Cabot Wealth Advisory

What is a Green Stock?

Wed, 02 Jul 2008 08:23:15 GMT

Editor's Note: This is part four of an ongoing series explaining Cabot's eight publications. The first three parts of the series can be found here http://www.cabot.net/Issues/CWA/Archives.aspx Today I'll be writing about Cabot Green Investor.

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Introducing ...

Cabot Green Investor, launched in January 2008, takes Cabot's stock picking and market timing system and applies it to earth-friendly investments. As a sector, Green investments offer the most profit potential since the Internet boom of the mid-1990s, and Cabot's system ferrets out the best stocks to own and profit from.

Brendan Coffey, a veteran financial journalist, is the editor of Cabot Green Investor. Brendan has spent more than a decade writing about investments for publications including Barron's, Forbes, the Wall Street Journal and a number of private-client brokerage newsletters.

With earth-friendly investing growing into its own, Brendan draws upon insights gleaned from covering everything from the Brazilian ethanol market to the global bottled water craze and filters it through Cabot's proven system for identifying and capitalizing on fast-growing stocks.

Selecting the Stocks

Cabot has spent 38 years honing a stock picking and market timing system that uncovers leading stocks in some of the fastest growing sectors. Cabot Green Investor applies this system to environmentally friendly investments, which just happen to possess some of the most exciting growth prospects of any sector in the market.

Many of Brendan's recommendations are young and their stories are often unknown, giving them bigger upside potential as the big-money crowd accumulates positions. The demand for alternative energy is growing all the time, along with demand for Green building practices and Green technology. This is only going to increase in the future and Cabot Green Investor will be on top of these trends, selecting the best stocks for subscribers.

Cabot Green Investor looks for promising companies benefiting from the global trend for Green products and services. To qualify as a potential recommendation, a large part of the company's growth must be the result of a Green business arm, product or innovation and the stock must trade on a U.S. exchange.

Companies featured in the Cabot Green Investor also meet our strict fundamental and technical criteria. Our recommended companies almost always possess rapid sales and earnings growth, huge margins and the potential for continued growth down the road. Most important, the stocks of our companies are in solid uptrends, telling us that the aforementioned big-money crowd is indeed buying shares.

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How to Find the Gems in Wall Street's Rubble

In roughly six weeks, the market has fallen off a cliff. The Dow has lost about 14% since May 19 when the index closed slightly above 13,000. Each day, Wall Street traders are fretting more and more about over-stretched consumers, the overly long credit crunch and the far-from-over U.S. economic slump.

But there's not need to fret because Cabot's Optimum Momentum stock-picking system has handed investors 65% gains in just three months. Check out these recent winners:

Alpha Natural Resources - up 54%
Research in Motion - up 65%
DryShips - up 95%

And there's more where they came from. So if you think you can't get rich in this market, think again. Cabot Top Ten Report can guide you to huge profits every week, despite the market's fluctuations. Click the link below to get started with a risk-free subscription.

http://www.cabot.net/info/ctt/cttid00.aspx?source=wc01

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Once the Cabot Green Investor owns a stock, it will be held for as long as the stock performs well. Our goal is to hold stocks for the long-term. But we let the stocks tell us when they should be sold, applying the same time-tested proprietary tools that we've developed and refined for 38 years--and that have helped us deliver outstanding results for readers of Cabot Market Letter and Cabot China & Emerging Markets Report.

Specifically, we pay close attention to each stock's chart. Is the stock in a solid uptrend? Does trading volume show accumulation? Are corrections brief and shallow? We judge a stock's health using traditional technical analysis tools--trendlines, support/resistance, etc.--relative performance and volume analysis. In the event that a loss develops, it will be limited to no more than 20% at the close of any trading day.

What is a Green Stock?

Many people ask us, "What is a Green stock?" Good question. Green stocks are those leading the trend toward environmentally friendly ends, be they new sources of clean energy, products that mitigate the environmental impact and energy cost of existing technologies or those that profit from the increasing move by consumers to organic and efficient products. There's no hard and fast rule for what is Green and what isn't. The definition, like the market, will change over time.

We're looking to capitalize on trends, not to make value judgments, so we approach the stocks solely as investors. We don't require our selections to be socially responsible companies, although almost by definition Green stocks can be equated as socially responsible. If the fundamentals are poor, the trend is bad or a company is overvalued, then it's a poor stock to buy now, regardless of how we may feel personally about the product or service.

What doesn't change is that the Cabot Green Investor looks for promising companies benefiting from the Green trend.

A subscription to Cabot Green Investor includes the monthly issue, delivered by email only. Each issue contains market commentary, an analysis of two stocks and updates on previously recommended stocks. Subscribers receive weekly updates on all current stocks, including detailed buy and sell instructions and special alerts anytime there is important news on the markets or one of our stocks. Subscribers also get email access to the editor, Brendan, and access to a subscriber-only Web site.

I hope this helped you better understand Cabot Green Investor and how it can help you get on board early in this fast-growing area. Look for more issues in this series in the weeks ahead. And as always, we welcome your questions, comments and suggestions.

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Letters From Readers

Last week I wrote about my upcoming trip to Yellowstone and Grand Teton national parks and the strife the airline industry has been causing me. I received a few travel tips and commiserations and will share them with you here:

"My wife and I had planned a vacation to Maui this year. The day before our flight was to leave, I tried to check in online, only to find out the airline was going out of business. Yes, this was Aloha Airlines. We received no warning from the airline at all even though they had our email address and phone number.

Turns out our flight to Maui did leave, and it was the last flight ever out of Sacramento. The employees were very nice to us, and understandably emotional. But we didn't hear anyone complain. While we were in Hawaii another airline went out of business (ATA). Thankfully, we had arranged our return flight on Hawaiian.

Our credit card company did manage to recover half our roundtrip ticket prices, but we actually paid a little more than that getting home. Oh well, better to be in Maui and worrying about getting home than having to worry about getting to Maui. Actually, my wife was perfectly willing to stay ...

B.P.

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"At Driggs, ID, on the west side of the Tetons, you can get a glider ride that requires no security check, no taking off your shoes, just a super silent flight with the Tetons in backdrop to let you take all the photos you want and, possibly, have a hawk or eagle come in to your thermal and fly with you. The only way to fly! Dangerous? Sure. You have to drive to and from the airport!"

Best,
P.

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"We've been [to Yellowstone] twice. (We drove the 4,800 mile round trip both times.) It's absolutely fabulous. Yellowstone contains half of the geysers on this earth. Lots of wild animals, like elk and bison. Give 'em space--you're invading their home (without permission). Yellowstone Falls are magnificent, but there's no yardstick to measure their immensity and grandeur. The Tetons are off there in the distance, sorta like a painting on the wall. Again, there's no yardstick. But gee whiz, what a painting!"

Enjoy.
B.B.

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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, we have links below to each issue.

Cabot Wealth Advisory 6/30/08 - Benefits of Creative Destruction

In Monday's issue of Cabot Wealth Advisory, Timothy Lutts wrote about Joseph Schumpeter's theory of creative destruction. At the root of creative destruction, according to Schumpeter, are entrepreneurs, possessing a spirit of innovation that drives economic growth forward by improving on and "destroying" the old. Tim applied this theory to our petroleum-based society and the rise of alternative energy. Stock featured in this issue: Energy Conversion Devices (NSDQ: ENER). Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/06/Benefits-of-Creative-Destruction.aspx

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Cabot Wealth Advisory 7/3/08 - Debunking Investment Myths

In Thursday's issue of Cabot Wealth Advisory, Michael Cintolo recounted how he became interested in the stock market and how he learned to do what's right and avoid what's wrong when investing. Mike also debunked several investment myths, ranging from the value of insider selling to the value of diversification to the wisdom of considering tax implications when taking profits. Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/06/Debunking-Investment-Myths.aspx

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Editor's Note: Since the start of the year, Cabot Green Investor has led subscribers to double digit profits in stocks such as American Superconductor (AMSC) and Clean Harbors (CLHB). Click the link below to get on board with the Green revolution.

http://www.cabot.net/info/cgi/cgiii02.aspx?source=wc02

Until Next Time,

Elyse Andrews
Editor of Cabot Wealth Advisory

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Debunking Investment Myths

Tue, 01 Jul 2008 10:40:11 GMT

I was lucky when I first began investing. I didn't learn how to pick stocks from a textbook, or a well-meaning but misinformed professor. No, I first got interested in stocks when my dad subscribed to the Cabot Market Letter back in the mid-1990s, and learned right away the value of doing the right things, and avoiding the wrong things.

