Stock Market Video
Stock Market Video
Why Tactical Investing Makes Sense
Pride of opinion … Precedes a fall
In Case You Missed It
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In this week's Stock Market Video I counsel caution for growth
investors. Markets have been jumpy and the intermediate trend has
turned down. The right thing to do now is to keep your stocks on
very short leashes, do very little buying and take special care
around the quarterly reports of any of your holdings. I showed
some brutal responses to earnings misses, as well as a few
positive stories. Stocks discussed include:
McDonalds (
MCD
), Google (
GOOG
), DaVita (
DVA
), Royal Caribbean (
RCL
)
and
Whirlpool (WHP)
. Click below to watch the video!
Why Tactical Investing Makes Sense
I read with interest a little piece in a recent Wall Street
Journal about a move among financial advisors toward what is
called "tactical investing."
There's no standard definition of tactical investing, and part
of the apparent surge in interest in the topic may just mean that
it's the buzzword of the moment. Wall Street loves to have a hot
piece of jargon to throw around; it's the investing equivalent of
the purple ties and shirts that are currently sweeping the men's
fashion world. But when investment advisors and asset managers
make any move away from their "buy-and-hold" mantra, it's always
worth looking at why.
Fortunately, the "why" of tactical investing is as plain as a
chart can make it. Here's a chart of the S&P 500 since its
peak at 1,527, just as the Tech Bubble burst. (As you look at
this chart, you may be remembering the feeling in the pit of your
stomach during 2000 and 2001 as you watched the value of your
retirement account plummet. You should remember; it's a useful
exercise. And you should remember the feeling during the
explosive deflation of the Housing Bubble in 2008, too.)
(Needless to say, if I'd shown the chart of the Nasdaq for the
same period, the movement in the year 2000 would have been way
more dramatic, but I don't want to open old wounds.)
In the WSJ article, one investment executive, clearly quite
pleased with his bold thinking, said that he was "nearly doubling
the cash allocation in his model portfolio, to 9%." Given that
the
Cabot Market Letter
had its Model Portfolio 35% in cash two weeks ago, I just had to
laugh.
I suppose it's a good thing that money managers are embracing
the idea that jumping out of an asset class in free fall is
beneficial. After all, Cabot growth investing letters have been
doing it for over 40 years. And
Cabot China & Emerging Markets Report
, which I write, has been 100% in cash at least twice since I
took it over. (It's only 15% in cash now, but we have a lot of
stocks that are trying to figure out which way to move.)
This kind of defensive move out of stocks and into cash is
what Cabot means by "market timing." We don't try to predict
where markets will be in a year, or even tomorrow. We just figure
out which way markets are trending and manage our portfolios
accordingly.
Cabot Market Letter
and
Cabot Top Ten Trader
even found sectors and industry groups that were actually rising
while the markets were diving, including housing way back in
2001-2002 and commodities in early 2008. And being able to put
money into counter-trend stocks during a bear market is the
ultimate in tactical investing.
Markets have been up and down a lot, but haven't made a nickel
of net progress since 2000. That's the big message from the
S&P chart above. (From its high of 1527 in 2000, the Index
closed Thursday at 1413). So if your strategy is buy and hold,
you might want to take the hint the market is giving you and get
a little more tactical.
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Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
clicking here.
Pride of opinion … Precedes a fall
Tim's Comment:
Proverbs 13:10 says, "Pride goeth before destruction and an
haughty spirit before a fall." The ancients were concerned that
such overreaching insulted a higher power, but we know today that
the main danger is psychological. Hubris can lead to errors of
judgment, and your best defense against your own human
fallibility is a humble spirit and an investing discipline that
controls your risk. Just as speed kills, overconfidence can
bankrupt.
Paul's Comment:
If you subscribe to my theory that markets are always actively
engaged in trying to take away your money, then this button is
just pointing out one way markets go about it. A bull market will
make you think you're smarter than you really are, and a bear
market will force to you conclude that you have the brains of a
newt. It's okay to be proud of a good investment decision, but if
you start thinking you've got it figured out, the market will
slap you back to reality.
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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 10/22/12--How to Use
Stop-Losses on Small-Cap Stocks
Monday's issue was written by Thomas Garrity of
Cabot Small-Cap Confidential
. Tom writes about the special handling needs of small-caps and
how to use stops that will help you avoid getting stopped out of
stocks that recover quickly.
Cabot Wealth Advisory 10/23/12--Adding the How
and Why to the What
In this issue, growth investing expert Mike Cintolo, editor of
Cabot Market Letter
, looks at the logic behind long-honored investing wisdom like
"cutting losses short," and sees a secular bull market ahead …
sometime. Stock discussed:
eBay (
EBAY
).
Cabot Wealth Advisory 10/25/12--The Warren
Buffett Approach
Roy Ward, the editor of
Cabot Benjamin Graham Value Letter
, uses this issue to express his admiration for Warren Buffett,
the modern hero of value investing. Roy also recommends two
stocks that he believes should tempt even growth investors.
Stocks discussed:
American Express (AXP)
and
UnitedHealth Group (UNH)
.
Have a great weekend,
Paul Goodwin
Editor of
Cabot Wealth Advisory
and
Cabot China & Emerging Markets Report