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3 Ways to Prepare as the Stock Market Returns from Vacation

The dog days of summer are over on Wall Street, and the stock market is back in school along with your kids. Here are three ways to get your portfolio ready for fall.

The United States may not get into the spirit of summer the way Europeans do—at least we don’t virtually shut our country down for the month of August as they do in France—but there’s a national consensus that the period from Memorial Day to Labor Day is a good time for a little down time. For those of us who live in New England, our rationale is divided pretty evenly between repairing the psychological damage from last winter and storing up some solar units for the next one.

The stock market seems quite happy to take its own vacation, if only in a small way. August trading volume is traditionally the lowest of all the months of the year. (December is the second-lowest, as institutional investors have largely put their portfolios to bed for the year.)

As a student in my pre-college days, August was a slightly desperate time, as I realized that very few of my plans for the summer were actually going to happen. And that meant that every newspaper and TV ad for “back to school supplies” rang a little sour for me. (My parents probably enjoyed them a whole lot more.)

Assuming that your school days are (like mine) far, far behind you, what should you be doing to prepare for the resumption of chaos-as-usual in the stock market?

I can only answer from the point of view of a growth investor, but here goes. Here are the three best things you can do to get your portfolio in shape for fall.

1) Clean Out Your Closet

You don’t want to start the school year with out-of-style clothes and stuff. And you don’t want to have last season’s losers hanging around in your stock portfolio. So if you have stocks that have fallen below your loss limits, it’s time to reach for the “SELL” button. Last year’s fashion mistakes just take up room in your closet, and last year’s losers are either actively draining money out of your portfolio or are tying up capital that can be put to use in better stocks.

As I’ve said too many times to count, learning to limit your losses is the most important lesson growth investors must learn. If you can learn to learn to kick out your losers, the sky’s the limit. If not … well, there are always lottery tickets.

2) Check the Fashions

I don’t want to get too cute with this, but it’s hard to know what to buy if you don’t know what other people are buying. And if you translate that to the stock market, it means that you need to know whether buyers or sellers are taking the lead.

Fortunately for growth investors, right now the buyers are in charge. One look at a daily chart of the Nasdaq will tell you that growth stocks are very much in fashion. (If you compared the Nasdaq with the S&P 500 or the Dow, you’d also see positive action, but not as strong.)

3) Buying a Little Something Unusual Makes All the Difference

If you buy what everybody else buys, you look like everybody else looks. For a teenager that’s a good thing. But for a growth investor, adding some growth stocks from outside the usual gang of suspects can be a very good thing. The names you add to your portfolio that come from outside the major indexes can provide some impressive results.


One of my favorite stocks in the portfolio of Cabot Global Stocks Explorer (formerly Cabot Emerging Markets Investor) is Weibo (WB). This Chinese company runs the most popular Chinese social media platform. And the success of its service—kind of a cross between Twitter (TWTR) and Facebook (FB)—has brought the company so much cash that it has been shopping for rivals, investing in allies and diversifying via joint ventures with all kinds of Chinese online players.

I recommended the Chinese stock to my subscribers in April, when WB was trading at 21. With the stock now trading over 48, we’ve taken profits in one-third of our position and we’re holding the rest. But WB doesn’t seem to be interested in slowing down.

Here’s what Mike Cintolo said about the stock when he wrote it up for Cabot Top Ten Trader a couple of weeks after I featured it in Cabot Global Stocks Explorer (The company did quite well in the upcoming quarterly report that Mike mentioned, but hasn’t yet seen more investment from Alibaba (BABA).)

But first, here’s the stock’s chart to keep in mind as you read. I think it’s exactly the kind of thing that makes it fun to go back to school—or the stock market.

Weibo (WB) from Cabot Top Ten Trader, April 18, 2016:

“In 2009,, one of China’s most-popular web portals, came up with its own answer to Twitter and Facebook and called it Weibo. In some ways, it was a standard social media platform that let users create and post their own content, play games (including opportunities for in-game purchases) and access news and weather services. Weibo was a huge hit, and spun it off as a separate business in 2014, while retaining a majority stake. Chinese daily active users now number 106 million, while monthly active users hit 236 million in Q4 (up 34% year-over-year), with 83% connecting via mobile devices.

“Like Facebook, Weibo gets its revenue from selling ads, and revenue grew by 43% in 2015. That’s off from growth in previous years, but still huge, indicating that advertisers are hungry for ways to reach Chinese consumers. Weibo has turned a financial corner, booking its first profitable year in 2015, and earnings are forecast to grow 56% in 2016 and 68% in 2017. The other reason for the strength of Weibo’s stock is that rumors are swirling that Alibaba, the Chinese online giant, is ready to increase its ownership stake. If true, the tie-up would increase access to Alibaba’s even larger user base, which could provide a huge boost to revenues. Analysts expect Weibo to report an 18% jump in revenue when Q1 results come out (no set date yet), and that earnings will come in at four cents per share, up from a one cent profit in Q4 2014.”

To receive further updates on WB and other strong momentum stocks, consider taking a trial subscription to Cabot Top Ten Trader. Each week, the advisory features 10 of the fastest-growing momentum stocks in the stock market today. Since January 1, the advisory has delivered 235 winning trades!

For more information, click here.

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