Yet most investors, even those with lots of experience, usually do the wrong things and avoid the right things. And the reason isn't because they're dumb and I'm smart--it's because the market is a totally contrary animal, so it works the exact opposite of how any intelligent, reasonable person would expect. That's why the stock market is known as the great leveler; intelligence and education (at least in the classroom) have no correlation to success in the market.

To paraphrase Jesse L. Livermore (one of the great traders of the early 20th century), the market is based on hope and fear. The only problem is that most investors fear when they should hope, and most hope when they should fear. That's why most people lose money.

So in today's Cabot Wealth Advisory, I wanted to dispel a handful of common investment myths. Many times, in the market, it's all about what you don't do, rather than what you do. So I write this hoping it will help you avoid some of what doesn't work in the stock market--and thus improve your own returns!

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Without further ado ...

1. Insider selling isn't a major factor in a stock's future performance.

While most investors believe insiders are these all-knowing beings that will never sell their stock if something good was going to happen, history shows that's just not the case. Almost all of the biggest stock market winners experienced plenty of insider selling on the way up. Why? Usually it's because these winners were entrepreneurial companies, and the top brass was paid in stock (ownership), not cash. So, naturally, they cash in somewhat on the way up.

Insider buying might be slightly more meaningful (you only buy for one reason, but there are many reasons you might sell), but even then, insiders can buy well ahead of any rally in the stock. What really matters is the perception of institutional investors-hedge funds, mutual funds, pension funds and the like-that control trillions of dollars. If a few insiders want to sell $10 million of stock, but if Fidelity Contrafund (not to mention a dozen other mega-sized funds) wants to buy $50 million, those insider sales won't mean a thing.

2. P/E ratios (for growth stocks) are a result of performance, not a cause of it.

Nearly everyone is raised in life to get a bargain, whether it's for a suit, a car or even for groceries. (I would've said for a wedding, too, but I don't want to start making this a piece of fiction.) So when the average Joe sees a stock trading at 100 times earnings, he avoids it like the plague. But in reality, P/E ratios don't have a convincing correlation to growth-stock performance; sometimes a big winner will start off with a low P/E, sometimes it starts off with an average P/E, and sometimes it's high.

What really counts isn't the P/E, but the firm's sales and earnings growth, its margins, its industry trends and its stock's performance, which tells you what institutional investors perceive. Those factors have a much higher correlation to future performance than P/E's do.

3. You CAN go broke taking a profit.

I recognize that there is no one best system for investing in stocks. Here at Cabot, we have editors that are heavy on fundamentals (Cabot Small-Cap Confidential), value-based (Cabot Benjamin Graham Value Report), momentum-based (Cabot Top Ten Report) and so on. In the world of growth stocks, which I focus on, the key is to cut losses short while giving your successful stocks a chance to become big winners.

Sure, I'm all for lightening up on your winners from time to time, ringing the cash register and putting some money in your pocket. If nothing else, selling small amounts on the way up puts you in a positive state of mind, which is crucial for successful investing. But for most of your shares, you should be holding on and giving your top performers a chance to become big winners.

Most investors regularly book three- or four-point profits, not realizing that they're also going to suffer many three- or four-point losses along the way (assuming they're smart enough to cut losses short). The result is so-so performance. And if they hit a losing streak, or let one bad stock get away from them, look out below.

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How to Find the Gems in Wall Street's Rubble

In roughly six weeks, the market has fallen off a cliff. The Dow has lost about 15% since May 19 when the index closed slightly above 13,000. Each day, Wall Street traders are fretting more and more about over-stretched consumers, the overly long credit crunch and the far-from-over U.S. economic slump.

But there is no need to fret because Cabot's Optimum Momentum stock-picking system has handed investors 65% gains in just three months. Check out these recent winners:

Alpha Natural Resources - up 54%
Research in Motion - up 65%
DryShips - up 95%

And there's more where they came from. So if you think you can't get rich in this market, think again. Cabot Top Ten Report can guide you to huge profits every week, despite the market's fluctuations. Click the link below to get started with a risk-free subscription.

http://www.cabot.net/info/ctt/cttid00.aspx?source=wc01

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4. Don't draw a major conclusion from just one or two events.

Ask yourself: If you sat down at a Blackjack table and were dealt a 19, what would you do? Stay, of course; the only cards that could help you would be an Ace (worth 1), or a 2, while everything else would bust you (result in something over 21).

But after you stay, let's assume the dealer flips his cards ... and he has 20! You lose the bet. Now ... does that mean, next time in the same situation, you should hit on 19, instead of stay? No! And the reason is easy to understand-the odds favor you winning more often if you stay, than if you hit. So you're not going to change your approach based on just one instance of losing.

Yet that's exactly what many investors do. They might sell a stock when they have a 15% loss (correctly cutting the loss short, and preventing potentially serious damage), but then that stock turns around and rallies. They conclude selling was the wrong thing to do. Big mistake!

What possibly went wrong was that the investor bought too high in the first place ... or, maybe, he just has to tip his hat to the market. The point is, you want to have a sound process and set of rules to guide you through the investment battlefield. Don't overemphasize any one trade, good or bad; think of it as just the first of hundreds of trades you're going to do in the months and years ahead.

5. Diversification provides downside protection, but concentration allows for outperformance.

Listen to any "prudent" financial advice, and your best bet is to diversify-own 70% stocks, 25% bonds, 5% cash, or something of the sort. And, for most people, I believe this is good advice; over the longer-term, spreading out your bets in this way will lessen the chance you take any serious hits on the way to retirement. (I've even structured my fiancee's 401(k) plan in such a way, with a couple of growth funds, a solid value fund and a little in bonds.)

But if you're investing to make money in growth stocks, it's all about concentration. In the Cabot Market Letter's Model Portfolio, we own a maximum of 12 stocks when fully invested. Personally, I tend to gravitate toward seven or eight. The key is to cut ALL losses very short, and average up on your best one or two winners. That way, you can make big money when the market is heading up. Diversification isn't wrong, per se, but neither is concentration reckless. Most of history's most successful investors concentrated in a few top stocks, as opposed to diversifying into 30 or 40 issues.

6. Worry first and foremost about making a profit. Taxes should be a very distant secondary consideration.

I literally just answered a phone call this week from a long-time, and very good, subscriber. He owned a stock that's being bought out, and his question was whether he should sell it. My answer was simple: Yes! Take the money and run. He had ample profits ... but he was hesitant to sell because it meant he would have to pay the taxes.

I understand where this thinking comes from, of course; I hate paying Uncle Sam every April as much as anyone. But your goal is to develop winners and make money-paying taxes is the (unfortunate) reality of making money.

The key is to consider taxes before you buy a stock. For instance, if you have to pay 30% of any gains to Uncle Sam, you might consider investing somewhat more initially (in terms of dollars) since, if you win, you have to pay Uncle Sam his share. And if you lose, you'll be able to deduct it from your profits (if you have any). Even if you don't have profits in a given year, you might figure that, in the long run, you're going to make money, so any losses this year will eventually offset something in the years ahead.

Now, I'm not a tax attorney, so don't go taking my words of advice to heart. It's just something to consider. The main point is that your goal is to make money by following a sound system of rules and tools-don't allow tax considerations to cause you to make the wrong investment action.

These are just six of many common misconceptions investors have about the market. I don't mean that in a "aren't they silly for thinking like that!" sort of way. Just the opposite, in fact-the market, as we like to say (and write), does its best to fool the majority, and take your money away. It's difficult to live a normal life, thinking one way, and then think totally differently when it comes to investments.

So hopefully, the information above will help you think differently about the market than you currently do, and help you avoid many of the mistakes that investors-both novice and experienced-continue to make today.

Until next time,

Mike Cintolo
For Cabot Wealth Advisory

Editors Note: How would you like to make more than the market during bull markets, while also holding on to most of your gains during bear markets? Few advisors can do it, but that's exactly what the Cabot Market Letter's Model Portfolio, edited by Michael Cintolo, has done since the start of 2007. The Portfolio outperformed the market on the way up in 2007, and has kept those gains during the 2008 downturn. Net-net, Mike's subscribers have gained 33% in the last 18 months, while the S&P 500 is actually down more than 10%! Hulbert Financial Digest has the letter ranked #3 in the country for trailing 12-month performance. If you want to be on the right side of the market, and be invested in the biggest winners of the next bull market, give the Cabot Market Letter a try.

http://www.cabot.net/info/cml/cmlim01.aspx?source=wc01

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Investors Benefit From Creative Destruction

Mon, 30 Jun 2008 13:50:30 GMT

I paid $67 to fill the gas tank in my car last week. That's a record for me, but people with bigger gas tanks cite bigger numbers. And while I don't like paying that much for gas, while I stand there with the hose in hand and watch the numbers speed by I take comfort from two facts.

