But most investors have no idea how to do that except by investing more conservatively—and that’s counterproductive if your main goal is growth.

Today’s column, therefore, is dedicated to addressing ways to improve your investing system—without giving up the potential for growth.

Practice Market Timing

Academics will tell you it can’t be done—but they’re wrong.   We’ve been doing it for more than 40 years, and the proof that it works is that Hulbert Digest, which tracks the performance of most major investment newsletters, ranks our flagship Cabot Market Letter the fourth most profitable over the past five years. Specifically, while the Wilshire 5000 gained 1.3% annualized over the past five years, Cabot Market Letter gained 10.9% annualized, and did it with just 90% of the risk!

The key to market timing, of course, is being less heavily invested when the market is falling and more heavily invested when the market is rising.

To do that, we use three main market-timing tools.   They are:

The Cabot Trend Lines, which illustrate the long-term trend of the market with the 20-week and 39-week moving averages of the S&P 500 and the 20-week and 30-week moving averages of the Merrill Lynch 100 Tech Index.

The Cabot Tides, which illustrate the intermediate-term trend of the market with the 25-day and 50-day moving averages of five indexes: the S&P 500, the ML 100, the NYSE Composite, the S&P SmallCap 600 and the Nasdaq Composite.

Cabot’s Two-Second Indicator, which monitors the health of the broad market by tracking the changes in the number of stocks on the NYSE hitting new highs or new lows every day.

It’s not a perfect system; there are none. But it does guarantee that we are able to catch every major bull move while sidestepping every major decline.

For details click here.

Practice Diversification 

Most investors know it’s unwise to keep all your eggs in one basket. At Cabot, we recommend owning as least five stocks; 10 is generally better.

But less well known is the value of diversification by time. To illustrate: I received an email last week from a man who had recently become a subscriber of Cabot Stock of the Month, and who, after receiving his first issue, bought three of the stocks recommended there.   Well, he’s now lost money in all three, due first to the fact that the market has dropped in the brief time between his buys and now, and second to the fact that he bought the most aggressive three.   It would have been better to spread those buys out over time, to reduce the impact of market fluctuations.

Buy Stocks When the Risk/Reward Ratio is Best

For value stocks, such as those recommended by Cabot Benjamin Graham Value Letter, this is simply a matter of buying when a stock is below its Maximum Buy Price.

For growth stocks, however, it’s trickier.   From a market perspective, the ideal time is in the early stages of a strong bull market, which is supported by increasing levels of investor confidence. From a long-term stock perspective, the ideal time is when the stock is still young enough that it’s not yet well known, but mature enough that it’s rapidly gathering institutional sponsorship. From a short-term stock perspective, the ideal time is after a high-probability technical set-up, many of which are illustrated every Monday in Cabot Top Ten Trader.

For more, click here.

Cut Losses Short

This doesn’t apply to value investors. If they’re well diversified, they can sit through small losses, confident that in the long run, the stock will reach its full value. Growth investors, however, must be vigilant, remembering that a small loss can easily grow into a big loss. Cabot uses numerous technical tools for achieving sell signals, including moving averages, relative performance lines and volume clues, to name a few, and you can read about them all in the education section of our website. Rest assured that the simplest is the best, “Cut losses short.”

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–

Moving on, I want to talk about my favorite stock, Tesla Motors (TSLA), which I last wrote about here nearly three months ago, on February 20.   You can read that article by clicking here.

Tesla Motors is in the business of designing, manufacturing and selling revolutionary new cars, which are powered solely by batteries.

It’s headquartered in Palo Alto, California. It’s managed more like a high-tech company than an old-school automotive company.   And its results so far have been terrific.

First the company sold more than 2,250 Roadsters, two-seat sports cars priced at roughly $110,000 each. The total production run of these cars will be 2,400, and the remaining vehicles will be sold in Europe and Asia.

Along the way it signed agreements to build powertrain systems—including lithium-ion batteries—for both Toyota and Daimler AG. That’s a great testament to the quality of Tesla’s engineering and I believe these agreements (and more like them) are likely to last for many years, given that Tesla’s technology is patented.

