Dateline: 12/09/99
No! I'm not talking about funky soul brothers here! I'm talking about funky momentum analysts Carlton and Timothy Lutz, père et fils.
While much of the focus of my newsletter profiles will be on Canadian newsletters, after all, this is Investing: Canada, I, like most Canadian investors, love the American stock market and own some good Yankee stocks. So I will include the odd U.S. newsletter here, starting with one I subscribe to - The Cabot Market Letter.
Following this article is a link to my capsule description of the newsletter which includes strategic links and subscription information as well as an overview of their investment philosophy and methodology. But for now, let me tell you how I came to be a subscriber and my personal experience with them.
I found them while browsing the Internet looking for newsletter websites to fill up my Newsletter Net Links in the Fall of 1998. I wasn't all that familiar with momentum analysis and it sounded intriguing, so I took them up on their free three month trial offer by email. (It's now only one month.) At the time the market was slumping. The Dow was off 20% and some stock markets were considerably worse off. Cabot had readers at least 75% in cash. There were only three stocks in the Cabot Portfolio - all holds. They were Amazon.com, Presstek and Qwest.
My intention was, as it often is, to read the newsletter for interest, not necessarily to act on its advice.
Their Oct. 30, 1998 newsletter came out with the lead article "A Textbook Example of a Perfect Buying Point". The Lutzes use four indicators to analyse general market conditions and one of them, the Cabot X-Ray Indicator which looks at the NASDAQ Advance-Decline in relation to its 40 and 70 day moving averages "flashed a major buy signal" on Oct. 27 which was confirmed by a buy signal from their Two Second Indicator (new lows on the NYSE) and their Power Index (interest rates).
They asked the rhetorical question "How can you turn bullish on the stock market when the world news remains so negative?" citing "the Japanese yen debacle, the Russian ruble collapsing, the Brazilian financial problems, the collapse of the giant Long Term Capital Management hedge fund" and Monicagate as examples. Well, they said, the indicators take the pulse of the market and declared it healthy. The market, they said, "delights in climbing a Wall of Worry" and they assured readers that the market had already factored in all the negatives.
Their advice that issue? "Become fully invested". Many analysts were calling Internet stocks over-priced and saw their decline as not surprising. But not the Lutzes. They recommended twelve stocks as buys. Some were sold off or didn't perform all that well, but look at what these picks that were still in the portfolio on January 29, 1999 did from Nov. 2, 1998 until then. Half of positions in Yahoo, Schwab and Amazon.com were sold off after prices had doubled. Prices adjusted for splits.
| Stock | Amazon.com | Qwest | Yahoo | Schwab |
| Price Oct. 30 | 21.83 | 20.03 | 72.72 | 16.40 |
| Price Jan. 29 | 58.47 | 29.98 | 177.13 | 35.15 |
| Stock | Dell | EMC | Metzler | Medimmune |
| Price Oct. 30 | 33.03 | 32.56 | 40.00 | 33.97 |
| Price Jan. 29 | 50.00 | 54.44 | 50.00 | 49.50 |
That's an impressive record for four months. And I kicked myself for not heeding their advice. The newsletter kept coming for free for a while after the three month trial, but when it stopped, I decided to subscribe (and to follow their recommendations instead of just reading about them).
By then the market was turning again and they were not urging any new buying. When buy signals came, they were a bit too soon and some good stocks were sold off with 20% losses quite quickly. (They recommend cutting losses at 20%.) I ended up losing on three of the four stocks I bought based on their analysis. But the winner, JDS Uniphase, was spectacular, tripling in price since I bought it.
I later bought another one of the few stocks that they kept as buy recommendations through the summer - Qualcomm. It almost doubled in price within a month of buying it. If I had bought when they first suggested it, I would have quadrupled my money instead of doubling it. I'm still holding that one and recently bought some more.
I hung on to one of the stocks that I would have sold if I followed their "sell on a 20% loss" rule because it was recommended as a buy by another newsletter - Pat McKeough's The Successful Investor. The stock - Doubleclick - has recently been soaring to new heights.
Overall, I like the Lutzes analysis of market conditions and their relative performance approach to stock picking, even though it doesn't always pan out. They've had some spectacular successes, their best being Amazon.com which they recommended at $9.50 (split adjusted) in January 1998.
The downside is the price. At US $295 a year, it's just a tad expensive for us Canucks with our anemic dollar. But their introductory price of US $99 is worthwhile. (And they only select stocks from US Exchanges - limiting Canadian picks to dual traded stocks like JDS Uniphase or Ballard Power Systems - both of which have been Cabot picks.) My subscription comes up for renewal early next year and I'll really be hemming and hawing and fretting over the expense. I'm hoping they'll offer a discount at some point, you know, re-new your subscription now and save 50%.
Comments? Suggestions? Why not post them on our Bulletin Board or email me.
E-mail me!
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The VSE and ASE merged as the new Canadian Venture Exchange on
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