Please ensure Javascript is enabled for purposes of website accessibility

Stock Market

Investing in the stock market has always been an effective way to build wealth. In fact, it’s consistently proven to be the most effective wealth generator over the long term.

And, with persistent inflation an ongoing issue and the Federal Reserve poised to cut rates sooner rather than later, investing in stocks may be one of the few places investors will be able to generate consistent, inflation-beating returns for their savings.

Of course, stock market investing comes with more risk than a safe, low-yield savings account. Inevitably, not all of your investments will be winners.

In investing, no one really knows for sure what’s going to happen. Over time, however, stocks tend to rise. History tells us this. Since 1928, the average annual return in the S&P 500, the benchmark U.S. stock index, is 10%. So historically, a well-diversified portfolio of stocks should allow you to just about double your investment once every seven years.

Now, there are periods where returns in the stock market underperform the average. Every few years we encounter corrections and bear markets, as we did in 2022 and 2018, and the years after the Great Recession and dotcom bust.

But over a longer time horizon, those off years are more than offset by the performance in bull markets. If you invested in the S&P 500 at the beginning of 2014 and simply held that investment, you would have weathered the 2018 correction, the pandemic sell-off, and the 2022 bear market. And you’d have generated 16.5% annual returns.

You wouldn’t think that, with a correction, a pandemic and a bear market, the last decade would be anything to write home about, but those numbers speak for themselves. Despite the fear and negative headlines, investing over the last 10 years has beaten the historical average by more than 50% each year.

But, of course, your return would have depended on what stocks you actually bought. Take General Electric (GE), for example. GE is an iconic American company. As recently as 2009 it was the largest company in the world.

But had you bought GE at the beginning of 2014, you would have lost 0.7% every year, and that’s assuming you reinvested your dividends. Without dividend reinvestment, your returns would have been even worse.

That kind of unpredictability scares some people away from investing in the stock market. The track record over time should be enough to convince you otherwise.

The stock market is a vast and ever-evolving place, and there are many ways to approach stock market investing.

Want to invest in safe companies that offer a steady stream of income? You’re probably a dividend investor.

Are you willing to take on a bit more risk to go after bigger, faster rewards? Growth investing is likely for you.

Value investing is for investors who like to bargain shop.

Options trading is for those who like to invest based on statistical probabilities. And so on.

At Cabot Wealth Network, we have something for every investor. Our investment advisories cater to a variety of risk tolerances and timetables, depending on your preference. Since 1970, we’ve been helping investors of all experience levels achieve market-beating returns, helping our readers double their money more than 30 times over.

When done right, investing in the stock market can be a hugely profitable endeavor. For more than a half-century, we’ve been helping investors maximize those profits—and hope to continue doing so for another 50 years.