The first is that I've found I get a few more miles per gallon by inflating my tires to the high end of their recommend range. The second is the theories of Joseph Schumpeter.

Schumpeter (1883-1950) was born in Moravia--then part of Austria-Hungary but now in the Czech Republic--and was a gifted mathematician. But his love was economics, particularly as related to entrepreneurship, and he's best remembered for his socio-economic theory of creative destruction.

At the root of creative destruction, according to 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.

Innovation From Creative Destruction

According to Schumpeter, innovation tends to come from companies and individuals that provide any of the following:

--New markets or products

--New equipment

--New sources of labor and raw materials

--New methods of organization or management

--New methods of inventory management

--New methods of transportation

--New methods of communication

--New methods of advertising and marketing

--New financial instruments

What are destroyed by these innovations are companies and systems that have become entrenched, that are regarded as part of the status quo. The destruction is painful to those individuals who are part of the established system (look at how digital photography killed Polaroid and Kodak) but it's generally rewarding to society as a whole, because the new methods, technologies and systems provide more value at lower costs than the old.

Something Better

Today, though it's not widely acknowledged yet, what's being destroyed is our petroleum-based economy. That it's an entrenched part of our global economy is obvious. But it's been entrenched for less than a century--oil replaced coal, remember--and it's time for something better.

That "something better" will apparently consist of a combination of solar power, wind power, biofuels, battery technologies, nuclear, hydroelectric and geothermal power ... and plain old conservation. The providers of these new technologies will thrive, while individuals, companies and institutions with stakes in the old petroleum economy will fight the transition. But progress, driven by innovation, will occur. It is unavoidable.

Perhaps the biggest beneficiaries of this change will be those people in societies that never had a stake in the oil economy. We've seen in recent decades how whole societies that never could afford the infrastructure of a wire-based telecommunications network embraced the cellular telephone. Now imagine how remote societies that couldn't afford to build a petroleum infrastructure will benefit from the technologies that slowly supplant petroleum.

As investors, our job at Cabot is to steer you toward the stocks that benefit from this long transition, and to steer you away from those that suffer from it. You may have noticed that General Motors stock (GM) hit a 53-year low (!!) last week. It's lost 88% of its value since it peaked in early 2000, and while traders might play it for a bounce, that's a high-risk endeavor. The main trend is down; four years ago, more than 400 institutions owned GM. Since then, more than half have jumped ship.

So who's building this yet-to-be-determined future? Where are the investment winners? In recent months we've mentioned solar power stocks First Solar (FSLR), JA Solar (JASO) and LDK Solar (LDK), as well as Chinese biodiesel firm Gushan Environmental (GU) and wind-power company American Superconductor (AMSC), to name a few. Today I bring you another.

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How to Find the Gems in Wall Street's Rubble

In roughly six weeks, the market has fallen off a cliff. The Dow has lost about 1,600 points--or about 12%--since May 19 when the index closed slightly above 13,000. Each day, Wall Street traders are fretting more and more about over-stretched consumers, the overly long credit crunch and the far-from-over U.S. economic slump.

Yet at the same time, Cabot's Optimum Momentum stock-picking system has handed investors 65% gains in just three months. Check out these recent winners:

Alpha Natural Resources - up 54%
Research in Motion - up 65%
DryShips - up 95%

And there's more where they came from. So if you think you can't get rich in this market, think again. Cabot Top Ten Report can guide you to huge profits every week, despite the market's fluctuations. Click the link below to get started with a risk-free subscription.

http://www.cabot.net/info/ctt/cttid00.aspx?source=wc01

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The stock today is Energy Conversion Devices (ENER), which earned a spot in Cabot Top Ten Report back on May 12, when it was trading at 51. Today it's 74.

Here's what editor Michael Cintolo wrote back then:

"After failing to meet analysts' estimates in five consecutive quarters, the company hit a home run last week when it announced that revenues had soared 155% in the quarter, while earnings had flipped from a loss of 17 cents to a profit of 23 cents. The big reason? New President Mark Morelli, who came on board in September. The company, which we've followed for years, has developed much great technology, but old management cared more about science than profits. Morelli, contrarily, cut 160 engineering positions--in areas like fuel cells and cognitive computing--and left 100, mainly in the solar power division. Fully 90% of the company's revenues now come from solar power products. The company's main advantage is that it makes its products from amorphous silicon, which is not only less costly than polysilicon, but lighter. Energy Conversion Devices incorporates this silicon into flexible rolls, which double as a roofing material in both industrial and residential applications. Going forward, the company is looking to sell other non-core assets and drive this solar power business as fast as it will go. We like it."

Since then, the stock is up 45%, while the broad market is in the toilet. And what's next? Anything can happen, of course, but the long-term picture remains very bright, especially if you buy even half of my vision about the slow demise of our oil-based economy.

And even if you don't buy it, you've got to ask yourself why all these alternative energy stocks are so strong. The answer, to me, is simple. An increasing number of investors, both individual and institutional, are expecting great growth of both revenues and earnings in these companies in the months and years ahead, so they're climbing on board now, in some cases buying with the proceeds of their shares of GM.

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Editor's Note: Energy Conversion Devices will be followed in every issue of Cabot Top Ten Report until its momentum fades. This momentum-centric advisory, published every Monday, is your ticket to the hottest stocks in the market, perhaps the next Crocs, DryShips or Illumina. To get started with a no-risk trial subscription, simply click the link below.

http://www.cabot.net/info/ctt/cttid00.aspx?source=wc01

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Publisher of Cabot Wealth Advisory

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Battling the Airline Industry and FAQs

Fri, 27 Jun 2008 12:57:40 GMT

Later this summer I'm fulfilling a longtime dream of taking a vacation to Yellowstone National Park and Grand Teton National Park. I love traveling, and even planning to travel, so I made sure to book the reservations early to avoid the costly increases in flights, hotels and rental cars that come with warmer weather.

I diligently searched for flights that would get my boyfriend and me to Wyoming at the optimal time to get settled and avoid rushing too much in the morning. It is a vacation after all. I spent hours staring at the computer, calculating which flight would allow us to pick up supplies and do some sight-seeing on the way to our cabin in Yellowstone.

I thought planning ahead was a good idea and, in some ways, it was. Our itinerary has been settled for months; we're going to stay exactly where we wanted and go when the weather will be pleasant and the crowds slightly smaller.

Unfortunately, the airlines had other plans in mind. This early booking has proved more than troublesome. I think I've even started sprouting some gray hairs.

Your Flight Has Been Canceled

Every few weeks for the last couple of months I have gotten a call or an email from Delta informing me that our flights have changed.

The first change was an added stop on the way to Wyoming, which put us way behind the schedule I had spent weeks making. This change, by the way, came in the form of an email with the subject: Your Flight Has Been Canceled. Very comforting. Luckily, the situation was straightened out by my boyfriend, who has less of a tendency to panic than I do.

Then there was a major change in the return flight, which forced us to re-arrange the last night of our accommodations. We were able to find a suitable hotel, but because our trip is just a couple of months away (as opposed to nine months away, as it was when I started booking everything), it took a lot of work.

Now it's mostly little changes, sometimes in the flight number, sometimes in the times of the flights and sometimes in the cities we will now have to travel through. All of these little changes come to me in the form of endless phone calls and emails. Every time I see the airline's 800 number flash on my cell phone my heart starts to pound, my palms sweat and I get a sick feeling in my stomach, as I anticipate what nasty surprise Delta has in store.

Suddenly a cross-country road or train trip doesn't look so bad.

So far Delta has avoided charging for checked luggage, but who knows how long it will be until the company follows many in the industry in doing that.

I'm sure this new measure will do wonders for the airport security line. I can picture it now, even more people fumbling to find their clear plastic bag filled with tiny bottles of liquid, hoisting too-large suitcases into the overhead compartment and struggling to haul their load of bags away from the checkpoint after having to practically disrobe in the line.

Vacations are supposed to be fun, right?

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Whenever we do an FAQ issue of Cabot Wealth Advisory we get a lot of positive feedback from our readers-and a slew of new questions. I'm going to answer a few of them today.

