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Investing for Late Starters

When saving for retirement, most investment gurus tell you to start young, live a disciplined life, diversify and take the long view. But some of us are too old to start young. If you fit into that category, the best way for you to approach investing for retirement might be to allocate some of your portfolio for growth stocks. But make sure you have a system to follow if you choose that path.

I think this may turn out to be a rant, so I apologize in advance.

Investment gurus are a predictable bunch, and they dispense almost identical advice.

  • “Start young!” They tell you, pointing out that just $250 a month in a Roth IRA starting at age 23 will have you within spitting distance of a million bucks by the time you roll into age 65.
  • Live a disciplined life--no Starbucks lattes or Cristal champagne--buy the sensible used car and practice moderation and blah, blah, blah.
  • Diversify, take the long view, get a financial advisor, rotate your tires and drink eight glasses of water a day.

It’s enough to put you off your feed.

The fact of the matter is that many of us are too old to start young. I came of age during the 1960s, and for the four years I was in the Army and the six years I spent in grad school eating cheap and drinking cheaper (Wisconsin Club at $0.99 an eight-pack!), retirement planning was the last thing on my mind.

After I started teaching college, the pay was wretched and the retirement plan was pitiful. I loved teaching, but financially, things didn’t pick up until I left teaching and hooked up with a big Boston financial house, which was well into my theoretical peak earning years.

I’ve been playing catch-up for years, and I’m getting a little more comfortable with the idea of retirement, although I imagine I’ll probably follow in my dad’s footsteps and work as long as I can drag my bones out of bed. Life is just more interesting if you stay useful.

But I suspect there are a lot of people out there who have gotten sufficiently terrified about the state of their retirement accounts only recently as their personal odometers have ticked over into the 50s and 60s. And when they start looking for retirement advice, what they run into is the “start young, diversify, stay the course” crap that financial advisors dish out.

What to do if You’re Too Old to Start Young

To paraphrase Jethro Tull (now there’s a generational touchstone if there ever was one), you’re too old to start young, but too young to retire.

The mutual fund people (who make money by taking a yearly cut off the top of what they manage for you) tell you to just keep shoveling money into your diversified account and leave it there. And if you’re a little older than you should be (given the amount you have in your account), you need to shovel more.


But the mutual fund people and the financial advisors seldom acknowledge that it is possible to beat the broad market by strategically investing in growth stocks. Cabot Market Letter has done it for years. And Cabot China & Emerging Markets Report has beaten the S&P 500 Index like a cheap drum for the past two-plus years.

Personally, although I’m not a certified financial advisor, I think that anyone who’s concerned about the state of their retirement funding ought to think about putting 10% of their stock portfolio into growth stocks, with at least half of that in aggressive growth stocks.

Managing an aggressive growth portfolio isn’t easy. It takes hours of study and analysis, and you have to be prepared to live through some dismaying downmoves as stocks hit the rocks from bad earnings reports, scandals, market downturns and inexplicable failures to thrive. But if you have an advisory that will get you out of the market and into cash when the tides turn against you--as both Cabot Market Letter and Cabot China & Emerging Markets Report will--and a sell discipline that will cut your losses short, you can do well enough to take control of your retirement, rather than just drifting toward it like a canoe heading for the waterfall.

If this seems like a rant, well, I guess it is. I think people have been sold a bill of goods by the financial industry. But you don’t have to just sit there while management fees and inflation let the air out of your retirement party balloon.

Get to work!

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The SEC announced on July 30 that it was extending the ban on naked shorting of the stocks of companies with high exposure to mortgage debt. This included Fannie Mae, Freddie Mac and 17 big investment banks. Shorting is the practice of selling a stock short, i.e. borrowing shares to sell now in the hope that you can buy the stock to pay back later at a lower price.

For instance, if I think American Beanbag, which is selling at 10, is going to decline in value, I can borrow 100 shares for a week (for a small fee, of course), and sell them, pocketing the $1,000. When I have to return the shares a week later, if the stock is trading at 5, I buy 100 shares, pay the $500 and book the $500 (minus the fee).

If, however, the stock goes up, say to 20, I’m on the hook for a $1,000 loss. It’s buying low and selling high in reverse.

Distort and Short

In naked shorting, everything works the same way, except that the person who wants to sell a stock short doesn’t actually bother to borrow the stock. And among the people who enjoy this high-stakes game there are a few who don’t like to leave things to chance. They sell the stock short (naked) and then set about making sure that it goes down.

All you have to do, especially in the world of small, lightly traded stocks, is to start a negative rumor about the company. Among active traders, a little bit of bad buzz about a stock is enough to send them for the exits, which then leaves the naked short artist with a bargain basement price at which to fulfill the contract.

This technique is called “distort and short,” and it can be highly profitable for a trader who knows how to work the financial blogs and drop pearls of poison wisdom into the cups of volatile stocks. If you read stories about the stock-trading legends of the past, you’ll probably run into more than one false rumor floated into the stock trading community with malice aforethought.

The pressure from this kind of market manipulation has only gotten worse with the advent of the Internet, which allows anonymous posting of just about anything on financial blogs and chat sites. A good negative rumor can get around the Internet with astonishing speed. As Mark Twain said: “A lie can travel halfway around the world while the truth is putting on its shoes.”

Or at least the saying is attributed to him. But it could be a lie; after all, I found it on the Internet.


If you’ve been watching the Olympics, you’ve probably been taking advantage of the technology produced by the company I’m featuring today. It’s Axsys Technologies (AXYS), a designer and manufacturer of surveillance and imaging systems for the defense industry. The precision optical systems turned out by Axsys usually go to work on tanks and military helicopters, and in border surveillance cameras and earth-orbiting satellites.

But the Bush administration recently approved the use of Axsys hi-definition cameras on helicopters, boats and ATVs to provide stunning coverage of events from the Beijing Olympics. With high-precision optics and incredibly accurate motion control, the images these cameras provide will knock your socks off.

Axsys camera systems can reportedly detect a man-sized object at a distance of more than 15 miles, so tracking a mountain biker should be a piece of cake.

The company had a bad year for sales in 2006, and the stock has been riding a wave of enthusiasm that followed a huge recovery in that area. Results for Q2 showed earnings up 69% on a 40% jump in revenue, with after-tax profit margins topping 10% for the first time. Institutional ownership is growing, but with just 47 whales on board, there’s lots of room for growth.

AXYS isn’t a perfect stock. It’s thinly traded, which increases volatility, and it’s already up from 16 to 77 in about 15 months, so you need to be very careful about how you buy (preferably on pullbacks and in small amounts) and keep your eyes open for any big-volume selling.

But the most bullish thing a stock can do is go up, and AXYS has shown it knows how to do that.


Editor’s Note: If you like the idea of finding strong stocks in dynamic uptrends--with supportive trading volume--you should take a look at the Cabot Top Ten Report. This weekly publication will clue you in to the 10 strongest stocks of the previous week, their stories, their numbers and their charts. For an aggressive growth investor, it’s like having a GPS unit that locates great stocks. Just click the link below to get started with a no-risk trial subscription.


Paul Goodwin
For Cabot Wealth Advisory


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