
analysts of your choice at length. (I remember a bourbon-fuelled
discussion in the bar of the Hawthorne Hotel that went well into
Salem, Massachusetts, in August is a fascinating place to visit,
and our planners have made arrangements for trolley tours and
harbor cruises to supplement the investment talk. I hope you'll
consider attending. It's the equivalent of a boot camp for
investors, but with great food, comfortable accommodations and
Here's this week's Fortune Cookie. Remember, you can always view
Fortune Cookies here
Contrary Opinion buttons here.
Tim's Comment: Trees, stocks, it's all the same. The sooner you
start, the greater your reward.
Paul's Comment: Tim decided to go all Clint Eastwood on this one,
so I'm going to write a little more. I often talk to investors who
are discouraged that a stock they intended to buy has popped higher
before they could hit the "BUY" button. And I always try to comfort
these poor souls by telling them that as soon as I find a way to
buy a stock yesterday, I will let them know. Stocks will force hard
choices on you, including the decision on whether to buy at a
higher price than you'd like and whether to sell after absorbing a
bigger loss than you're comfortable with. But making decisions is
the essence of investing, and if you think about it, every day you
don't buy (or sell) is a decision not to do anything. And every
decision is one you make today, just like in the Chinese proverb.
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
Cabot Wealth Advisory 5/12/15 - Extraordinary
Cabot Stock of the Month chief Tim Lutts writes in this issue about
how hard it is to recognize successful CEOs before they become
legends. Tim also begins his new series on 10 Stocks to Buy &
Hold Forever. Stock discussed:
Zoe's Kitchen (
Cabot Wealth Advisory 5/13/15 - The Inspiring Story of Grace
In this issue, I write about the most amazing buy-and-hold stock
story you've ever heard, a woman who held one stock for 75 years!
Mindray Medical (
Cabot Wealth Advisory 5/15/14 - Selling Dos and
Roy Ward, Chief Analyst of Cabot Benjamin Graham Value Investor,
writes in this issue about the difficult business of knowing when
to sell. He cites research that shows how holding stocks for longer
periods can lead to bigger gains.
Have a great weekend,
Chief Analyst, Cabot China & Emerging Markets Report
Editor of Cabot Wealth Advisory