Question: How do I get started as a new investor?

Answer: The best thing to do is educate yourself about investing and find a system that works for you. The more informed you are as an investor, the better off you'll be. Reading investing books is a great way to learn more and we have recommendations for many helpful books on our Web site, http://www.cabot.net. Cabot's Web site has many additional educational features that can introduce you to the investing world. These features can help you decide which investing system is right for you. This is something we stress a lot-finding a system and sticking to it is the key to success.

Q: How do I know which exchange a stock is traded on?

A: In the United States, modern letter-only ticker symbols were developed by Standard and Poor's to bring a national standard to investing. One- or two-letter symbols trade on the New York Stock Exchange; three-letter symbols may trade on either the NYSE or AMEX; four- and five-letter symbols trade on the Nasdaq, although five-letter ticker symbols are usually a special class of stock. In July 2007, the Securities and Exchange Commission approved a plan to allow companies moving from the NYSE to the Nasdaq to retain their three letter symbols. The change does not apply to companies that have symbols with one or two letters. You can find out the exchange for any stock by going to Yahoo! Finance and entering the name or symbol of the stock. The page that comes up will give you the exchange.

Q: Can you provide information about Indian stocks that trade on Indian exchanges?

A: Cabot recently published a Special Issue of Cabot China & Emerging Markets that applied our time-tested growth stock picking system to the Indian market. The stocks featured in the Special Issue trade on the Bombay and National Stock Exchanges and are only available to investors that can buy and sell on the Indian stock exchanges. The stocks chosen for the Special Issue were up more than 25% in the first week. More information about the report can be found here, https://secure.netatlantic.com/cabotchina/indian.html

I'm always happy to hear from subscribers via email or the Cabot Forum, http://www.cabot.net/forum. So send me your questions, comments and suggestions.

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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, we have links below to each issue.

Cabot Wealth Advisory 6/23/08 - A Great Wind Power Stock

In Monday's issue of Cabot Wealth Advisory, Timothy Lutts about the most dangerous way to sell short, by picking a hot little stock that's "way overvalued" and bet that it will come down. Such a case in recent weeks has been American Superconductor, a company that recently found new life by entering the market for wind energy. For the past five months, AMSC's chart, in climbing from 16 to 45, has rewarded investors who were long on the stock, and it has punished short-sellers, despite the broad market being unsupportive. Stock featured in this issue: American Superconductor (NSDQ: AMSC) Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/06/Great-Wind-Power-Stock.aspx

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Cabot Wealth Advisory 6/26/08 - Taking Advantage of the System

In Thursday's issue of Cabot Wealth Advisory, Timothy Lutts wrote about how prohibition led to the system of alcohol transport that persists today, a system dominated by distributors and the states. This makes it difficult for small vineyards to ship wine around the country. Tim's advice was to put money into one of the distributors-Central European Distribution. Stocks featured in this issue: Central European Distribution (CEDC). Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/06/Investing-In-Vodka.aspx

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Cabot Wealth Advisory 6/27/08 - Back in the Saddle

In Friday's issue of Cabot Wealth Advisory, Michael Cintolo wrote about the highlights of his recent wedding, and a great book he read while on his honeymoon. Mike also re-capped the recent market gyrations, urging investors to not lose confidence in troubled times. He also draws an interesting comparison between the current market and that of early 2003. Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/06/Stock-Market-Testing-Bottoms.aspx

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Editor's Note: Cabot not only has the #3 newsletter in the country, but also the #1 newsletter-Cabot China and Emerging Markets Report, up 108.7% for the year ended May 31, according to Hulbert Financial Digest. Its focus is on stocks in the BRIC (Brazil, Russia, India and China) counties that have explosive profit potential. Click the link below to learn more.

https://www.cabot.net/info/cem/cemid02.aspx?source=wc01

Until Next Time,

Elyse Andrews
Editor of Cabot Wealth Advisory

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In Troubled Times, Don’t Lose Confidence, Just Re-evaluate

Fri, 27 Jun 2008 10:22:33 GMT

It's been a few weeks, but after the pre-wedding rush, a blur of a wedding day and an eight-day trip to Cabo, Mexico, for my honeymoon, I'm back in the office, getting reacquainted with the necessary evil we call work. (Just kidding boss! Sort of.)

Actually, I'm a creature of habit and schedule, so it's good to get back in the flow of things; I've been back at work for about a week now, any jet lag is behind me, I'm all caught up on my emails ... and I've been watching the market fall apart. More on that later. If you're interested in a quick wedding and honeymoon summary, keep reading. If not, no worries--just skip to the next section below.

Anyway, I have to say, the wedding went ridiculously smooth. No big hiccups, which was a huge relief.

Wedding Re-cap

For your reading pleasure, I've listed a handful of ups and downs of the wedding below (at least in my opinion):

Favorite Part of the Wedding Day: For me, definitely the cocktail hour. We made sure to carve out some time to enjoy it. Having actually performed the ceremony, the rush you get from finally being able to relax a little and have a drink and a bite to eat with all your closest family and friends, shaking hands and seeing everyone having a great time ... that was really good stuff. I will remember that 40-minute period for a loooooong time.

Worst Part of the Wedding Day: The wait! We took pictures before the ceremony, but even then, we didn't have to start getting ready until 2:30 p.m.-3 p.m. I'm an early riser, so that left about six to seven hours of time to kill that day. With the help of my groomsmen, I remained sane, but it would've been nice to just wake up, get ready and hit it.

Winner of the Silver Lining Award: Having the ceremony inside. It rained the night before and morning of the wedding, and we were told the grass would be too soft to have the ceremony outside. As it turned out, we'd forgotten just how nice the main hall was (the place was an older inn, with beautiful wood beams, high ceilings and a cozy atmosphere), where the reception was going to be anyway. Thus, we didn't have to worry about the weather all day, and still have an excellent ceremony.

The Thing that Surprised Me the Most was: The food! I think, for many guests, us getting married was certainly a highlight, but their filet mignon was even better. Seriously, it was very good food--not just good wedding food, but legitimately good food. That was unexpected.

My First Lessons Learned as a Married Man: There are two answers here. The first, of course, is that I've quickly learned to say "Yes, dear" to any question I am asked by the new Mrs. Cintolo. Even if it doesn't make sense! If she asks whether I want a turkey sandwich or a roast beef sandwich, my answer is now "Yes, dear." Can't go wrong with that.

The other lesson--someone forgot to tell me the wedding band will come off in the shower. Let's just say it's a good thing I have relatively quick reflexes, because I literally caught my wedding band in mid-air after it slipped off my finger. Whew!

I'll touch on my honeymoon some other time, but I wanted to just wrap-up my Big Day. It certainly was a blast, and for those that told me it would go by in a flash, they were correct. But I wouldn't have changed a thing--it really did work out perfectly for us.

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Investment Black Dog

As for the honeymoon, I did plenty of reading, but I only brought one investment book. Thankfully, it was terrific.

It's called "Hedgehogging," by Barton Biggs, a Morgan Stanley veteran who teamed up with a couple others to start his own hedge fund back in 2003. (The book is a couple of years old, available in paperback.) Much of the book is indeed about his journey to starting a hedge fund, but really, to me, the first 100 pages or more were a bunch of two to four page short investment stories that related to people he knew in the business.

To me, this is the best kind of investment book--while the top sellers are often titled "How to Get Rich in Options" or something like that, you can often gleam more lessons and insights from reading about others' investment troubles (and successes) than by learning a "secret" system from some author. It didn't hurt that Biggs is masterful with the English language; I found myself intrigued 80% of the time, and chuckling the other 20%.

My favorite passage from the book related a piece from Winston Churchill, who despite his great successes, was also a flawed man (who isn't, really?), subject to depression and other drawbacks. Anyway, I'll quote Biggs' passage here:

"Winston Churchill, whose career had its ups and downs and also was plagued with bouts of depressions, spoke of the huge, foul-smelling black dog with breath like the sewer, which appeared uninvited and sat heavily on his chest, pinning him down. There is an investment black dog, and when you are doing badly, it comes and sits on your chest in the middle of the night, and on Saturday mornings, and on sunny spring afternoons in the office. It's almost impossible to banish the black dog when he gets on you. He plagues your life. We all have visits from the black dog from time to time."

I couldn't have said it better myself. Just remember this passage if you're having a tough go of it, which I suspect many of you are in this market environment. Even the best money managers suffer from the demon of poor performance every now and again, but that doesn't mean they're washed up. If you're in a rut, take a step back and re-evaluate--but by no means should you lose your confidence.

