Three Lessons From 2012

Michael Cintolo of the top performing Cabot Market Letter recently reviewed three key lessons he’s learned or relearned in 2012.

Cintolo says that one of those key lessons involves relying on your investment system when times get stressful. While it is good to have a plan for different scenarios, he says, “obsessing over every scenario is stressful and often counterproductive. We used to have a saying in the office: ‘When you’re confused, turn it over to the rules.’ After all, if you have a system, it’s there for a reason — to rely on it! And by doing so, not only are your decisions usually better, they’re easier to make.”

Cintolo also says that 2012 was a good example of why you shouldn’t get caught in the middle when there’s no strong trend in the market. “Think of it this way — we’ve seen stocks do well, but generally in a three-steps-forward, two-steps-back manner,” he says . “Thus, you want to either sit through all five steps to develop bigger gains, or at least take some off the table after the first couple of steps on the way up.” He adds that until a stronger market trend develops (which he is optimistic could happen in 2013), it’s “probably best to incorporate some partial selling strategies on the way up — say, booking one-third or one-half after you’re up 10% or 15% — or, conversely, practicing patience with winners during a market correction, allowing a few to rebuild bases.”

Top Strategist: Value Doesn’t Matter

While many investors don’t consider a stock without looking at its price/earnings ratio or some other valuation metric, Michael Cintolo of the top-performing Cabot Market Letter says he doesn’t look at valuation. 

“The stock market is a contrary creature; when dealing with growth stocks, you generally get what you pay for,” Cintolo writes in a piece for Nasdaq.com. “It turns out that things like P/E ratios are not great predictors of future growth stock performance. In fact, the vital truth is that many investors are confusing the cart with the horse: Valuation is often the RESULT of great performance, not the CAUSE of it.”

Cintolo explains that during bull markets, thousands of mutual, hedge, and pension funds have to own stocks, and they will focus on “the real leaders that have the best products, the fastest sales and earnings growth and the surest prospects to continue growing rapidly for many years.” As funds load up on those stocks, their valuations balloon, he says. “What causes the buying demand in the first place is the growth, the unique products and the enticing prospects for the future.”

Cintolo stresses that he’s talking about true leaders — stocks like Apple, Netflix, and Lululemon have been in recent years. And he says timing is critical in terms of knowing when the bull market is fading and the big fund investors are bailing.

As for current market conditions, Cintolo likes what he sees. “The market actually bottomed back in early June, but anyone who tried buying strength for the six or seven weeks following that low was burned,” he says. “In my mind, what really transpired was a prolonged bottoming process, where the indexes chopped around (there were an incredible nine swings, both up and down, of at least 4% in the Nasdaq from that June low until the end of July!!) as money very slowly rotated from defensive stocks (tobacco, big telecom) into more traditional growth areas (chips, networking, software, retail, etc.).” He says he’s not “super-bullish”, but he’s not “souring on the market — if anything, the advance has picked up a little steam as the sellers have run out of ammunition.”

Top Newsletter Stays Disciplined Amid Fears

Michael Cintolo, editor of the top-performing Cabot Market Letter, thinks some weak recent economic data may actually be a precursor to an upward move for stocks.

“Anecdotally, we think [this week's] horrible manufacturing report (the first contraction in the sector since 2009) fits well with a bottoming market — you often will see these types of backward-looking indicators produce scary readings near turning points,” Cintolo said, according to MarketWatch. “That’s not a prediction, just an observation.”

Cintolo said he’s “not ready to jump in with both feet quite yet” when it comes to the stock market. His advice: “Sit tight with about half your portfolio in cash, and half in leading stocks. Last Friday’s huge market rally was very encouraging and puts our Cabot Tides back on steadier footing. We’re optimistic, but we’ll sit tight with our current crop of six stocks for now … watching them and many others closely; if the market’s recent upmove continues, we’ll likely extend our line in the days ahead.”

MarketWatch’s Peter Brimelow also offers a look into Cintolo’s strategy, which relies on fundamental and technical analysis and several moving averages — and a lot of discipline. In a recent letter, Cintolo asked rhetorically whether one should get out of the market amid all the economic fears. “Not us!” he said. “Instead, our advice is to do what we always do … follow the system. Today, that might feel more like riding a bucking bronco…but, while we’re all following the world’s news and rumors (and seeing the market react to them) on a daily basis, it’s a good time to remember the rubber-meets-the-road principle of growth investing — namely, that the big money is made in the big swing, by owning big positions in the best leading growth stocks during a major bull move.”

Discipline Crucial, Top Newsletter Editor Says

The Cabot Market Letter is having another market-beating year, and its editor is preaching discipline amid the current market volatility.

“Going forward, it’s important to remember to take your cues from the market itself, and not from the headlines that are sure to push the market up and down in the days ahead,” Michael Cintolo recently wrote to subscribers, according to MarketWatch’s Peter Brimelow. “The goal is to preserve most of your capital today, so that you can make that much more once a new uptrend truly gets underway.”

Brimelow says Cintolo showed his discipline over the past week. On Sept. 21, Cintolo and Cabot said they’d be putting part of the Market Letter portfolio’s substantial cash position back into stocks, as several of its medium-term timing indicators flashed a “buy” signal. (Cabot uses a mix of fundamental analysis and a disciplined market-timing system that focuses on moving averages.) When the market tumbled Thursday, however, Cintolo said that Cabot’s timing system went back into bearish territory. Cintolo stuck to the system, and Cabot quickly sold some positions and downgraded others in its model portfolio, according to Brimelow.

Cabot’s track record is excellent. Over the past decade, its Market Letter portfolio is up 7.56% annualized vs. 3.67% for the dividend-reinvested Wilshire 5000 Total Stock Market Index, Brimelow says. Over the past five years it’s been even better, gaining 13.17% annualized vs. 1.28% for the index.

Top Timing Newsletters Bullish Heading into 2010

As the new year approaches, the investment newsletters with the best track records of success in both up and down markets are on the whole bullish, MarketWatch’s Mark Hulbert notes.

According to Hulbert, the average recommended exposure to the domestic equity market among the newsletters making his 2010 “Honor Roll” is 82%, significantly higher than it was last year at this time, when the average was just 63%.

Hulbert’s “Honor Roll” is comprised of newsletters that have a market-beating track record in both and up down markets — criteria that only about 12% of the newsletters he tracks meet, he says. “The services that have made past years’ Honor Rolls have proceeded, on average, to outperform those that failed to make the grade,” he notes.

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Top Newsletter Editor: Trend Is Still Up

Michael Cintolo of The Cabot Market Letter — which has an excellent track record over the past decade — says that the stock market for the moment remains range-bound, but that investors should stay bullish.

“The market continues to trade in a very tight range, though stocks have been ‘leaning higher’ in recent days, a possible sign that the buyers want to push the indexes to new highs before year-end,” Cintolo writes in Cabot’s Top Ten Report. “Whatever the market’s exact path, our main thoughts are unchanged: First, the overall trend is up, but second, the environment has become very choppy.”

Cintolo recommends that investors “remain bullish, but try to buy on weakness or after a few weeks of tight action.”

All Indicators Now Bullish for Top Timing Newsletter

Two weeks ago, we highlighted how The Cabot Market Letter — one of the best-performing newsletters of the past decade — was turning bullish on stocks. Now, in the newsletter’s most recent edition, editor Michael Cintolo writes that “every one of our market timing indicators has now turned positive. … In short, the stage is set for a great profit-making bull market.”

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