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Trust, But Verify

Trusting in yourself is a central tenet when it comes to a solid financial future in the stock market.

Trust in Yourself

Never Doubt What Nobody Is Sure About

Stock Market Video

In Case You Missed It


Earlier this week, a Goldman Sachs employee named Greg Smith, an executive director in the London office, quit the firm in spectacular fashion--a scathing op-ed in The New York Times on Wednesday morning. More than a dozen major media organizations ran with the story, including Fox Business, Forbes, The Wall Street Journal and The San Francisco Chronicle among others.

Smith aired a number of grievances in his article, chief among these the decline of corporate culture at Goldman. He wrote about managing directors calling their clients “muppets” in internal emails (“muppet” is slang for stupid person) and junior staffers caring more about making money than serving clients, among many other complaints about the generally toxic environment.

The story is still making the rounds, especially after Goldman’s PR department fired back by minimizing Smith’s role at the company along with disagreeing with the op-ed’s content in a prepared statement. The statement read in part that Smith’s role is actually that of a vice president (executive director is the U.K. equivalent to VP) and he was the only employee in the equity derivatives division he headed. Despite their spin attempt, however, $2.15 billion of Goldman Sachs’ market valuation vanished in a single day. The stock price hasn’t recovered as of this writing.

Commentary from the rest of Wall Street has ranged from anonymous agreement with Smith to saying that nothing in his op-ed is really surprising. One person interviewed for a piece in The Washington Post on the subject wondered whether “Prostitution in Vegas” would be the next “shocking” headline.

Several other media outlets have blasted Smith for committing career suicide by airing his former employer’s dirty laundry in the most public of forums. Which is interesting because commentary like that skirts the real issue--does Goldman Sachs have its clients’ interests at heart?

That particular question is what brought about my topic for today: Trusting in your ability to make your own investment decisions.

When you hire an investment professional such as a financial advisor or an investment banker, the ideal relationship seems to me a symbiotic one. The investment professional finds a stock or product that will help his or her client reach his or her financial goals, and in the process of doing so will also earn some money.

The suggested reality, on the other hand, is that some investment professionals do not in fact have their clients’ best interests at heart. This is disturbing at best, and downright troublesome at worst especially when you consider someone handling your money might only be planning ways to take more of it from you.

Am I suggesting all investment bankers or financial advisors are like this? Not by a long shot. I remain firmly convinced that most investment professionals do right by their clients, if for no other reason than having a good relationship with their clients is key to their business model.

At the same time, I’m not suggesting you place blind trust in anyone who handles your money. “Trust, but verify,” a saying of former President Ronald Reagan, comes to mind in this situation.

So trust the investment professional you hire--whether it’s a broker, a financial advisor or an investment banker--but at the same time check what they’re telling you to make sure it fits with your own ideas and temperament. And don’t allow yourself for a second to think that hiring a professional to do your investing means you can take a hands-off approach. This is your money after all, and it pays to take a strong interest in how it’s handled.

Taking a strong interest doesn’t mean calling your advisor twice a day. That takes time out of his or her day and doesn’t serve anyone. Rather, I suggest doing independent research. This includes reading fund prospectuses, checking into company fundamentals and looking at historical charts among other things.

Those other things, by the way, may include subscribing to a financial newsletter or two based on your investment strategy and experience level. (I mention experience level because there are some newsletters targeted toward professional traders instead of individuals.) Investment strategy is really the most important deciding factor when it comes to newsletter subscriptions, since investors focused on a long-term strategy have different needs than someone with a short- or intermediate-term strategy.

Other strategies include growth stocks versus value stocks, emerging markets versus developed nations and exchange-traded funds versus individual stocks and large caps versus small caps just to name a few. It’s because of these different strategies that here at Cabot we offer 11 premium newsletters. Our newsletters appeal to growth investors, value investors, options traders, small-cap investors and people interested in dividends to name a few.

Each of our newsletters is written and researched by a team of stock experts with more than 170 years of collective experience in studying the market. We don’t manage money, and we never accept advertising or payment from any company we feature, so we don’t have a vested interest in recommending one company over another.

In some cases, like Dick Davis Investment Digest, we even present the advice of other newsletter writers in a format designed to save readers both time and money. The editor, Chloe Lutts, does that by reading more than 200 financial newsletters every month and culling the very best advice from each. She’s also doing daily pre-market email updates now, so you can get stock recommendations with your breakfast each weekday morning. I highly encourage you to take a look here.

Wrapped up in all this “trust, but verify” attitude is one main idea that’s integral to any successful investing strategy: trusting in yourself. You can research a stock until the cows come home, but if you’re not confident enough to strike ... then there’s no point to investing.



Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

Never Doubt What Nobody Is Sure Of

This button-one of five Contrary Opinion buttons that include the word “doubt"-says you should beware the opinion of the crowd, and vice-versa. In this case, if the crowd is not sure of something (the growth prospects of a stock, for example), yet your own analysis tells you the future is bright, you should have no doubt. Trust your own analysis. The quote is from Willy Wonka & the Chocolate Factory, by Roald Dahl.


In this week’s Stock Market Video, Cabot China & Emerging Markets Report Editor Paul Goodwin talks about the unsettled nature of the market this week after a good run-up for the first few months of the year. However, Paul also talks about how number of shares doesn’t matter, only total exposure does. Featured stocks: Priceline (PCLN), Apple (AAPL), Cummins (CMI), AmBev (ABV), Las Vegas Sands (LVS), Sally Beauty (SBH) and U.S.G. (USG).
Screenshot 3-16-12

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 3/12/12 - Five Delicious Restaurant Stocks

On Monday, Cabot Publisher Timothy Lutts lauded the fact that the world met the United Nations’ Millennium Development Goal of cutting the worldwide poverty level in half five years ahead of schedule. Tim also wrote about five restaurant stocks investors should take a serious look at. Featured stocks: Buffalo Wild Wings (BWLD), Chipotle Mexican Grill (CMG), Domino’s Pizza (DPZ), Starbucks (SBUX) and Yum! Brands (YUM).


Cabot Wealth Advisory 3/15/12 - Investing is a Game of Outliers

On Thursday, Cabot Market Letter and Cabot Top Ten Trader Editor Mike Cintolo discussed how investing success is determined by big winners and big losers, not by the stocks in the middle. Featured stock: Sourcefire (FIRE).

Happy Investing,
Matt Delman
Editor, Cabot Wealth Advisory

Editor’s Note: Investing in dividend-paying stocks is a good way to earn an income from your position without selling shares, but only if you choose the best ones. Click here to get our full list of the 10 best dividend-paying stocks to own in 2012, free with your paid subscription, and turn your portfolio into a cash-generating goldmine.