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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
Right now, the auto industry is presenting a lot of opportunities for appreciating assets in the stocks of companies developing the cutting edge technologies for electrics, hybrid, natural gas vehicles and many others. Most of the truly exceptional opportunities are in companies most people have never heard of, not Ford (F) and Toyota (TM). Two such companies are featured in the August issue of the newsletter I edit, Cabot Green Investor. They are major growth stories that have a lot to do with a bill 77 senators are co-sponsoring in Congress, Indian oversight of taxicabs, and China’s admiration for European air quality.
It’s easy to understand what a leading economic indicator is and why it leads. If purchasing managers are increasing their buying, it’s because their businesses need new equipment to do business with. Increasing consumer confidence will lead to more consumer spending. Simple. Trailing indicators are a little more complicated, and the amount of attention being paid at the end of last week to layoffs, initial unemployment claims and the unemployment rate are a great illustration. As with corporate earnings, how the figure compares to estimates is more important than the absolute number.
Last year, after much soul-searching, I decided to trade in my trusty 1998 Toyota Avalon in favor of a smaller, better-for-the-environment car--2009 Toyota Matrix. According to Toyota, the 1998 Avalon gets 19 miles per gallon city and 27 miles per gallon highway, not bad for such a large car. But the Matrix gets 26 miles per gallon city and 32 miles per gallon highway. At the time, there was no such thing as the Cash for Clunkers program that’s available now. My Avalon wouldn’t have been eligible anyway, as it comes in well above the 18 combined mile-per-gallon qualifying mark. Well the program, which is supposed to run from July 1 to November 1, has been such a hit that it has already run out of funding. Congress has just added an additional $2 billion to the nearly depleted $1 billion the program started with.
An attractive beverage investment for investors who want fast growth is Green Mountain Coffee Roasters (GMCR), which we’ve mentioned here before. Michael Cintolo of Cabot Market Letter is a big fan of the stock; he added it to his Model Portfolio on May 5 at 50, and is now sitting on a 36% profit. Long-term, the key attraction to Green Mountain is its razor blade business model. The recurring income from the disposable K-cups, which make you a cup of coffee for less than 50 cents, represents a very predictable stream of income for the company. If you don’t own it, it’s not too late to buy.
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 Nathan Slaughter, Chief Investment Strategist of the Half-Priced Stocks newsletter at StreetAuthority, about why you should invest in the “Best-Managed Bank in America.” I hope you enjoy it!
Every few months I like to do a frequently asked question (FAQ) issue for Cabot Wealth Advisory. The reason I’m able to do this is that I’m available to subscribers--every editor answers many emails each week, so we have a pretty good idea of what’s on subscribers’ minds. I find the FAQ both makes for a good read and helps me think through some of the most common and intriguing questions out there. A quick note before I start, the answers to these questions are from my growth stock and market-timing perspective. So without further ado, on with the show.
Forget the Dora the Explorer, Hannah Montana and the Jonas Brothers, kids will soon have a new idol to emulate in the form of a new cartoon series starring ... Warren Buffett. No, your eyes aren’t playing tricks on you. The famed billionaire investor is the star of a new online cartoon series aimed at teaching children about financial responsibility. (After the credit crisis, housing market debacle and stock market meltdown last year, it seems like more than just kids would benefit from this series.)
What do you do with a McMansion that nobody wants? I’m serious. There are a bunch of 4,000 sq. ft. (and larger) houses out there that were quite appropriate for a time of growing families, big paychecks and two SUVs in the driveway. For all I know, there are lots of families who still love their super-sized abodes and wouldn’t trade them for anything. But I’ve seen a couple of stories about how much these castles cost to heat in the winter and cool in the summer, and to clean all year long. If people don’t want to pay to heat a place, and cool it, and make the payments on it, they move out and find a bungalow of manageable size. Then what happens to the big one?
Mike Cintolo shares tips based on how the market actually works...as opposed to how many investors think it works.
My stock idea today takes its cue from water. Good old H2O. Water is a daily requirement of all living things, and the earth has a limited supply. So as the world’s population increases, proper management of water resources becomes increasingly critical. And where are both the population and the use of water increasing especially fast? China. So my idea today is a very young stock, which came public on June 24 and just earned a spot in Cabot Top Ten Report.
Carlton Lutts, Cabot’s founder, once said of reading books on investing: “All I’m looking for is one good idea.” Today, I’m going to share with you our editors’ favorite investing books so you can find one good idea of your own. Cabot is housed in an old library, so we’re reminded of great books every day. And while the shelves are mostly gone, the walls of our office are still lined with many hundreds of investing books. Enjoy!
My featured stock today is a health care company that has created its own unique niche. I have studied the company’s sales and earnings trends. I have read about management’s strategies, goals, and plans for the future. I am confident that I could put all my money into this stock, because the outcome is obvious: the stock will be a winner! In fact, I like it so much that it was featured in the May edition of Cabot Benjamin Graham Value Letter, of which I am the editor.
You should focus on the leaders--the stocks that held up well during the market’s five-week correction and have just bolted to new peaks on big volume. But this is also earnings season, so even if you haven’t jumped on board some recent breakout stocks, there should be plenty of opportunity to get on board after some earnings gaps. To review, powerful gaps higher (10%, 15% or more) right after earnings reports usually lead to higher prices. Most investors are afraid to buy a stock that’s just risen 20%, but if that gap comes after earnings, buying at that time is usually your best move.
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.