Search

Last year one of the market’s biggest winners was Crocs (CROX). Most people just call them plastic, but we made a lot of money in the stock, and therein lies an excellent opportunity for a lesson in Romance, Transition and Reality.

So which book leads to the investment idea, the book by the dreamers or the book about the doer? There’s no surprise here; it’s Carnegie, the doer. Because today’s idea is about steel and iron ore, once again in great demand by the world. For Carnegie, demand came from the expansion of the American railroad system. For this company, demand comes from the global building boom, particularly in Asia.

Microsoft wants to pay $44 billion - perhaps the largest technology purchase ever - to buy Yahoo! Why? To compete with Google! But does it make sense? Well, from a big-picture point of view, anything that can thwart Google’s dominance of Internet search and advertising probably makes sense for Microsoft, and if they’ve got the cash, there are worse places to spend it. But does this make for an attractive investment opportunity? Do you want to own a piece of Microsoft/Yahoo!, recognizing that the Microsoft part is eight times the size of the Yahoo! part?

Every now and again I like to do a question and answer issue of Cabot Wealth Advisory--we editors at Cabot spend hours each week answering subscriber questions, so we have a large pool to choose from. I think it’s a good idea to share some of these questions with everyone, as much can be learned from a good question and a good answer.

Solar power is one of my top investing concepts for the years ahead. I think solar (along with other alternative energy sources) will gain increasing market share in the years ahead. As costs of fossil fuels rise, the still-high costs of solar power look less prohibitive, especially when various tax credits are factored in. The increase in manufactured volumes means costs are coming down, particularly for the manufacturers that don’t use silicon.

Today’s investment idea is in the biotech field. I’m stuck on these stocks for several reasons. One, they’re strong. Two, many actually boast growing earnings trends. Three, the group has failed many times in past decades to put together a lasting advance, so maybe now is the time. Four, there will be tremendous demand for health-improving products as baby-boomers age; biotechnology offers the best chance we have to stay healthy.

Cabot Benjamin Graham Value Letter, launched in 2003, uses the teachings of Benjamin Graham, the father of value investing, in a system that safely builds long-lasting wealth. Unlike Cabot’s growth publications, the letter doesn’t use market timing, instead relying on a 76-year-old system, followed by investors such as billionaire Warren Buffett, to pick undervalued stocks and hold them as they reach a specified valuation.

Oil billionaire T. Boone Pickens recently dropped a campaign to push for the adoption of wind power on a large scale because he’s in the process of building the word’s largest wind farm in the Taxes panhandle. When the oil barons start going Green, you’d better take notice. Today I’m going to evaluate some stocks that might benefit from this endeavor.

One of the most important investing lessons—letting winners run and cutting losses short—is often the downfall of investors. Many disobey this rule, leaving them with a portfolio of losing stocks. Novatel Wireless (a losing stock that had to be cut) and First Solar (a winning stock that’s been allowed to run) are used to illustrate this lesson.

I’m a big believer in heroes. They remind us that something can be built from nothing, that victory can be snatched from the jaws of defeat, that we should aim high, and that we should never give up. One of my heroes, John Marks Templeton, passed away last week. John was a pure value investor, with a very long-term perspective and an appreciation of global markets.

The publication that would become Cabot China & Emerging Markets Report was first published in March 2004 under the name Cabot’s China Investor. The editors at Cabot saw the huge growth potential in China and it has paid off in the years since. In 2006, the name was changed to Cabot China & Emerging Markets Report and the publication expanded its focus to include other strong emerging markets.

Throughout the 13 years he was steering the Magellan Fund, Peter Lynch became known for his philosophy that you should invest in what you know. Buying what you know has long since become a bit of Gospel among a large segment of investors--after all, if it worked for Peter Lynch, it should work for you. But it can taken too far, such as when you invest in a company without checking out its management and chart.

Prohibition led to the system of alcohol transport that persists today, a system dominated by distributors and the states, which are primarily concerned with taxation. This makes it difficult for small vineyards to ship wine around the country. On the investment front, my advice today is to put your money into one of the distributors. After all, they’ve got the power and you can benefit from it as an investor. But the distributor I like is not in the U.S.; it’s in Poland and Russia.

At the root of creative destruction, according to Joseph Schumpeter, are entrepreneurs, some laboring as individuals and some as employees of forward-looking firms, but all possessing a spirit of innovation that drives economic growth forward by improving on and “destroying” the old. And if the old is a hide-bound, monopolist entity or system that has long been a barrier to progress, so much the better.

We admire people with the courage of their convictions, those who know their own minds and don’t waver. It’s a good thing to be called tenacious, persistent, tough, steady or steadfast. A good thing, that is, if you’re not a growth stock investor. The rules say that growth investors should stick with a winning stock for as long as it rises. The problem comes when a stock starts to lose value but the investor has faith in the stock and demonstrates that conviction by holding it all the way to financial disaster.

We get a lot of questions from our subscribers, often the same question many times. So today we’re answering some of our most common inquiries. These are questions and comments that can help all investors better understand not just how we invest, but also some important principles that will quickly improve your skills.

While the Opening Ceremony of the Beijing Olympics wowed many, revelations about the accuracy of what viewers saw has somewhat soured the event. Questions about the ages of the girls on the Chinese gymnastics team have also clouded the athletes’ gold medal win. Fairness has always been an issue at the Olympics, but this year, the host country is attempting to prove itself to the world. It’s all about deception and perception at these Games.

The moment of maximum hopelessness marks the start of the next bull market.

We know that every bear market is followed by a profit-making bull market, and today I’m watching very carefully as the old bear market that very likely ended on July 15, is replaced by the next bull market. What you don’t want to do as the new bull market gets under way is be stuck holding the winners of the last bull market. You want to be holding the winners of the new bull market ... and the best way to do that is to keep an eye on the new highs list.

I have gone from great success to less success and back to great success (relatively speaking--I’m not able to compare myself to Warren Buffett--yet). The up, down, up cycle of life can be compared to many of the stocks that pop up as undervalued opportunities in my research analyses. I concentrate on companies with temporary setbacks, where management is taking action to correct the problem and get the company back on track.