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Don't Lose Confidence

Right now, actually, I think it would be one of the worst times to lose your confidence. My initial impression after returning from Mexico was that investors are very depressed, with most feeling the weight of the investment black dog. Nothing unusual there.

But considering the action of the market indexes, I'm impressed with the number of decent-looking stocks and sectors out there. In recent weeks, Cabot Top Ten Report has been able to find a good amount of good-looking set-ups.

Moreover, the fact that we're seeing many more stocks acting well today, compared to the action of the prior market lows of January (when there were literally zero good-looking stocks) and March (when there were just a handful) seems to be a bullish sign. Indeed, the market is tracing a pattern similar to the major bear market low seen in 2002-2003.

Back then, the market capitulated into a panicky July 2002 bottom. After a few weeks of rallying--a rally that saw the Nasdaq lag badly, which we'll get back to in a second--the market then slid back to its July low in October. During that re-test, the number of stocks hitting new lows dried up dramatically.

After that second re-test, there was a solid three-month rally ... but then the market began sliding again. It wasn't until March 2003, a full eight months after the first bottom, that stocks entered into a true bull market. Interestingly, the Nasdaq held well above its earlier lows in March, a sign that investors were becoming more risk tolerant, which is usually a good thing.

Market Update

This time around, of course, we're not in the midst of a mega-bear market, so the time periods and swings will be shorter and milder. But the triple-bottom pattern may be occurring once again--we bottomed in January, then a few weeks later in March on Bear Stearns' demise.

Now, after a two-month rally, the Dow and S&P 500 are re-testing their earlier two bottoms (the Dow actually hit a new low on Thursday) ... while the Nasdaq remains 9% above its low. And, yes, the number of stocks hitting new lows is far fewer than we saw back in January or March. Put that together with some horrid sentiment (which works as a contrary indicator), and you have a recipe for a major market bottom around here.

Even so, having a recipe is not like having the meal itself. I remain cautious, holding plenty of cash while selling stocks that are showing decisive weakness. The Model Portfolio in the Cabot Market Letter currently has 50% cash.

Yet I have a hunch now is not the time to get pinned down by the black dog. My sense is that too many investors are throwing in the towel here, so my advice is to, first, keep your powder dry here; make sure to enjoy the summer, and don't focus on everything that's going wrong. That way, when the time comes, you'll be ready to buy, just when most investors have sworn off stocks for good.

Until next time,

Mike Cintolo
For Cabot Wealth Advisory

Editor's Note: How would you like to make more than the market during bull markets, while also holding on to most of your gains during bear markets? Few advisors can do it, but that's exactly what the Cabot Market Letter's Model Portfolio, edited by Michael Cintolo, has done since the start of 2007. The Portfolio outperformed the market on the way up in 2007, and has kept those gains during the 2008 downturn. Net-net, Mike's subscribers have gained 33% in the last 18 months, while the S&P 500 is actually down more than 10%! Hulbert Financial Digest has the letter ranked #3 in the country for trailing 12-month performance. If you want to be on the right side of the market, and be invested in the biggest winners of the next bull market, give the Cabot Market Letter a try.

http://www.cabot.net/info/cml/cmlim01.aspx?source=wc01

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Taking Advantage of the Alcohol Distribution System

Thu, 26 Jun 2008 14:14:49 GMT

Back in April, my wife and I spent a few days in Napa Valley, California, doing what comes natural ... eating and drinking and enjoying the company of good friends. It's hard not to have a good time in Napa.

One highlight of the trip was a visit to Truchard Vineyards in the Carneros region. A Boston wine distributor had arranged a private tour with owner Jo Ann Truchard, who after 30 years in the business with her husband, is a fountain of knowledge on the subject of winemaking.

Jo Ann took us on a tour of the cellars—which had been bored into the hill and lined with gunite—telling tales about the evolution of Truchard. She shared stories about buying neighboring vineyards back in the days was prices were far lower, told us how they acquired goats to prune the overgrown vineyards, and discussed the challenges of marketing fine wine in a system dominated by bigger producers.

But best of all she poured us some delicious wines. Now, I don't typically drink wine before noon; mornings are my most productive time. But I wasn't in Napa to be productive. And I wasn't driving (we had a designated driver). So we enjoyed the wine and when the tasting was done we ordered a case of Cabernet Franc to be shipped home to Massachusetts. That's when we learned the one thing Jo Ann didn't know about the wine business ... how to run the computer and process my credit card. But she called Anna, an employee who was nearby, and in no time, Anna had completed the transaction and we were on our way.

Shipping Discrepancies

We had another great tasting the following day at Prager Winery and Port Works in St. Helena, a place that had been recommended to me four months earlier by a young woman dressed in a Santa Claus suit at a party in Boston (that's another story). To reach the Prager winery, we first had to walk through a flower garden that was so beautiful that we had to stop and take a few pictures. When we entered the tasting room, we were astounded to see that every surface of the walls and ceiling in the room had been covered with dollar bills. On closer examination, we found some that were foreign currency, and some dollars—in large denominations—that bore the pictures of Ronald Reagan and Bill Clinton on the front. Our host, Peter Prager, explained that after one early customer stapled a dollar on the wall, the trend simply continued.

The room's only window was clouded by 30 years of spider webs (you can see it on the winery's Web site). And the port, patiently poured and explained by Peter, was delicious. In the end, we bought six bottles of Aria White Port, named after the founding Pragers' first granddaughter, and asked Peter to ship it home to us. But after consulting a chart inside a cabinet, he told us that he couldn't ship to Massachusetts. Fortunately, we had a back-up plan, in the form of a brother-in-law in Maine, so Peter shipped the port there.

In the back of my mind, however, a small voice was saying, "It looks like one of these wine-growers is wrong about shipping to Massachusetts." Sure enough, a few days later, a woman from Truchard called to say they couldn't ship to Massachusetts, so I gave her the Maine address, too.

The port from Prager arrived in Maine a week or so later, and my brother-in-law delivered it to us soon after; it's only a two-hour drive from his house to mine.

But there was no word on the wine from Truchard. Still, I'm a patient man, and life is busy, so I waited. And then this week I called Truchard and talked to a woman named Linda. When I informed her that my wine hadn't arrived, she said, "Oh, dear," and promised to have the matter resolved.

In my mind, of course, were visions of a case that "fell off the truck," or was mistakenly delivered to MN (Minnesota) instead of ME (Maine). But in the end, the explanation was simple. Truchard had been confused by the change of shipping addresses and had done nothing; the case was still waiting shipment.

But here comes the strangest part. Anna said that as of Monday, Massachusetts was back on their list of legal shipping destinations! She promised to ship it on Thursday, and I expect the wine sometime next week.

Why the confusion? For the answer, we plunge with curiosity and trepidation into the murky waters of interstate alcohol shipping.

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Prohibition and the System

The trouble dates back to the days of Prohibition, when the 18th Amendment to the Constitution enabled organized crime to assume responsibility for fulfilling Americans' demand for alcohol. That experiment lasted nearly 14 years, and when the 21st Amendment ended that colorful chapter in our history, control of alcohol trafficking was given to the individual states.

That put the criminals out of business, and it created a system that persists to this day, which is dominated by distributors, who in many cases provide the only legal route by which a producer can send alcohol to a customer in another state.

The other big factor in control is the states, who think first of tax revenues and second about the wants of their citizens. The result is that every one of the 50 states in the U.S. has different regulations about shipping alcohol!

Rules Vary From State to State

For example:

Alaska does not limit or tax wine shipments into the state. It does, however, permit its communities to restrict sales/shipments of alcohol by way of local election and it is illegal to ship to those communities.

Alabama prohibits direct-to-consumer shipments, but there is a special order provision that allows for an individual consumer to obtain prior written approval from the Alabama Beverage Control Board before the merchandise is brought into the state.

Arizona allows limited direct shipments of two cases annually to consumers, as long as the consumer has physically visited the winery at anytime during the calendar year prior to placing the order.

And those are just the first three! Massachusetts, for the record, amended its laws in 2006. The new law has a limit on how much wine an individual consumer can receive from an aggregate of wineries every year, but because no one is tracking all the shipments an individual receives, no winery can be assured that it won't be penalized for being the one that goes over the annual limit! Most importantly, FedEx and UPS do not ship wine into Massachusetts.

(Furthermore, the law excludes any winery that produces more than 30,000 gallons annually, and that has had a distributor in Massachusetts during the previous six months, from shipping directly to consumers in the state.)