But the center attraction (for now) is the Model S, a car designed to compete with the mid-level luxury sedans of the leading German manufacturers, Mercedes-Benz, BMW and Audi. Priced at roughly $60,000 (and up) it will seat five adults and two children, will go as much as 300 miles on a single charge, and will blast from 0-60 MPH in 5.5 seconds.

After that will come the Model X, a crossover/SUV with showy but practical falcon-wing doors that is also expected to sell for $60,000 and up.

Eventually, the company is likely to move to higher-volume lower-priced cars for the mass market, as its technology improves and economies of scale make it practical and profitable at lower price points—and it will be interesting to see how low Tesla’s management will go.

In any case, the big news last week, when management revealed its first quarter results, is that Model S deliveries will begin in June rather than July, a full month ahead of schedule!

This is an astounding achievement for a high-tech business doing such revolutionary work, revealing an impressive level of professionalism and perfectionism. Dare I say Tesla is the automotive equivalent of Apple?

Additionally, we learned:

That the company has taken more than 10,000 deposits for the Model S.

That the Model S may be “the safest car on the road” once it completes crash testing.

That the Model S is likely to get a mileage rating of 89 MPGe. (That’s miles per gallon equivalent.

That gross margins of 25% are expected in 2013.

That a major announcement about charging infrastructure is likely in July.

That there will be nearly 30 stores by year-end.

And finally, that Tesla will begin repaying its U.S. loans by the end of 2012, making it the first automaker to do so!   This is big. To recap, in 2009, the Obama administration awarded Advanced Technology Vehicle Manufacturing loans to Tesla, Fisker, Ford and Nissan to create jobs and spur development of cars that used less gasoline. The loans must be fully repaid within 10 years.

Fisker has failed to meet some milestones, and been blocked from receiving the remainder of its funds. Ford and Nissan will presumably repay theirs eventually. But Tesla will repay its loan first, and in the process tell investors its positive cash flow is expected to be ample.

Some of that cash flow will come from Toyota.   Details are unknown, but $100 million is the value of the current agreement and part of that will be satisfied by the powertrains incorporated in the Toyota RAV4 EV, promised for late this summer.   Sadly, the vehicle will be priced at roughly $50,000, roughly double the price of a gasoline-fueled RAV4. Furthermore, Toyota expects to build just 2,600 of the cars in the next three years or so, and sell them only in California, proof that Toyota’s goal is to appease regulators rather than delight customers.

Tesla, on the other hand, is totally focused on delighting its customers. (The fact that its cars are totally electric means they automatically delight regulators in California, as well as Norway, Switzerland, Netherlands and Denmark, where government tax policies favor electric cars.)

The fact that 10,000 deposits have been received (without traditional advertising and without dealer incentives) tells you many consumers are already impressed. But the “moment of truth” will come when the first Model S cars are delivered, and when the first cars are driven by and reviewed by automotive journalists. That day will come soon, and based on the fact that the company has achieved every one of its goals so far, I expect these journalists to be delighted.

One final note about the company. Unlike most traditional car companies, Tesla doesn’t have an adversarial relationship with a dealer network. Like Apple, it owns its own dedicated stores, and every worker in those stores there is an employee of Tesla. And the cars (just like iPads) have prices that are precise and non-negotiable, which most consumers find much more enjoyable than haggling over price and then leaving wondering if they’re been cheated.

So far, I’ve focused on the company. Now let’s look at the stock, remembering that the two are distinct entities.

TSLA came public nearly two years ago at 17, and now it’s trading at 31. So far, so good.

In fact, that performance is substantially better than the stock of General Motors, which the federal government sold back to investors at a price of 33 a few months after Tesla came public, and which is now trading at 22, down 33%.

Yet TSLA is still unloved by the vast majority of investors, if not unknown.   Skepticism is rampant.

Why? Because most investors run spreadsheets that look at traditional measures of value, like earnings and stock valuation, and by those measures, TSLA is a disaster waiting to happen. After all, the company has never made a penny and its stock is valued at $3.53 billion, one-tenth the value of GM.

