The universe has a couple of laws that it's really fond of.
They apply to everything and they never get broken. The Law of
Gravity is one. But my favorite is the Law of Unintended
Consequences. It applies to almost everything, and its power of
enforcement is unrivalled.
This is the law that says that you can't anticipate what will
happen when you mess with a complex system.
If you've been reading anything at all about the global economy
in the past 10 years, you know that the story about China
preparing to knock the U.S. from its pedestal as Big Dog of the
Entire World has had real legs.
There's an almost infinite number of ways to spin the story, most
of which just point out the ideological predilections of the
Patriots rail against the decline of the U.S. and demand action
to keep America in the lead.
Historians seek parallels in the declines of the great empires of
Economists either calmly confirm the trend, or point to
more-or-less probable factors (lack of oil, scarcity of water,
political unrest, real-estate bubbles, corruption, natural
disasters) that might interrupt Chinese progress.
As growth investors, my fellow Cabot growth writers and I will
always fall back on the Law of Unintended Consequences to explain
why we don't indulge in predictions.
But instead of calling it that, we will often refer to Thomas W.
Phelps, the author of 100 to 1 in the Stock Market, a 1972 book
that detailed his method of picking stocks and holding patiently.
Phelps believed (and so do we) that if you buy good stocks, you
put yourself in a position to benefit from "the unforeseeable and
incalculable" events that could send stocks soaring.
Personally, I believe in painting a broad-strokes picture of
China and the emerging markets. The more detailed you get, the
more complex the picture becomes and the less certainty there is
in the validity of any predictions. More data = less certainty,
Understanding that the future of China, the U.S. and the world is
too complicated to predict actually frees you up from worry.
Just pick good stocks, watch the headlines and take comfort in
being able to sell out your entire holding in an hour if you need
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I remember a (bad) old joke that was a favorite tool of speech
teachers. A man in the Old West accepts a ride on a wagon pulled
by a mule. The driver is bragging that the mule will do anything
he's told. But after several unsuccessful attempts to get the
mule moving, the driver gets off the wagon and hits the mule
between the eyes with a big stick.
When the driver resumes his seat and says, "Giddap, mule," the
animal starts walking.
The passenger, appalled, says, "I thought you said he'd do
anything he was told."
The driver says, "He will. But first I have to get his
As I warned, it's a bad joke. Nonetheless, it aptly demonstrates
the need to sometimes resort to dramatic measures to get
On the Internet, data continually pours forth like water out of a
pressurized hose. This informational overload makes the problem
of getting people's attention more acute than ever.
And the Internet, with its continuous river of messages, all
competing at the top of their lungs for your attention, is making
the problem of getting people's attention more acute than ever.
Ads are now galloping across our browser pages or ballooning out
or popping up to obscure the content we're trying to read.
They're also flashing, animated and lurid.
But the greatest ingenuity and most diabolical creativity go into
the headlines that try to grab us in the 10th of a second when
our eye drifts across them. You know what I mean:
• The World Will End Tomorrow! (How You Can
Profit From It)
• The One Simple Trick That Will Make You Rich
(or Skinny, or Whatever)
• The Huge, Ancient, Shocking, Earth-Shaking
Investing Secret That Will Make You Rich Right Now
• The Good News Behind the Recent Bad News
• The Bad News Behind the Recent Good News
• The Investment Secrets of [insert name of
famous rich person here]
• How I Built My Portfolio From 38¢ to $12
Bazillion in just Three Days
I haven't seen one that says, "Read This or Die!" But I won't be
surprised when I do.
A good headline is hard to resist. However, to uphold sanity and
maintain some basis in reality, I'd like to present a quick
antidote to investment hyperbole, alarmism and downright lying.
Here are the real rules:
No investment system works all the time, or for everyone.
No investment system works overnight.
There is no way to achieve big investment results without taking
on big risks.
There is no investment system that will work without demanding a
significant chunk of your time, energy and hard work.
There is no investment system that will not sometimes require you
to absorb losses.
Or, to boil it down even more, "Ain't no easy; ain't no always;
ain't no perfect; and ain't no safe."
So, if you want to do some investing, how do you slice through
the mounds of hype and hysteria and find some real investing
My suggestion is to look at Cabot's lineup of investment
I know it sounds self-serving, since I work there, and there's no
doubt that Cabot is in the business of trying to make money.
But Cabot has worked hard to build and maintain a reputation for
solid, authoritative investment advice, and our ultimate goal is
to turn interested readers and first-time subscribers into
And the only way we can do that is by helping you make money.
(Personally, I think we're darn good writers, but I don't think
we're good enough to keep people reading if our advice doesn't
If you have a taste for action and a tolerance for volatility,
the Cabot China & Emerging Markets Report (which I write) is
an aggressive stock advisory that any growth investor can come to
love. China is still the Big Dog in the emerging world, and
opportunities in skyrocketing Chinese companies can deliver big
results when the international investment community is paying
Don't make me hit you between the eyes with a stick. You can get
Labeling Chinese companies with the names of the U.S. companies
that they most resemble is a mixed blessing. Sure,
may really qualify as "the Google of China," and
Weibo service is a good ringer for "the Facebook (or Twitter, or
TwitBook) of China."
But does it do justice to a tiny, young company like
, incorporated only as far back as 1997 and booking just $96
million in revenue in 2010, to call it the App Store of China?
After all, Apple's market cap is over $300 billion, and the Apple
App Store has officially booked its 10 billionth download.
Maybe not, but stock investors, especially those with a taste for
the accelerated pace of growth in emerging markets, are always
looking ahead a little farther than most observers. And investors
see a company whose Maopao mobile application store is being
pre-installed on more and more handsets sold in China.
It's also a company that signed an advertising deal with
, one of the most popular websites in China, which will allow
Sohu's clients to publish ads on Sky-Mobi's MRP ad network.
Maopao software is already pre-installed in over 6,600 handset
models in China and Sky-Mobi's partners offer an enormous range
of games, books, music, payment services and social networking
What everyone really knows about Sky-Mobi is that the enormous
population of China has embraced mobile phones, smart phones and
life online with great enthusiasm and that revenue has jumped
from $2.7 million in 2008 to $80 million in 2010. That's huge
growth, and the potential has only begun to be tapped.
The combination of a fertile sector and an attractive business
model has pushed MOBI, which debuted at 8 last December, but
quickly dipped below 5.5 in January, to near 14 in recent
trading. The stock is still thinly traded, and the company has
just one profitable quarter under its belt.
But for those who appreciate potential and like to get bets down
early, MOBI is a great speculation.
For Cabot Wealth Advisory
Editor's Note: To learn more about high-potential emerging
markets stocks like BIDU, SINA, SOHU and MOBI, and the proper way
to handle them,
. Cabot China & Emerging Markets Report is the place to
discover the top stocks in these fast-growing markets.