Pennsylvania prohibits direct shipments, but says one gallon may be brought in tax-free if purchased while abroad; state markup and taxes apply to foreign purchases in excess of one gallon. (Peripherally, it's worth noting that a person buying a bottle of wine at a Pennsylvania shop pays an 18% tax known as the "Johnstown Flood Tax" on top of Pennsylvania's 6% sales tax and the 30% Liquor Control Board markup.)

New York allows direct shipments, but requires the winery to obtain three types of permits (a sales tax permit, a direct shipper's permit and a "distributors" permit to allow excise tax payments). The winery must also file three types of returns (a semi-annual manufacturer's report of shipments to the State Liquor Authority, a quarterly sales tax return, and a monthly excise tax payment). Can you imagine being a small-time winemaker in California and making monthly tax payments to New York?!

In short, while the Internet has revolutionized commerce in most industries, the alcohol industry remains hobbled by a Constitutional Amendment enacted in 1933, and defended by its chief beneficiaries ... the distributors and the states.

Changes in the Works

Nevertheless, some progress has been made. In 2005, the U.S. Supreme Court ruled that all states must treat out-of-state wineries the same way they treat in-state wineries ... but I don't see any change. And a few states have made reciprocity agreements, allowing wine shipments to go unimpeded either way. As a result of that, wineries in Wisconsin can ship to customers in Iowa and vice versa ... but I don't imagine there are many wineries or consumers helped by that arrangement. For the most part, the obstacles remain.

Legally, the argument involves balancing rights granted by the 21st Amendment, the Interstate Commerce Clause, the Federal Sherman Antitrust Act and perhaps even the First Amendment.

Proponents of free trade claim that lowering state barriers-cutting out the middleman—would increase choice and lower prices, and I have no doubt they're right.

Detractors say underage drinking would increase.

Proponents say asking for an adult signature upon delivery solves that, and note there's no proven link between mail order booze and underage drinking.

Detractors claim opening the gates will result in "import alcohol anarchy," but it's clear their main interest is the protection of their livelihood ... to the detriment of the consumer.

So it goes.

If you have expert knowledge or an intelligent opinion, I'd love to hear it.

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Profiting From the System

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 while you may not like it as a consumer, you can still benefit from it as an investor. But the distributor I like is not in the U.S.; it's in Poland and Russia!

The company is Central European Distribution (CEDC). It's not a hot stock, but it's a dependable stock, and it's benefiting from the economic growth of Central Europe (and its neighbors) as well as a well-managed program of acquisition. It's possible that a paucity of restrictive laws where it operates are a good thing for its growth, too.

Here's what Michael Cintolo wrote last September, when the stock appeared in Cabot Top Ten Report.

"Central European Distribution is the major distributor of alcoholic beverages in Poland, with an unblemished 10-year record of growth since it came public in 1998. It's the country's main importer of Remy Martin, Jim Beam, Metaxa, Sauza Tequila, Grant's, Corona, Foster's and Guiness. But this year the company completed the acquisition of Poland's largest distillery, Polmos Bialystock, and it's this move into the high-margin production business that has lit a fire under the stock. Also attractive is the company's move into Hungary last year, and its anticipated move into the Czech Republic and Russia. Here the big story is vodka; 75% of the company's revenues come from selling vodka, and only Russia exceeds Poland in per capita consumption. Also, the company's premium brand, Zubrowka, will soon be launched in the U.S.—Zubrowka means Bison Grass Vodka, and each bottle contains a blade of grass from the Bialowieza forest. In sum, the future for Central European—which is helmed by a 42-year-old former Floridian, William Carey—is bright."

Back when that was written, the stock was trading at 45. Yesterday it closed at 70. But I don't believe the growth is over. Looking at the numbers, I see that Central European now boasts accelerating growth of both revenues (up 37% in the first quarter) and earnings (up 55%), as well as growing institutional sponsorship.

Looking deeper, I see that in May the company completed its acquisition of a 75% economic interest in Whitehall Group, a leading importer of spirits and wines in Russia. In the same month, it also signed a binding commitment for strategic investment in the Russia Alcohol Group, the leading producer of vodka in Russia.

With a market capitalization of less than $3 billion, Central European is a third the size of Brown Forman (BFB), a third the size of MolsonCoors (TAP), and one-seventh the size of Anheuser Busch (BUD). It's less well known than all these, and has greater growth opportunities, and I think you can buy some here.

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Editor's Note: Central European Distribution is no longer followed by Cabot Top Ten Report, it doesn't have the patience, and got shaken out at the March market low with a profit of 26%. But you can find similar up-and-coming stocks in every issue of Cabot Top Ten Report. It's your ticket to the hottest stocks in the market, perhaps the next Crocs, Dryships or Illumina. To get started with a no-risk trial subscription, simply click the link below.

http://www.cabot.net/info/ctt/cttid00.aspx?source=wc01

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Publisher
Cabot Wealth Advisory

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Go Long, Not Short With Great Wind Power Stock

Mon, 23 Jun 2008 14:18:02 GMT

Ten days ago I wrote an article arguing that big money from professional sports had turned many colleges and high schools into feeder programs for the sports industry, to the detriment of both academics and taxpayers.

The feedback was substantial, particularly from people with experience in academia, and I've reproduced some of the best below.

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No New Taxes

"Dear Mr. Lutts:

I can appreciate your consternation regarding high school and college "contributions" to professional sports. But, rather than come up with another TAX scheme, (which seems to turn all of us into losers somehow) maybe major league sports could be the contributors to the schools. Certainly they could pay the six and seven figure salaries for the so-called winning teams coaches that generate the professional players.

Frankly, I am more disappointed in the professional teams that take a free ride on the cities that are building the stadiums and coliseums in which they play their games. Not everyone is a sports fan like myself. My wife could care less how the Chargers or the Padres are doing. If all of the citizens of San Diego showed up at Qualcomm Stadium, the walls would fall down! Most of them, even though they pay taxes, can't afford tickets. It's too bad they get stuck with their "fair share" of the bill.

Back to the high schools and colleges. Several years ago, I managed a hotel in Phoenix that hosted the minor league teams of the Padres during spring training. There were so many hopefuls that just didn't make it through that four to six weeks. I can't tell you how many really great athletes I saw that simply didn't have the right stuff to make it to the "big show."

To my knowledge, all of the teams in MLB have a player development program that hones the skills of the new players. Most play for years without even getting a chance to make a big league team. When you hear an announcer say, "They picked this young pitcher right out of high school," you know he's very special.

Finally, we have a Republican governor here in California who has been trying to save the taxpayers from higher taxes. He is at odds with a powerful and omnipotent teachers union. School programs have suffered. And don't you know, it is never the teachers; it is always the athletic programs with the axe held up to their ears. The last thing I want to see is a tax on a dwindling number of high school sports programs.

M.O."

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Held Hostage

"Dear Mr. Lutts,

Thank you for all the tips and thoughts you share and the logic behind them. Your idea about education subsidizing sports was insightful. I agree with this thesis, and would like to add that these franchises also hold their local municipalities hostage to pay for new arenas regularly. At least this is true of Portland's Trailblazers and San Diego's Chargers.

Thanks again, loyal subscriber

R.O.

San Diego, California"

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MacArthur's Words of Wisdom

"In records (sic) to high school athletics, you are ignorant!!

HS sports are the cheapest expense in education and probably teach the most.

Find out what General MacArthur said about athletics at West Point.

Your friend,
C.H.
Florida"

(The most relevant quotation I could find by General Douglas MacArthur was this: "On the fields of friendly strife are sown the seeds that on other days and other fields will bear the fruits of victory." I agree that amateur athletics programs can be great preparation for life, teaching the value of teamwork and providing experience in both winning and losing ... but I don't believe MacArthur, 60 years ago, meant to defend the unforeseen influence of professional sports on the amateur experience.)

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Favoring a Club System

"Hi Tim,

I agree with you 100% about college athletics. I'm a sports fan but I don't think preparing athletes for the pros should be the business of educational institutions. I would favor a club system like they have for soccer teams in Europe. I don't think there's much hope of changing the current system. It's too ingrained in our culture. Thanks for saying something that is sure to ruffle some feathers.

B. B.
Oregon"

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Irrational Fans

"I live in a big ten (I won't capitalize that!) university town and am amazed and appalled and very irritated at how important the football and basketball scores are, how much the coaches are paid, how the drunken fans clutter up the town every other autumn Saturday etc. The number of times the big jocks get into trouble for rape, robbery, drunk driving, etc. etc. doesn't seem to bother the fans.

