Daily Posts Archive

I recently brought you an issue of Cabot Wealth Advisory that reviewed some of our most important investing lessons from the year written by three of our editors. Today, I’m going to bring you something from the rest, Timothy Lutts, Cabot publisher and editor of Cabot Stock of the Month, Paul Goodwin, editor of Cabot China & Emerging Markets Report and Michael Cintolo, editor of Cabot Top Ten Report and Cabot Market Letter. I hope this helps you tackle your next investing challenge.

How safe are the toys your kids are playing with this Christmas? After the widespread toy recalls of 2007, I assumed the toy industry would have straightened its act out. Unfortunately, that’s not the case. The Ecology Center, a Michigan nonprofit, tested 1,500 children’s toys this year for lead, cadmium, arsenic, PVC and other harmful chemicals.

So what’s a potential leader? I could write about some of the (very few) stocks that are hitting new peaks--only 14 stocks hit new peaks on the NYSE and Nasdaq last Thursday, for instance--but instead, I’m highlighting a company with huge growth, a big story, and whose stock is in the sixth week of building a good-looking base.

I recently had the opportunity to talk to one of ours editors who you don’t hear from regularly in Cabot Wealth Advisory, Thomas Garrity, editor of Cabot Small-Cap Confidential. Today I’ve got a Q&A to share with you about why Tom prefers to invest in small-caps, what he thinks the best investment strategy is now and in the long-term. I hope you enjoy it! (Interesting side note: The Russell 2000 index of small-cap stocks pushed above the 50-day moving average on Wednesday--the first time since the market collapse began in September.)

Ever since the story broke last week that Bernard Madoff had lost perhaps $50 billion of investments entrusted to him by friends, hedge funds, charities, etc., I’ve been looking for the answers to a few questions. When and how did it first go wrong? Was there one leveraged investment that went bad back before 1999, when the SEC first “investigated”? Did he dig himself out of that hole only to fall into another one or has he been producing bogus statements steadily since then? Who on the inside of the company was aware of the fraud? And what was the conversation like between father and sons before they turned him in? One thing is clear; the man will now find out who his true friends are.

My investing idea for today is about a beaten down sector that was the market’s Fair-Haired Boy just a few months ago. Back when crude oil was sailing along at $140 a barrel (and higher), everyone knew that solar cells were the wave of the future. Silicon was in short supply and companies like First Solar made heroic runs. FSLR began 2007 trading under 30 and peaked in May 2008 at over 300. That’s a winner in anyone’s book!

An article demonstrates how soccer goalies actually stop more penalty kicks when they stay in the center of the net, but despite these results, the goalies almost always dive right or left. Why? Because not to act is to appear helpless, as if they don’t know what to do. And so it is in the stock market, for many people, both amateurs and experts. They’re always looking to do something ... but sometimes the best course of action is inaction.

This year has certainly been a wild ride for investors, the volatility in the market has been extraordinary, we’re “officially” in a recession and the financial landscape has been dramatically altered. But we’ve been here with you through it all, giving you our best advice. Today, and in another issue before the end of the year, I’m going to re-print some of the pieces we’ve written in the last 12 months.

If you follow a proven system (like cutting your losses), it doesn’t mean you’ll always be on the right side of things. But it does mean you’ll come out richer in the end. It’s usually the investors who don’t have a proven system that get so nervous and anxious about the market, the future, what their stocks might do, etc. Making money in the market is difficult, especially this year. So don’t feel silly or beat yourself up a poor trade or two--oftentimes, as in this case, it was just a bad market, or bad luck. Simple as that.

In my mind, the future is likely to bring something new to America, and for lack of a better term, I’m going to call it the Great Shrinkage. In this Great Shrinkage, as I ventured before, credit will shrink and equity will increase. In this Great Shrinkage, the number of colleges will shrink, as fewer parents choose to borrow the big bucks required. States and municipalities will cut non-essential services. Savings rates will climb ... but with demand so high, returns from savings will stay extremely low.