Stock Market Post Archives
One of my favorite stocks is in the technology industry, where we often find great growth stories in bull markets. Its name is Rackspace Hosting (RAX), and its business is simple; it delivers enterprise-level hosting services to businesses of all sizes all around the world. The company first came to my attention when our IT director selected it as the site for our Cabot server about two years ago, a choice that has proven wise. Rackspace differentiates itself from the competition--in an industry that risks commoditization--by promising “Fanatical Support” to its customers ... and delivering.
This week marked the first anniversary of our blog, The Iconoclast Investor, and I want to thank all of our loyal readers for making it such a great first year! I love having an interactive outlet for Cabot’s investing advice and really enjoy reading your responses to our posts. We’ve grown a lot in the last year and plan to keep growing in the future. Since Cabot launched the blog last July, we’ve guided you through the bear market and into a new bull market with our detailed stock chart analyses (the blog has visual aids) and ongoing commentary on the state of the market. You’ve responded by writing some very insightful comments and starting a lot of great discussions.
Oil and gasoline prices, as you likely have noticed, have been easing lately, even as we’re in the midst of what energy industry hands call “the summer driving season.” I bring up gas prices because as editor of the Cabot Green Investor, I have noticed that there is a fairly popular--and false--idea about the correlation between gas prices and Green stocks. The idea is that as the prices of oil products drop, there must be a decrease in interest in hybrid cars, solar panels and the like. I contend it’s false for one simple reason: the daily fluctuations of a commodity aren’t going to affect whether someone chooses to go ahead with a capital intensive purchase of a geothermal heating system or an electric car. Yet some people trade Green stocks each day against the price of oil, surrendering longer-term gains.
China is a country that, as we all know, is changing fast ... but is still misunderstood. While writing the title of this column, I was tempted to use the word xenophobia, meaning fear or contempt of strangers or foreign peoples. But the word I want (which appears not to exist) means, “underestimating the power of the people of a foreign country.” Because when it comes to China, I fear that’s exactly the mistake most Americans are making today. To the vast majority of Americans, China is, first and foremost, a Communist country. Americans “know” Communism is the wrong way to go. However, for the past quarter-century, the Chinese economy has grown at an average annual rate of 10%.
Recently, we held our very first Cabot essay contest and the response was incredible! We received lots of insightful, well-written essays from you, our readers, and after selecting four finalists, we asked you to choose your top pick. The final results were too close to call, resulting in a tie between Essay #1 and Essay #4. Congratulations to the two winners! I’ve re-printed the two winners’ essays below with some comments written by those of you who voted. I hope you enjoy reading them as much as we did. Thanks to everyone who submitted essays and voted for their favorites--you helped make this contest a great success!
Do you believe in experts? I do, although I think you have to choose them very carefully and take their advice with a grain (or a whole shaker-full) of salt. I like the idea that someone who is familiar with the history, dynamics or people of a country, market or conflict stands a better chance of giving good analysis and advice than some random guy on the street. Like most people, if I’m sick, I go looking for a doctor, not the next jogger who comes by. You’d think everyone would believe in experts. Most of us do research before we make an important decision, so why wouldn’t we listen to someone who’s been doing research for months or years?
The recent worries about the economy have led to some weakness in the overall market, especially the commodity stocks. As of mid-day today, the Oil Services Holders (symbol: OIH) is down 21% from its June peak, the Energy Select SPDR (symbol: XLE) is off 22%, and the Market Vectors Agribusiness (MOO) is off 15%. And many individual coal and shipping stocks have been pummeled. To me, though, these stocks aren’t down because of economic fears. Instead, I believe it’s just the “off-the-bottom” phenomenon--that is, when stocks that have fallen 80% or 90% during the past year begin to rally, it can be exciting and fun for a while ... but it rarely persists for longer than a couple of months before things peter out.
Note from Cabot Wealth Advisory Editor Elyse Andrews: Occasionally, we bring you articles from outside sources that we feel you will be interested in and benefit from. Today, we have an article from Carla Pasternak, editor of the High-Yield International newsletter at StreetAuthority about how investing abroad can increase your income. I hope you enjoy it!
Last week, the market told us that investors in medical stocks are afraid that Obama will pull the rug out from under stocks in an attempt to reduce the country’s health care bills. They’re dropping some of these stocks--especially drug stocks and medical device stock--just like they were dropping financial stocks a year ago! But there is one sub-sector of medical stocks that’s still attractive, and that’s the companies that are expected to help rein in those medical costs in the future. One of them is Express Scripts, the company that provides pharmacy benefit management services to managed care organizations.
Instead of writing a regular issue today, I’m bringing you the top four essays from our recent contest, “How I Lost Money in the Bear Market and What I Would Do if I Had Another Chance.” Our thanks to all our readers who submitted entries -- I thoroughly enjoyed reading your reflections.
Taking control of your financial life can be very rewarding, if you’re willing to take the responsibility for your own investments. You can make great strides, and at the very least you won’t be just another passenger on a boat that’s being steered toward the falls by a captain you don’t even know. So, resolve to pay the investment charges and management fees to yourself and steer your own course. If you decide to do this, it takes time and effort. You need to do your homework, and it’s good to have an ally in the process.
Intel was once a superb investment. If you had bought $10,000 of INTC at the end of 1974, the year Craig Barrett joined the company (three years after the IPO) you would have had about $18.5 million at the stock’s peak in 2000 ... or nearly $4 million today.
I’ve discussed the tumult plaguing the newspaper industry several times recently and after today, I’ll let the topic rest unless something noteworthy happens. But first, I want to share a few more of your letters because they express some ideas that haven’t been voiced here before. Thanks to everyone for writing in, I appreciate you taking the time to share your insights with me and your fellow readers. To read all of the past issues I’ve written about the newspaper industry and see how others responded, go to our Web site archives. If you haven’t shared your view yet, you can do so by sending me an email or commenting on our blog.
I bank at one of the larger banking institutions in this country and have kept my account there for a number of years. My loyalty has been tested lately, though, on more than one occasion. My problems, though, are minor compared to bank customers who have over-borrowed and cannot keep up with the required payments on their credit cards, loans, or mortgages. And therein lies the crux of the entire problem. For the past 25 years, consumers have been borrowing too much so they can enjoy the good life. State and local governments have been borrowing too much so they can provide more and more services. And now the U.S. Government is running huge deficits to help prop up a troubled banking system and a sinking economy.
While every investor knows the terms bull market and bear market, every investor seems to have a different definition of each. Some people consider any period of rising prices a bull market. Others require that prices generally rise for a certain time--maybe six months--to be called a bull market. And of course there’s the popular (though highly flawed) view that any 20% move up in an index represents a new bull market, while a 20% decline constitutes a bear market. Adding complexity to these simple phrases is the cyclical versus secular debate. Simply put, a secular bull market is one that supposedly lasts many years or even decades.