Also figuring into most investors’ reasoning are the problems experienced by other manufacturers, from Fisker (technical troubles, layoffs, the government loans), to Chevrolet (the Volt has had technical troubles and production has been cut because of slow sales). They tar Tesla with the same brush, even though Tesla has made no mistakes yet.

But the simple fact is that most investors are avoiding TSLA because most investors have a difficult time imagining a revolutionary future, and most investors fail to appreciate the power of romance to move a stock.

The revolutionary future in this case revolves around the electric car, which never needs to stop at a gas station, which needs far less maintenance than a gasoline-fueled car and which serves its owner well if it is simply plugged in each night, just as I plug in my iPhone.

And the role of romance means that valuation measures are irrelevant (yes!) in a growth stock’s early phases. You can understand this by considering potential money flows.

In this case, you have an automotive industry valued at roughly $650 billion. Heading the list are Toyota at $140 billion, Volkswagen at $64 billion, Honda at $62 billion and Daimler at $54 billion, followed by Nissan at $44 billion, Ford at $40 billion, General Motors at $34 billion and finally Tata Motors at $17 billion.

Little Tesla is valued at just $4 billion—and that looks high if you simply consider that the company’s revenues in the past 12 months were just $185 million.

But it looks low if you consider the company’s growth potential together with the ability of that $650 billion to shift from one investment bucket to another rather quickly.

All those established manufacturers, you see, are owned by thousands of institutional investors. These investors are a conservative, fearful group, conditioned by the shocks of the economic implosion of 2008 and the weak rebound since.

As a group, they tend to pay more attention to risk management, and many have given up on the prospects for real growth in the industry.   But as they see Tesla selling tens of thousands of cars, and turning very profitable very quickly, I think their eyes will be opened. Recognizing the growth potential of Tesla, they’ll bite the bullet and invest “a little” despite the stock’s high valuation.

How much is a little? Well, if it’s just 1% of their investment in those old automotive companies, it would amount to $6.5 billion, or more than twice Tesla’s valuation today!

In short, when TSLA is recognized as the best-managed, most profitable (per car) and fastest-growing major automobile company, every investor in the industry will have to buy in.

My suggestion to you is to invest before they do.

Better yet, take a subscription to the newsletter I edit, Cabot Stock of the Month, to get regular updates on this stock, and other great stocks as well.

To learn more, click here.

I encourage you to click here and take advantage of the portfolio that gained 10.89% over the past five years versus 1.33% for the Wilshire 5000.

–

If someone asks me what the toughest part of investing is, I always mention the usual suspects, such as dealing with earnings season, getting stuck in a thinly-traded stock that’s falling rapidly or the vicious ups and downs we’ve all experienced during the past few years.

But after all that, I always talk about the “silent killers,” which in my opinion are what really do you in over time.

What are these silent killers?  They all revolve around stuff that you don’t do.

For instance, when you buy a stock and it immediately falls apart, that’s an obvious mistake—you likely misread the stock’s pattern or mis-timed the overall market.

However, less quantifiable is the stock you didn’t buy—you might have missed out on three of the big leaders of the market and, because of that, you found yourself owning some second-rate names.

You can flip it around as well.  It’s obvious to every investor when they make a mistake on the sell side; you sell a stock at 50 and, within minutes, it begins to rally and a month later it’s at 60 … and you agonize every point on the way up.

What’s less obvious is the stock where you misplaced a stop, setting it too loose—maybe the stock fell through its 50-day line and you held on for a few more days or weeks, eventually selling a few points lower than you should have.

I’m writing about this today because, with the market temporarily down and out (more on that below), now’s a good time to take a couple of hours over the weekend and review your performance year-to-date.  While it’s always important to do a year-end review, I like to periodically do some post-op analysis when the market is down and I have some cash on the sideline.  Why wait until year-end to make adjustments?

Anyway, if you do take up this task during the next weekend or two, be sure to account for these silent killers, and try to come up with some rules to correct them.  I’m convinced that most investors never correct for these, and that’s the main reason they continue to struggle.

