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Money Wants to Reproduce

Money is continuing to flow rapidly into equities, and the best thing you can do is put some money into a boat.

Stock Market Video

Money Wants to Reproduce

This Week’s Fortune Cookie

In Case You Missed It


In this week’s stock market video, Mike Cintolo discusses the current state of the market, and delves deeper into the divergence appearing between Old World stocks and indexes, and growth stocks and growth indexes. He goes into detail of how investors should handle this environment, as well as detailing numerous leading stocks that have bucked the market’s recent downtrend. Click below to watch the video!


When you think about money, what image comes to mind? If your mental image of money is Scrooge McDuck’s vault filled with coins and bills, you need to update your thinking, because money is actually among the most active substances on earth. Here’s why that makes a difference to you as an equity investor.

Money flows. It’s such a common phrase that it’s easy to take for granted, but money can actually jump on the Internet and be on the other side of the world before breakfast. Liquid assets—those not tied down in real estate, automobiles, collectibles, antiques, art and the like—are always on the verge of hoisting anchor and setting sail with the tide, although they do it at the speed of light.

And why does money flow? It’s because …

Money wants to reproduce. You can call it Wriston’s Law (you know, the one that says that money will flow where it is wanted and stay where it is well-treated) or you can call it liquidity or you can think of it as money trying to reproduce itself. After all, that’s what chasing higher rates of return is all about.

For the past three or four years, money has had a hard time finding any place to go that offered much more than stingy returns without taking on a big load of risk. The desperation to find some place to put money to protect principle went so far that some people were buying government bonds with a negative yield! That’s right. Some people bought bonds that paid less than nothing because every other asset class that offered more was just too risky for them. They preferred a guaranteed small loss to the risk of losing more.

This may be heresy for a growth investor like me, but I have to admit that, for people with a large fortune who are living off dividends and interest, it’s probably not a bad idea. If your fortune is too large to be protected by FDIC, there’s no place to hide your capital that doesn’t put it in the water with some kind of sharks. So it makes sense to choose the smallest sharks you can find.

But as a growth investor, thinking about the flow of assets always makes me think about the way money gets tempted out of its hiding places when a new opportunity shows up. In their time, index funds, tech stocks, REITs, hedge funds and ETFs have all been the new kids on the investing block, and they have attracted enormous amounts of money, pulling it out of old-fashioned bank accounts and out from under mattresses.

And, when money sees greater opportunity in stocks than in any other asset class …

Money flows power market rallies. During the S&P 500’s rise from 667 in March 2009 to above 1,600 today, the Index’s progress has been achieved by attracting money from other investment choices. During the month of January, for instance, the S&P 500 ran from 1426 to 1498. And that leap got its fuel from a net inflow to conventional equity mutual funds of $20.7 billion. This was the largest one-month inflow since the spring of 2000. And if you add in exchange-traded products, the number rises to $34.2 billion, the highest total since 1996.

The money that is gushing into equities, equity mutual funds, equity ETFs and equity hedge funds all has to come from somewhere. Lots of it is draining out of bond funds and bond ETFs as investors’ appetite for risk gradually rises. And plenty is migrating from money market funds and out of bank accounts, even out of Treasuries.

As you look at the chart of the rise of the S&P 500 from March 2009, you should see it as a barometer of investors’ perception of the stock market. And I hope you will appreciate once again the immortal words of Jesse Livermore, the legendary investor who said, “Markets are never wrong: opinions are.”

S&P 500 Chart

Money is continuing to flow rapidly into equities, and the best thing you can do is put some money into a boat and float along with it. As I’ve said before, bull markets are not so common that you can afford to ignore one.

Want help getting started? The Cabot Market Letter will give you all the advice, education and specific buying and selling advice you need to go with the flow. This weekend only, we’re offering a special offer to our Cabot Wealth Advisory readers. Don’t miss an opportunity to receive one year of Cabot Market Letter Free!

Click here for more information.


Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

Fortune Cookie

Tim’s comment: Well, I guess we all know where Syria is now, at least temporarily. This quote has nothing to do with investing, but it might lead one to ask, “Does knowledge of geography make one a better investor?” Some might argue that such knowledge is superfluous, and the time spent learning it might be better spent poring over balance sheets or searching out strong charts. But I (and no doubt Paul Goodwin as well) would argue that all knowledge can help, if it is used intelligently.

Paul’s comment: Yes, I absolutely agree with Tim on this one—knowledge of world events and geography gives you a perspective and an edge. In investing, knowledge is power.


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 8/26/13—A Perfect Storm?

In this issue, Cabot Stock of the Month honcho Tim Lutts writes that with current investor expectations so low—and knowing that the market will do what it can to fool the majority, he wouldn’t be surprised to see the market execute a stealth breakout to new highs. Tim also discusses the sixth of his Revolutionary Stocks: Stratasys (SSYS).

Cabot Wealth Advisory 8/27/13—Value Investing is Best!

In this issue, Cabot’s value expert and analyst for Cabot Benjamin Graham Value Investor Roy Ward makes the case for putting half your assets in conservative core value stocks of low-risk companies with good five-year growth prospects at reasonable stock prices. One of his current favorites is Prudential Financial (PRU).

Cabot Wealth Advisory 8/29/13—What Makes a Good Stock Story?

Cabot chief growth analyst Mike Cintolo identifies four characteristics that he’s found in almost all of his biggest Cabot Market Letter and Cabot Top Ten Trader winners. Mike’s stock pick this week is Michael Kors (KORS), which has all four characteristics and is one of the strongest stocks in the market.

Have a great weekend,

Paul Goodwin
Editor of Cabot China & Emerging Markets Report
and Cabot Wealth Advisory

Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.