Please don't use my name. I might get lynched by people who wear school-colored everything--probably even underwear. Or lose friends who are actually nice people despite their irrational fanship.

M. B."

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In the Education Business

"Tim,

I have been a fan of college basketball at my alma mater for the past fifteen years. I have purchased tickets and made donations to the school each year. However I fully agree with you that colleges and universities are in the education business not the sports business. I would hate to see college basketball change, but how can a school justify paying the basketball coach $1.5 million a year to bring a winning program to your school, while the engineering professor makes $200,000 in the later portions of his career? Some people believe that having a winning program means more money for the school. But I believe that most colleges make substantial returns on men's basketball and football programs, these excess funds cover the school's cost for the other sports programs. My Alma mater used support from the state government to build a new arena for the basketball team. How could they justify taking $200 million of taxpayer dollars to build a tax-exempt arena for 20 games a year? I know my company would not spend the money in this fashion, when they have stockholders to answer to.

B. C."

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Book Recommendation

"I recommend a book entitled "Counterfeit Amateurs" by Allen Sack as an excellent history of the gradual professionalization of amateur athletics in this country.

M. M.
California"

(Amazon's profile says, "Allen Sack was a highly recruited athlete out of high school, a star quarterback and basketball player in a small town near Philadelphia, and he went on to become a member of Notre Dame's 1966 national championship football team. While drafted for the pros, he chose instead to go to graduate school, in Sociology at Penn State, where he became interested in the sociology of sports, teaching in the Department of Sociology at the University of New Haven for many years until he became Professor of Management in 1991. He has been Director of the Sports Management Program there since 2001. ... In "Counterfeit Amateurs," Sack brings together in a compelling way both his personal story of life as a highly recruited athlete out of high school and a football player at Notre Dame under legendary coach Ara Parseghian and his fight, since then, as a scholar-activist against what he calls the "academic capitalism" of the system under current NCAA rules. )

The book been added on my summer reading list, and that ends--for now--the amateur athletics discussion, though I do have some thoughts on the Olympics I promise to share soon.

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Betting on a Drop

On the investment front, my topic today is short-selling.

Short-selling is a way to bet that a certain stock will be lower in the future. Basically you sell a stock that you don't own in the expectation that it will decline and you can buy it (cover) at a lower price in the future. It's just like buying low and selling high, except that you do it in reverse order.

At Cabot, we don't have any official recommendations for short-selling, in part because interest in the topic is far smaller than it is for traditional long investing, and in part because it's more difficult.

One, fear is a more intense emotion than greed, and thus big drops tend to happen quickly. That means your timing when shorting must be very precise, which is difficult for even the best professionals.

Two, the mathematics of the proposition are less attractive. When you go long, the worst you can do is lose all your money; the best you can do is unlimited gains, 10-fold, 20-fold and more. But when you sell short, the best you can do is double your money (less commissions.) The worst you can do is unlimited; you can lose 10 or 20 times your money!

Another factor, immeasurable but important, is psychological. We prefer to hone our skills in going long, discovering great growth companies and buying their stocks at the right time. To contaminate that thinking by looking for the opposite would hurt our efforts in the main, most profitable avenue of investing, and we think it's not worth it.

Advice on Short-Selling

However, if you're determined to sell short, I do have a little advice.

-- Target companies with declining sales and earnings.

-- Target stocks of large companies that have declining public and institutional perception. That creates a large supply of selling pressure. (Can you think of any automobile manufacturers or airline companies that quality?)

-- Only sell short when the market's intermediate-term trend is down.

-- Never (never!) try to pick the top; only sell short stocks that are in confirmed downtrends.

-- Pick your sell point carefully, trying to sell after the end of a normal rally upward, preferably to the declining 50-day moving average.

-- Don't get greedy. When you have a decent profit after an extended period of downside action, take it.

-- And finally, cut all losses short. If the stock continues to rally after you short, cut your loss at 10% to 15%.

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American Superconductor: Go Long, Not Short

The most dangerous way to sell short is to pick a hot little stock that's "way overvalued" and bet that it will come down.

Such a case in recent weeks has been American Superconductor (AMSC), a company that for years focused on the hard-to-develop market for low-temperature transmission of high-voltage power but recently found new life by entering the market for wind energy.

Back on May 1, American Superconductor was featured in Cabot Green Investor, where editor Brendan Coffey wrote the following:

"Originally founded to develop highly conductive wiring for power systems, American Superconductor has used that expertise to expand into a few promising areas, the most significant of which is wind turbines. While American Superconductor already had some exposure to the business, it transformed itself into a wind energy powerhouse with the acquisition of Austrian firm Windtec in early 2007 ...

The Windtec division designs wind turbines that other companies incorporate into the wind towers they build on behalf of wind farm customers. ...The arrangement is a lot like razors-you buy the razor itself, but then you have to buy the blades repeatedly in order to be able to use it. As Gillette found out many years ago, there's money to be made in selling the razor, but much better profits to be found in the blades.

American Superconductor has other major clients with favorable arrangements, including Germany's Fuhrlander and Canada's AAER. It also just announced its first deal in India, with Ghodawat Industries, which will market turbines based on Windtec designs to India, the Middle East and Africa ...

Overall, the company is focusing growth in two regions-North America and China. In the U.S., utilities are expected to double their wind power spending this year, driven by a federal production tax credit of 2 cents per kilowatt-hour. China is expected to ramp up even faster; by 2020, China wants to increase its wind energy capacity more than 13-fold to 80 gigawatts."

Back then, with the stock trading a 26, Brendan rated AMSC a buy, writing, "Resistance is seen at $28.50 and $32, with good support seen around $24 and then around the $20 mark."

Since then, the stock has been on fire. Friday it closed at 43, after pulling back from a high of 45 two weeks before.

Investing Opportunities in Alternatives

And here's where the short-selling story comes in. (I hesitate to spend much time on this, because, as I said, it detracts from our main focus, but here it is.) There's a firm named Citron, run by a man named Lemon (get it?), that specializes in short-selling, and in publicizing (criticizing) the firms it is shorting in order to help drive their prices down. American Superconductor is one of Citron's targets.

Apparently, Lemon questions whether the orders American Superconductor professes to have or expects to have will truly bear fruit.

Now, some people, reading his critique of the company, will sell their shares, or even sell short. But others, believing that the company is truly in the early stages of a major growth wave, will buy. Me? I don't believe or disbelieve anyone; I believe the chart. Remember, the goal is not to be right; the goal is to make money. Think about that. Tattoo it on your chest if you want. (I'm not into tattoos.)

So what does the chart say? For the past five months, AMSC's chart, in climbing from 16 to 45, has rewarded investors who were long on the stock, and it has punished short-sellers ... despite the broad market being unsupportive. The chart, which typically reflects the opinions of all investors with an interest in the stock, appears to be telling us the future is bright for this company.

Volatility in the stock, however, is likely to be substantial for some time to come. If you're inclined to buy, I recommend that you choose your entry point carefully. Today, the stock is consolidating under resistance at 45, and there's support at 37, though a breakdown below 40 might kill the short-term momentum.

Finally, I want to close with this one big thought. There's a lot of talk about the price of oil today ... perhaps too much. Everyone wants to know when the price will decline ... or whether it will stay up here. I ask a different question. I ask, "Given the new reality that limited supplies of energy and growing demand make high energy prices likely in the years ahead, what are the investing opportunities in alternatives?" I think AMSC is one of them.

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Editor's Note: You can get further advice on investing in Green stocks with great growth potential by taking a trial subscription to Cabot Green Investor, which uses the same time-tested growth investing system as our flagship Cabot Market Letter. Since its first issue in January, Editor Brendan Coffey has brought subscribers double-digit profits in Clean Harbors (CLHB), Gushan Environmental (GU), Sims Group (SMS) and more. Nor bad for a year when the Dow is down almost 11%! To start your own no-risk trial subscription, simply click the link below.

http://www.cabot.net/info/cgi/cgiii02.aspx?source=wc02

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Publisher
Cabot Wealth Advisory

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Go Global for Growth

Fri, 20 Jun 2008 12:15:52 GMT

Editor's Note: This is part three of an ongoing series explaining Cabot's eight publications. Today I'll be writing about Cabot China & Emerging Markets Report. The first two parts of the series can be found here http://www.cabot.net/Issues/CWA/Archives.aspx

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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.