On the first front—missing out on a big winner—the thing to remember is that any good system has a method to get you out of a trade if it goes awry (your loss limit will kick you out for a tolerable loss), but very few systems have a method of getting you in if you “miss out” on a proper buy point in what turns out to be a big winner.

Thus, the goal is to figure out something that will give you a shot at both: getting into a big winner initially (possibly buying a smaller-than-normal position if the stock is extended to the upside) and holding on to a big winner once you have it (possibly by doing some offensive selling on the way up, or by setting it aside mentally and giving it more rope than usual).

On the sell side, when it comes to setting stops, the real key is making sure your overall risk is in line with what you can stand.  It’s one thing to set a loose stop to give a stock room to breathe, but it’s another to have the stop so far down on the chart that the stock will be broken long before it hits the stop.

Basically, these silent killers aren’t much different than “the one that got away” in real life—that house you didn’t buy, that job offer you decided not to take or the girl you didn’t ask out.  In real life, people tend to remember (even obsess) about these moments, but when it comes to stocks, most forget about them.  My advice is:  Don’t!

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–

Now on to what everyone is curious about—the state of the current market.  The market’s correction that began in early April continues, and I have to be honest; it’s been a bit deeper and more painful than I would have guessed a few weeks back.  I’m not referring so much to the major indexes (which are down 5% to 7.5% from their peaks) but to leading stocks, which were absolutely lynched from last Thursday through Tuesday of this week (May 3 through May 7).

The question is where stocks go from here.  I offer no predictions, but after the damage this week, I would say there’s a 30% chance that the panicky selloff this week will mark a sustainable low to this five-week correction … but more likely, a 70% chance that the market needs more time to repair the damage that’s been done.

Remember that when it comes to individual stocks, names that break down on huge volume have fallen off a motorcycle at high speed.  When that happens, the rider doesn’t just get up and keep riding; he needs some time in the hospital recuperating.  It’s the same with stocks, which need time to quiet down and ready themselves for new upmoves.

The good news is that it’s easiest to isolate strength when everything is falling apart.  So the main goal now is to keep an eye on stocks that (a) have found support at or close to their 50-day moving average, (b) are showing some big volume buying of late, telling you big investors are using weakness as a buying opportunity, (c) have reacted well to earnings in recent days or weeks, (d) have a growth story that you really believe in and (e) have enough liquidity (average daily dollar volume traded) to allow big investors to take positions.

One name I’m keeping an eye on is Ariba (ARBA), a small company with a huge story—it’s basically the eBay or Amazon of business-to-business commerce, with thousands of companies using the firm’s software and e-commerce network to cut costs or expand their base of buyers.  Here’s what I wrote about the stock in Cabot Top Ten Trader back on April 30:

“Even in today’s world of smartphones, tablets and high-speed networks, most business commerce is still conducted manually and with paper invoices and payments.  Ariba is changing all that, aiming to be something of a business-to-business eBay or Amazon;

the company bills itself as the world’s leading business commerce network where firms of all sizes can connect to their suppliers online.  It’s a win-win for everyone involved—purchasers save money and gain visibility, suppliers benefit from a huge and expanding base of buyers, and Ariba makes money from all of them through subscriber fees and per-transaction earnings.  The potential going forward is truly enormous; Ariba’s network handles $300 billion of transactions every year, but that’s just 10% of what its current customers spend in B-to-B transactions, so even if no new customers are inked there’s still plenty of upside.  (The goal is to get to $1 trillion in the next five to six years.)  We see no reason why it can’t get there, as the company is the leader in just about every B-to-B segment (sourcing, procurement, invoice management, working capital management, etc.), and it’s already a global player, with about 40% of revenues coming from outside North America.  Of course, there’s always a fear that if the global economy sputters, so will business spending, but last week’s quarterly report showed that, if anything, Ariba’s business is accelerating as subscribers and network activity pick up.  We like it.”

The stock had a great run from 2009 to 2011, but then built a 10-month base during the second half of 2011 and the first four months of 2012. The company’s first quarter report changed that, with the stock catapulting from 35.5 to 39.5 in one day on one of its heaviest volume days ever.

