Straight Talk on Retirement Investing & The Cabot Audience
A Life-Saving Gift
A U.S. Large-Cap Stock
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Cabot doesn’t spend a lot of time analyzing the demographics of the people who subscribe to our newsletters. We know that it’s more likely that you’re male than female, and that your average age is somewhere in the late 50s. But that’s not what I’d call a precise description.
In one sense, it doesn’t make any difference what our subscribers are like. The Cabot Market Letter, for instance, just gives advice on growth investing. And whether the reader is 30 years old or 80, that advice won’t vary. The factors that make a stock a good pick for a growth portfolio don’t change with age, and market conditions are either supportive or threatening whether you’re male or female.
But with that said, there are two things about our average subscribers that I try to keep in mind when I write.
First, the average Cabot subscriber has less than 10 years to go before retirement, and many of you are already retired.
The first wave of the rising tide of Baby Boomers (those born in 1946) hit the traditional retirement age of 65 in 2011, and only a quarter of those people are still working full time. In a 2012 survey by an insurance company of those born in 1946, the average age of those who had retired was 60 for men and 57 for women. Some had retired early due to health issues (37% of those who retired early) and quite a few had lost a job and couldn’t find a new one (6%), had taken a retirement incentive (4%) or just quit because they got tired of working (14%).
The most surprising finding to me was that almost two-thirds of those born in 1946 (63%) had already signed up to receive their Social Security benefits, including 17% of those who still had full-time employment.
Personally, I’m one of those in that age cohort who hasn’t yet taken Social Security, so I can empathize with the 16% of those who are still working in order to increase their S.S. benefit level when they do step off the merry-go-round.
It’s also worth noting that just 6% of the respondents in the survey said that they retired because they had enough money and could afford to.
Second, this hypothetical average reader has a portfolio that has been through two major market meltdowns.
The bursting of the Tech Bubble in 2000 and the collapse of the housing market and subsequent Great Recession in 2008 each took major bites out of most retirement investing stashes whether they were in 401(k) accounts or privately handled.
The drawdowns on the Dow (which fell 40% in the crash that started in 2000 and 48% in 2008) and the S&P 500 (down 34% in 2000 and 52% in 2008) were bad enough. After all, these indexes were a mainstay of the conservative, “time, not timing” strategy used by responsible retirement investors who put their faith in index funds.
But even more damage was done in 2000 to investors who had (like me) succumbed to the siren song of the Nasdaq and its seemingly invincible tech stocks and put the bulk of our money into tech funds. The Nasdaq’s losses reached 78% from March 6, 2000 through September 30, 2002. The Index’s losses in 2008 amounted to 41%.
The practical consequences of keeping these two major facts in mind about Cabot’s average reader are: 1) I always try to remember that I’m writing for people who have done exactly what their investment advisors told them and have still been kicked in the teeth by the market … twice; 2) I always try to remember that many, if not most, of my readers are in a constant state of anxiety about their financial well-being as their retirement rushes at them year by year.
Accordingly, I try not to sugarcoat what’s happening in the market or in the portfolio of the Cabot China & Emerging Markets Report. I know my readers value getting my honest opinion, whether the news is good or not. People who have been burned by market “experts” have a very low tolerance for BS and no patience with excuses.
In the final analysis, I think that honesty and taking responsibility are what Cabot is all about. We can’t control the market and we can’t influence whether a company makes its numbers in its quarterly report or not. There are no sure things.
But I can promise you that the people who edit Cabot’s investment newsletters will give you the highest quality news, analysis and investment advice we can. And we will stand behind what we write.
About once a year, I like to throw in a pitch for my favorite form of charity giving. It’s the only thing you can give where you know, with real certainty, that the recipient really desperately needs it. It costs you nothing and it literally save lives.
It’s giving blood.
I know there are many reasons people choose not to give blood. It takes time and there’s always that needle phobia thing. But the emotional reward far outweighs the cost.
I’ve given over ten gallons of blood (not all at once, of course) and it’s a deeply satisfying thing to do.
I won’t go on about this, but in summer, the blood supply is always lower and the need higher. If you use your imagination and envision yourself or someone you love surviving an accident or operation because some stranger gave you a life-saving gift, you’ll see why I’m so insistent.
My stock picks in CWA are often small foreign stocks that no one has heard of, and that’s a fun thing to do. It broadens peoples’ horizons.
But today I’m recommending a U.S. large-cap that has operations across North America, plus Puerto Rico, the Virgin Islands and Guam, and is dipping a toe into the waters of China.
The company is Home Depot (HD), the building materials giant that sells everything a contractor, home-owner or do-it-yourselfer needs to build an entire home or just change a faucet washer. Remodeling supplies like plumbing, electrical and kitchen gear contributed 31% of fiscal 2011-12 revenue, with hardware and seasonal needs like gardening bringing in 29%. Building materials and lumber made up 21% and paint and flooring made up the remaining 19%.
Home Depot’s string of more than 2,250 stores has been through a long dry spell, with revenue being hit by single-digit declines from fiscal 2007 through 2010 (the company’s fiscal year ends in January). But 2011 and 2012 have shown gains of 3% and 4%, respectively, and earnings were up a relatively robust 39% and 30% during the two most recent quarters. Home Depot is a mature business and a widely held stock (it’s a component of the Dow, and institutional holders number nearly 2,000), so I don’t expect any romance-phase blastoffs.
But the housing industry in the U.S. has been in the doldrums for years, and Home Depot’s return to revenue growth is likely a good indicator of returning health in that sector. While remodeling and renovation have kept the company growing, a solid recovery in new housing starts would be a huge boost for the building materials segment.
HD has been in am impressive uptrend since it put in a V-shaped bottom in August 2010 at 29, and the stock’s uptrend has been constant, with volatility decreasing until the stock’s peak at 53 in early May. A quick three-week plunge to 47 reset the ticker on the stock and it has since moved right back into position to challenge that May high. With a forward annual dividend yield of 2.2% and a good foundation in the recovering U.S. housing market, Home Depot looks like a prudent choice.
Sincerely,
Paul Goodwin
Editor of Cabot China & Emerging Markets Report
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