The editor, Paul Goodwin, came to Cabot in 2005 after spending 30 years as a writer and researcher. Prior to joining Cabot, Paul was a senior financial writer for Putnam Investments' international and institutional communications, writer/editor of Trivial Pursuit games, professor at the University of New Hampshire and a Chinese linguist for the U.S. Army Security Agency. Paul has appeared on TV numerous times, most recently last Monday on CNBC. The broadcast can be seen here http://www.cnbc.com/id/15840232?video=771467922&play=1

Cabot China & Emerging Markets Report focuses on the emerging markets economies, with special attention paid to the BRIC (Brazil, Russia, India and China) investment landscape. With a subscription, you'll discover the value of international diversification and the profit potential of investing in countries whose economies are growing far faster than that of the U.S. All of these stocks are traded on U.S. exchanges as American Depositary Receipts. The stocks are selected for both their fundamental and technical characteristics, but sold mainly for technical reasons.

Diversification and Growth in Emerging Markets

The Report is perfect for growth investors seeking diversification. There is greater risk involved with many of these stocks, but the rewards are greater as well. Investors who prefer stocks that offer huge potential in rapidly growing areas would benefit greatly from this advisory.

In part because of the enormous growth seen in the emerging markets, Paul has brought investors returns of 78.6% in 2006 and 74.1% in 2007, making Cabot China & Emerging Markets Report the #1 newsletter, according to CBS MarketWatch and Hulbert Financial Digest. Established in 1979, Hulbert Financial Digest is an independent and impartial rating service that tracks the performance of more than 500 portfolios in 180 stock and mutual fund investment newsletters.

Paul has maintained his #1 ranking for the 12 months ended May 31, with a gain of 108.7% He's accomplished this, despite the bear market earlier this year, by sticking to his strict stock selection method and market timing indicator, both of which are detailed below.

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See returns like these past Cabot Benjamin Graham Value Letter winners:

Ingersoll-Rand - up 33.8%
Oracle Corp. - up 44.8%
Colgate-Palmolive - up 51%

This system works well in any market and can provide stable wealth-building during fluctuations. Click the link below to find out how to safeguard your wealth.

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SNaC: Story, Numbers and Chart

The stocks in Cabot China & Emerging Markets Report are selected using Paul's SNaC method, which he has written about previously in this space. To review, SNaC stands for Story, Numbers and Chart, and a stock must have be positive in all three categories to be chosen.

Story includes the basic market proposition of a company, including its products, its target consumers, its potential for huge sales growth, its barriers to entry, its competition, its intellectual property, its management and all the other stuff that you can put into words. Story is an attractive way to look at stocks because we're all trained to react to stories. But there are lots of stocks with great stories that don't do a thing.

Good numbers, which are a factual record of a company's (and thus, management's) success, are also very important. Paul looks for stocks that have been growing revenues and earnings for a number of quarters, ideally with earnings (profits) rising faster than revenues (sales). It's also nice to have an increasing number of institutional investors and an after-tax profit margin that's high and rising. And finally, Paul wants a stock that's liquid, trading at 400,000 shares a day or more.

Numbers can be comforting because they give you a sense that more and more consumers and businesses are buying a company's products, and that management knows how to grow profits. Plus, it's a fact that most of history's greatest growth stock winners had huge numbers before they catapulted higher.

Charts are where the rubber meets the road in growth stock investing. When Paul screens his emerging markets investment universe for candidates to recommend, he's looking for stocks that are in demand. And that's what a chart can tell you. Charts also tell you about a stock's momentum-whether its rate of appreciation is rising or falling, whether it's shaping itself into any of the classic patterns of consolidation, reversal or base building.

Having all three factors-Story, Numbers and Chart-can help to shift the odds in favor of a stock's success. The best stocks have great stories, strong numbers and technically attractive charts.

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Discover the Secret to 108.7% Gains

Cabot China & Emerging Markets Report is the #1 ranked newsletter for the 12 months ended May 31 with a gain of 108.7%.

The secret to editor Paul Goodwin's success is twofold, according to CBS MarketWatch: Strict adherence to market-timing keeps the Report safe during market downturns and diversification beyond China into India, Russia and Brazil has led to outstanding gains.

So don't let this risk-free opportunity to try America's #1-rated investment advisory pass you by. Join us now. You have nothing to lose and everything to gain. Click the link below to learn more.

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Cabot China & Emerging Markets Report aims at the construction of a 10-stock portfolio. When the Report has 10 stocks, it is considered fully invested. The portfolio is aggressive in its size, large enough to withstand a failure but small enough to feel the benefits of a winner.

Stocks are held for varying lengths of time in Cabot China & Emerging Markets Report. Because these stocks are usually moving up quickly, they are often held for shorter periods of time, anywhere from a few weeks to a few months. The Report will tell you when to buy and when to sell, so you never have to guess.

A big part of deciding when to buy and sell is dependent on the market. The Report has its own market timing system that uses a trend following indicator, which keeps the Report and its subscribers on the right side of the market.

Subscription and Award

Each bi-weekly issue of Cabot China & Emerging Markets Report has market commentary that seeks to educate readers about current market conditions and often includes investing lessons. At Cabot, we believe that an educated investor is a better investor and we aim to help you learn as you invest. Each issue also includes stock recommendations, market timing and updates in previously recommended stocks.

A subscription also includes updates every other week, email access to the editor, access to a password-protected Web site and timely email alerts when necessary, such as for selling a stock or changes in the market timing indicators.

The enormous gains and commitment to a strict system led the Specialized Information Publishers Foundation to award Paul first place for Best Financial Advisory Product and the 2008 Editorial Excellence Award.

I hope this helps to clarify Cabot China & Emerging Markets Report and how it can benefit you as an investor. Look for the next issue in the series soon. As always, please send any comments, questions or suggestions via email, the Cabot Forum, http://www.cabot.net or our survey, LINK

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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, we have links below to each issue.

Cabot Wealth Advisory 6/16/08 - The Highs and Lows of Life and Stocks

In Monday's issue of Cabot Wealth Advisory, J. Royden Ward wrote about his life, from his time as a student as Babson College to his days at a brokerage firm in Boston to writing the Cabot Benjamin Graham Value Letter, and related it to picking stocks. Roy recommended National Presto Industries, a company that manufactures household appliances and looks to be a good buy for value investors. Stocks featured in this issue: Garmin Ltd. (Nasdaq: GRMN) and National Presto Industries (NYSE: NPK) Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/06/Highs-and-Lows-of-Stocks.aspx

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Cabot Wealth Advisory 6/19/08 - Emerging Markets Offer Investing Opportunities

In Thursday's issue of Cabot Wealth Advisory, Paul Goodwin wrote about the rapid growth of China and how that growth has been spreading to other emerging markets, such as India. Paul recommended Amphenol, a manufacturer of cables and connectors, which has been growing at a slow and steady pace during the last several years. Stocks featured in this issue: Amphenol (NYSE: APH). Click the link below to read the full issue.

http://www.cabot.net/Issues/CWA/Archives/2008/06/Emerging-Markets-Offer-Investing-Opportunities.aspx

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Thankful for a Reader's Letter

This week I received a letter from a Cabot Wealth Advisory subscriber from Tennessee. He wrote about the ongoing series I'm writing to better explain Cabot's publications. Here is his letter:

"Dear Elyse:

You have already performed a great service to your subscribers by compartmentalizing the various philosophies of investing.

I wasn't smart enough to understand all that information on first reading, so I wrote it all down so I could see what you were saying.

I hope you like my arrangement. If you want to use it, help yourself.

Thank you for your good work.

Very truly yours,

G. Thompson"

Enclosed with the letter was a handy chart that organized what I had written into neat boxes. I was deeply touched by the time and effort put into making the chart and sending it and the letter to me.

I wanted to send a thank you back to G. Thompson to say that I truly appreciate what he did. Knowing there are readers out there who are taking in what we write inspires everyone here to do a better job all the time for our readers. Thanks again and keep reading!

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Editor's Note: Are you a new investor unsure of where to start? Cabot can help. Cabot Stock of the Month is a perfect place for new investors to learn about the market while choosing the investing system that best suits them. It offers one stock each month from across the spectrum of Cabot's publications, so you get a taste of what we have to offer. It could be a Green, value, growth, emerging markets or momentum stock, but it will always be the best for current market conditions. Click the link below to learn more.

http://www.cabot.net/info/som/somid00.aspx?source=wc02

Until Next Time,

Elyse Andrews
Editor of Cabot Wealth Advisory

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