Thus, looking at our criteria above, ARBA has remained above its 50-day line since early March, saw great volume buying of late (it’s also hovering near its highs despite the market’s decline), surged on earnings and has a big story that has plenty of growth ahead of it.

As for liquidity, the stock averages about $40 million of shares per day—a bit light, but it’s been heavier since the company reported earnings, and I’m thinking ARBA might be “growing up” as institutions take positions.

You could buy a small position (maybe one-third or one-half of what you would normally purchase) up here, but for my part I’m just watching and waiting for the market’s intermediate-term trend to turn back up.

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–

I don’t typically write about failures in these columns. The mass media gives you enough bad news.

But today I’m making an exception. Today I’m going to analyze five once-popular stocks that hit new lows last week.

Why?

To teach you a lesson, of course. Typically, we learn best from our own failures, but that can get expensive in this business. So instead, we’ll try to learn from the failures of others.

In alphabetical order, then:

Ctrip (CTRP) was once touted as the Expedia of China. Smaller and faster-growing, the company racked up a perfect 10-year record of growth of both revenues and earnings. Cabot Top Ten Trader did very well with the stock in 2009.

But the stock’s upward momentum slowed and eventually reversed, and in 2011 there were several technical signs to exit; the chart made lower highs and lower lows, and there were gaps down in May, July and November. If you had sold after the first gap down, you would have sold at 44; if you waited until the second gap down, you would have sold at 40. And if you’d waited until after the third gap down, you would have sold at 30.

Lesson: A huge gap down, especially on earnings, is never a good thing; it’s a strong suggestion to sell. CTRP is now trading at 20, earnings estimates are being reduced and there’s growing talk of rising labor costs and increased competition. 

Diamond Foods (DMND) markets Diamond brand nuts, Kettle brand potato chips, Emerald brand snacks and Pop-Secret popcorn. In September 2011, the company was flying high. It had received approval to buy Pringles, had reported record result for fiscal 2011 and had raised guidance for fiscal 2012.

Then the trouble started, with a question about the legality of the company’s non-GAAP accounting methods, in which it pre-paid walnut growers for their future harvests. If you had sold after the company’s first explanation of innocence (October 3), you would have sold in the 70s. If you had sold after the stock’s first big gap down (a month later on November 2 when Diamond announced a delay of the Pringles deal), you would have sold at 50. If you waited until news of the SEC investigation surfaced, you would have sold at 26. And if you had waited until the Pringles transaction was actually cancelled (February), you would have sold for 22!

Lesson: Just as there’s never just one mouse, or one cockroach, there’s seldom just one piece of bad news. It often snowballs. And once that trend gets going, it generally goes further than originally expected. DMND is now selling at 21, and pursuing strategic options like being acquired.

First Solar (FSLR) led the pack of the top-performing solar power sector in 2007, soaring from 30 to 267. Cabot Market Letter subscribers bought in March, and saw profits as big as 456% (they were advised to take some profits off the table on the way up) before the stock rolled over in 2008.

Revenues at First Solar have grown every year since then, and the long-term future for solar power remains bright. But all this time, competition has been growing, putting pressure on prices. FSLR traded sideways for most of 2009, 2010 and the first half of 2011, generally trading between 100 and 150. And then the bears took control, pushing the stock down and down and down. It’s now trading under 18, and the sellers are still in control.

Lesson: He who was first will often be last. And once a big winner rolls over, the power of the potential sellers exiting that once-hot stock can overwhelm the power of potential buyers. By many measures, FSLR (now trading 88% off its highs!) is a great value here, but of course people have been saying that for the last hundred points of the stock’s decline.

Sony (SNE) was the big dog in consumer electronics once upon a time. In fact, I remember buying three big bulky Sony TVs when my wife and I added to our home in 1995. But there’s a new big dog in town now—named Apple—as well as myriad smaller competitors. So even though Sony had record-high revenues in 2011, earnings have been challenged; they peaked in 2008. As a result , institutional investors have been exiting the stock for years; it’s now 45% off its high.

Lesson: Even the best-managed company eventually matures, and as it does, institutional growth investors move to faster-growing younger stocks. If you’re a growth investor, you shouldn’t hang around the senior citizens center, you should prospect at the high school. 

