I got a question from a subscriber recently asking for my
opinion about a book called Aftershock: Protect Yourself and
Profit in the Next Global Financial Meltdown. What I had to
tell him was that I don't really have an opinion because I
haven't read the book. And probably won't.
I also didn't read Surviving the Coming Mutual Fund Crisis: How
You Can Take Defensive Measures to Protect Your Money, which was
published in 1994. Nor did I read Conquer the Crash: You
Can Survive and Prosper in a Deflationary Depression published
last year or The Ultimate Depression Survival Guide: Protect Your
Savings, Boost Your Income, and Grow Wealthy Even in the Worst of
So why am I not staying up late reading these books whose titles
hold out the promise of survival in the
meltdown/crisis/crash/depression that's threatening to bury all
Partly it's because of my (perhaps cynical) suspicion that one
sure way to prosper from a financial crisis is to write a book
about how to prosper during a financial crisis.
And partly it's because I suspect that the intricacies and
vagaries of any real crisis that actually develops will probably
come from an unexpected quarter that will render any advance
With all that said, I'm certainly not trying to discourage anyone
from preparing for adversity. That's what the Cabot sell
disciplines are all about.
Using the Cabot rules, the most you should ever allow any stock
to fall before selling it is 20% below your buy price.
That's using the price at the close of the trading day, not an
intraday price. And it's also a maximum loss; there's
nothing that says you can't sell sooner if the stocks' price
decline looks threatening.
If markets are in a downtrend, you should shorten that loss limit
to a maximum of 15% below your buy price.
And that, in a nutshell, is the Cabot response to the books,
articles, blogs and other postings about the cataclysmic disaster
If you're skeptical about how simple it all is, I have a question
for you. If you decided to sell all your stocks, how long
would it take you?
Assuming that your online broker is pretty much like my online
broker, that answer is probably less than 10 minutes. You
just hit "liquidate position" or "sell" or whatever the website
tells you. Sure, it may take longer for the trade to
actually execute (especially in a thinly traded stock), but you
can be essentially out of the market in less than one cable news
So, unless you're a much bigger investor than most, or have all
your holdings in a 401(k) or SEP-IRA that prohibits you from
going to cash, you can reduce your exposure to the stock market
to zero in less time than it takes to read this Cabot Wealth
So why the heck should you care what the market is going to do
next year or next quarter or even next month?
Selling is never easy. Well, actually that's not
true. Selling is easy; it's making the decision to sell
that can be excruciating.
But if you can't sell your stocks when they need to be sold, you
really can't succeed as an investor in individual stocks.
I use a pretty simple market-timing indicator to tell me when the
intermediate-term trend of the Chinese stocks that trade on U.S.
exchanges is up or down. And I've used this indicator,
which we call the Cabot China-Timer, to reduce the Cabot China
& Emerging Markets Report's exposure to stocks when the
markets get stormy.
In fact, I had the Report's portfolio 100% in cash during much of
the Great Recession of 2008.
And if you want my advice about how to survive "the Coming
Collapse/Crisis/Meltdown," that's it in a nutshell. Selling
and holding cash is like sitting inside in front of a warm fire
when there's a storm raging outside. You should try it.
And if you'd like to have my help in figuring out what and when
to buy and when to sell, you can get a no-risk trial subscription
Cabot China & Emerging Markets Report
It's the holiday season, and I certainly don't want to fall from
my usual level of taste and decorum in this season of joy and
But I just can't get the image out of my head that the global
banking industry is like a car full of frat boys who have been
enjoying massive amounts of beer and pepperoni pizza. And
now they're out driving around, worried about two or three of
their number who are showing signs of dealing with overindulgence
in the traditional method of college boys everywhere … that is by
hurling their guts out.
The gluttonous banker-boys in the U.S. required an enormous dose
of medication to calm the aftermath of their spree, and the world
has watched with nervousness and dread as Greece and now Ireland
have joined the ranks of the bailed out.
(As someone who has actually been in a car with a group of guys
like queasy time bombs stuffed with beer, pizza, whiskey, pork
rinds, Southern Comfort, sliders and-a nice touch I
thought-cupcakes, I have a real feel for the unpleasantness of
the results. I was the driver, by the way.)
I don't want to belabor the point. I'm just saying that
anyone who wants to argue that the financial industry knows how
to police itself, and shouldn't be regulated by the government
will find a very willing debate opponent in me. I know what
happens when a bunch of young guys decide to see how much they
can eat and drink.
--- Advertisement ---
Profit from the January Bounce
Buy beaten down growth stocks priced under $10 in late December,
and sell them a few weeks later, after their early January
bounce. It's that simple! The trick is selecting the right
stocks. You can try to choose them yourself, but we recommend
that you rely on Cabot's 10 Favorite Low-Priced Stocks for 2011.
Reply by December 12, 2010, to reserve your copy and get a 15%
Click to order today.
Trying to decide whether a new IPO will be a winner just after it
comes public is a tough job. Sure, you have some
information about the company's sales and earnings before its
IPO, so it's not like trying to decide whether a newborn baby is
going to grow up to be a CEO or a burger flipper. But it's
much harder to gauge the potential of a stock that doesn't have a
chart to show how well it's being received by investors.
I look for stocks with a good combination of Story, Numbers and
Chart, which translates to 1) an appealing business proposition
with huge growth potential, 2) strong fundamentals in the form of
strong revenue and earnings growth, and 3) a chart that shows an
increasing appetite on the part of investors for the stock.
came public on November 17, and has been trading between 12 and
14 in the days since. So there's certainly no evidence that
BITA was an issue investors had been panting for. That
knocks Chart out of the picture.
And the Numbers for BitAuto haven't been especially impressive.
In the company's short life, it has had more years with losses
than profits. And in the four most-recent quarters, the company
has reported four losses, including losses of 91 cents per share
in the most recent three. You have to decide whether the
three quarters of 56% gains in revenues are hopeful enough to
counterbalance the losses.
That leaves the Story to carry the water for BITA, and it's a
pretty good one.
Investors have been looking for a way to play the Chinese
automotive industry for years now, and BitAuto offers a new
approach. The company offers online marketing services to
both new and used car dealers. Dealers can set up online
showrooms and supply price data, videos and inventory for
potential buyers. BitAuto can also help with the dealers'
Everyone agrees that auto sales in China, which have already
surpassed those of the U.S., will only grow in the future.
China has put staggering amounts of capital into building a great
highway system, and the appetite of the Chinese people for cars
isn't in doubt.
The question is, will new and used car dealers hire BitAuto or do
The Story is strong enough to put BITA on my Watch List, but it
can't produce a buy recommendation all by itself. Keep an
eye on this young, high-potential issue.
For Cabot Wealth Advisory
Editor's Note: Paul Goodwin is the Editor of the Cabot China
& Emerging Markets Report, which Hulbert Financial Digest
ranked the #1 newsletter for the last five years based on its
excellent performance. The Report has rewarded subscribers with a
whopping 175% total return over the last five years compared to
the Wilshire 5000's gain of 12% over the same period. Start
beating the market with
Cabot China & Emerging Markets Report