Daily Posts Archive

When we’re in a strong bull market, it’s like driving down the highway on a clear summer day. Visibility is unlimited and your tires grip as well as they ever will. You can go pedal to the metal and rack up the miles - and the profits - quickly. But a bear market, such as we’re in today, is more like the weather I drove in Friday. It’s far less tolerant of aggressive behavior. The effects of your mistakes are magnified. And if you make enough wrong decisions, it can ruin you.

The Cabot Market Letter has been timing the market for over 37 years, and it is darned good at it. Even the Hulbert Financial Digest has noticed, giving the Letter an attaboy for its success in getting out of bear markets and back into bull runs. There are reasons for the divergence in the opinions of Cabot and the market commentators, and they don’t require that one or the other has to be wrong. It’s a good illustration of the power of the individual to grab victory from the jaws of defeat. Here’s how it works.

Eventually, when real estate prices fall low enough, the patient value-oriented souls who’ve been waiting for bargains will come out of the woodwork and start buying. They’ll buy individual houses, apartment buildings, entire condominium projects and more. Downtrends will end. The recession will end. And the U.S. of A. will return to its pattern of slow growth. But should you wait until then before you invest? No, as I explain in the next section.

Here’s what I wrote about Barrick in last week’s edition of Cabot Top Ten: The price of gold is in a solid uptrend, and that’s helping all gold stocks, including Barrick Gold. The company, based in Canada, is one of the largest gold producers in the world...most gold stocks simply trade up and down with the price of gold, and for good reason—cash costs for mining activities are holding relatively steady, so as spot and futures prices increase, the extra money will fall to the firm’s bottom line.

My pick, by the way, is New Oriental Education (EDU), which is thriving by teaching English to Chinese students of all ages, and also teaching test preparation courses. I like it because I think the growth of China will continue at a rapid rate and because I value education highly. Also, the company is fast-growing and very profitable; in the third quarter, revenues grew 50% from the year before while the after-tax profit margin was 43.9% (there’s a strong seasonal component here). And finally, the chart looks good.

Rather than give the same old big advice (buy quality stocks on reasonable pullbacks, let your winners run, cut your losers short, and don’t try to go against the trend of the market) I’m going to recommend three small changes that you might actually be able to implement. And a successful small change is much better for you (both financially and emotionally) than a big change that you can’t make happen.

My stock idea for this issue stems from the “you can find good news among a heap of bad news” theory. It’s a company whose entire business stems from the airline industry ... probably the only industry that’s lost more money than the auto firms during the past few years. And today, the outlook would seem to be even worse, as businesses begin to cut back spending and oil prices flirt with $100 per barrel.

So which book leads to the investment idea, the book by the dreamers or the book about the doer? There’s no surprise here; it’s Carnegie, the doer. Because today’s idea is about steel and iron ore, once again in great demand by the world. For Carnegie, demand came from the expansion of the American railroad system. For this company, demand comes from the global building boom, particularly in Asia.

Now, this would be a natural place to write about a solar power stock, but I’ve done enough of that in recent issues. Instead, I want to write about a nifty little Brazilian company. And here’s why. In my mind, the world’s stock markets are linked by conduits that channel money this way and that, every minute of every day, always reacting to the latest news and the resulting changes in perception.

As a growth investor, my investment horizon is considerably shorter. The portfolio I manage (for the Cabot China & Emerging Markets Report) can turn over as much as 300% a year, so I need to…