WebMD (WBMD) is your online doctor, a free source of information on what ails you, or (ideally) on how you can minimize ailments. It has a perfect 10-year record of revenue growth, as well as great name recognition in a crowded, competitive field. But earnings trends have never been steady, and now they’re in trouble, with estimates being reduced. The problem: Advertising dollars are fading, reducing by cutbacks on drug ad spending and migration of the spending to social networking sites. Shares of WBMD topped at 59 last summer; now they’re down to 22, having lost an impressive 63% in 11 months as investors leave WBMD like rats deserting a sinking ship.

Lesson: Don’t confuse the company with the stock. While you might like the website and note that business continues to grow, the stock, looking ahead, tells a different story. (Also, WBMD has had five notable gaps down since last summer.)

Now let’s see if we are able to apply any of these lessons to a present-day popular stock that is losing its way.

Green Mountain Coffee Roasters (GMCR) was a great hot stock for Cabot Market Letter in 2011, with profits topping 80% in just six months. We sold our final positions in October at 70, as the stock was gathering downside momentum. A month later it hit 34, which proved to be a floor for five months. Then, just last week, the stock plunged 48% in one day, as expiring patents and looming competition from Starbucks led management to lower its guidance.

Now some folks are asking if GMCR is a bargain here, 77% off its high. Looking at the lessons above, what can we say?

One. A gap down is never a good thing. This is GMCR’s fourth gap down since November.

Two. There’s seldom just one piece of bad news. This wasn’t the first and it’s unlikely to be the last.

Three. He who was first will be last. After a very profitable ten-year uptrend followed by the stupendous performance in 2011, GMCR still has lots of downside potential left. Note: the fact that it’s already down 77% doesn’t mean it can only fall 23% more. Nope, it can still fall 100% from here (though we’re not predicting that).

Four. Even the best-managed company matures eventually. This is probably the least applicable, as I think Green Mountain has plenty of growth ahead. But I could be wrong!

Five. Don’t confuse the company with the stock. Feel free to keep drinking the coffee, but don’t let the steam from that brew cloud your vision. GMCR’s trend is now down, and the odds are the downtrend will go on longer than most investors currently imagine.

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–

On the upside, as you’re debating selling GMCR you can think about buying the stock that appeared in today’s issue of Cabot Top Ten Trader.

It’s a young, fast-growing company in the field of network management software, which is an unglamorous but huge behind-the-scenes industry.

The company’s products basically monitor what’s happening on a company’s networks and in its servers, and help managers configure their systems for optimum performance and/or efficiency.

Previously, the field had been dominated by giants like IBM, Hewlett Packard, Computer Associates and BMC Software, but this little company is making inroads fast because it has a lower-cost sales model than these companies; it makes heavy use of Internet marketing. The result is fast-growing revenues, earnings and fat profit margins.

Furthermore, the company is acquiring smaller competitors rapidly; it’s bought six firms since 2011.

First-quarter results were released two weeks ago, and they were awesome, beating analysts’ estimates easily. Revenues are accelerating (very impressive), as new products and new global markets quickly bear fruit. All told, it’s a great growth story and one of the best I’ve reviewed recently.

But I can’t give you its name now because that wouldn’t be fair to subscribers of Cabot Top Ten Trader, who received their issue after the market close today and thus won’t be able to act on the recommendation until tomorrow.

But if you simply take a trial subscription to Cabot Top Ten Trader, you can read all about this fast-growing company, as well as the other nine hot stocks in this week’s issue, all of which have far better short-term prospects than Green Mountain Coffee.

To learn more, click here.

—

One of the most common questions I get from Cabot Wealth Advisory readers is how to invest with only a few thousand dollars. These readers are new to investing, and want to make the most of the small amount of money they have.

This is understandable– after all no one wants to lose money. I also wonder if there’s a perception tens of thousands of dollars is needed to invest before you’re able to make big gains, but I’m not entirely sure of that.

Well here’s the answer: You don’t need lots of money to get started in the stock market. The higher the amount you begin with, the more you can diversify, but the amount of money you have to start is less important than you think.

Say you have $2,000 you’re willing to invest.

There are a few ways you can move forward. The first is, of course, to hire a full-service broker or financial advisor from Merrill Lynch, Edward Jones or any of the other myriad financial services companies. This can be a good move, especially if you’re short on time, but it’s not for everyone–especially not if you’re highly hands-on.

The second option, and one I suggest for the self-directed investor, is signing up with an online trading platform such as E*Trade, Charles Schwab or Fidelity. This allows you to make trades, without a phone call to someone who then makes the trade on your behalf.

Of course, using one of these trading platforms means you’ve got to find strong companies to invest in. You’ve probably already heard of a few companies with strong balance sheets, such as Microsoft (MSFT), Apple (AAPL) and Wal-Mart (WMT) among others. Some people, upon hearing these names, purchase the stock without a scrap of research, which is dangerous because you never know when a stock might hit a downturn.

Take Green Mountain Coffee Roasters (GMCR) for instance. For 13 years, the stock has consistently gone up. And then, on May 3, the stock dropped about 40% in after-hours trading–from 49.52 to 29.74 on news that their earnings missed estimates and they had a lower outlook for the next quarter. If you bought their stock on May 1…you could’ve lost a lot of money in only two days. In this case, Green Mountain’s chart alone would have dissuaded you from investing in recent months. To be frank, the chart has been a mess.

There are two ways you can avoid losses like this, and make the most of your money. The first is through educating yourself on how to read a stock’s chart and examine its fundamentals–earnings reports, etc.–so you’re able to determine whether the upside potential is enough to outweigh the downside risk.

In fact, Cabot Market Letter and Cabot Top Ten Trader Editor Mike Cintolo recorded a video recently discussing how we choose growth stocks here at Cabot. It’s highly informative on this very topic (click here to watch) and I definitely encourage you to take the time to watch it.

The second option is to subscribe to an investing newsletter that does all the research work for you, and then presents the companies able to offer the highest-possible gains. This is a very good option for someone who doesn’t want to personally dig deep into company fundamentals before investing, but still wants direct control over where their money goes.

Personally, I advocate both options. Subscribing to a newsletter allows you to take advantage of the newsletter editor’s experience picking stocks, while educating yourself on fundamental analysis means you’ll be able to make an informed choice about whether to follow the newsletter’s recommendations or not.

So with your hypothetical $2,000, I recommend the following course of action: Subscribe to an investing newsletter, read a few issues, and then pick two or three stocks to invest in. It doesn’t have to be a lot of your money–10 shares of a $20 stock or 5 shares of a $40 stock is the same exposure after all–but having some skin in the game is better than none at all.

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

To Find New Truth Shake Off Old Prejudice

What Frederick the Great originally wrote was, “The greatest and noblest pleasure which men can have in this world is to discover new truths; and the next is to shake off old prejudices.” The condensed version says something different, though it’s not bad. For investors, the truth is always valuable, and if you find it by shaking off old prejudice, so much the better.

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In this week’s Stock Market Video, Cabot China & Emerging Markets Report Editor Paul Goodwin says the market remains highly reactive over what’s going on in the world economy but our indicators remain healthy. Stocks discussed: Aeropostale (ARO), Chico’s FAS (CHS), Harley-Davidson (HOG), Taubman Centers (TCO), NetEase (NTES) and Marriott (MAR). Click below to watch the video!

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 4/30/12 – Voluntary Extinction Society Vs. Cryonics

On Monday, Cabot Publisher Timothy Lutts wrote about how historical trends have proven optimists right more often than pessimists. Tim also wrote about learning something new every day. Featured stock: Intuitive Surgical (ISRG).

Cabot Wealth Advisory 5/3/12 – Beijing: Welcoming and Entrepreneurial

On Thursday, Cabot China & Emerging Markets Report Editor Paul Goodwin wrote the first installment about his two-week trip to China. Paul focused on the capital city, Beijing, and its mixture of welcoming and entrepreneurial spirit. Featured stock: Melco Crown (MPEL).