Credit Card ’s Talk

As I said in Part I everyone in the insane asylum looks normal, but at least the doctors are sane. Unfortunately, in the insane asylum known as the stock market all the doctors (brokers) are also insane.

The doctors in the insane asylum went to medical school to learn how to treat the patients so the could get well. On Wall Street you go to the doctor (broker) who is supposed to help you become financially well, maybe wealthy. Almost none of these Wall Street experts ever learned their profession. They have all been taught the three great prescriptions that make no sense at all: Do Your Research, Buy and Hold and Dollar Cost Averaging. This is what the brokerage houses teach.

As I said previously research is worthless, as it will not tell you if a stock is going to go up. Buy and Hold is taught the wrong way. It is OK to Buy and Hold as long as the stock is going up, but not when it goes down. No broker is taught how to protect a customer’s money.

When I was a floor trader I learned in a hurry not to hold on to something that was losing money. The very simple prescription for this is called a Stop Loss Order. Brokers hate them and will discourage you from entering them. Why? Because it means he will have to watch your account because if a stop order is not properly and timely executed he must pay it out of his pocket.

Brokerage houses do not teach brokers how to use this simple method to protect capital. The house does not want to become known that it will sell a company’s stock when it turns weak. The brokerage company makes more in good will from the poor performing company than they do in commissions from you because if they ever encourage selling it means they will not get a chance to handle an Initial Public Offering (IPO) for that company. Suppose they did have a stop protection policy for customers and they then had an IPO that came out at $30 per share, but instead of going up it went down. The customers would not lose more than $3 or $4 per share because of their protective stops, but the house would then be stuck with all the unsold stock. It is OK for you to have this money-losing dog, but they sure don’t want it in their inventory. You can see how logical this is, but you won’t hear it from a broker. Stop orders are not insane.

The insane conventional wisdom that both brokers and customers have been taught cannot remain once it is exposed to truth.

You must take the initiative with the stocks you own to protect yourself from loss of capital. If your broker argues with you there is one solution - fire him and find a good broker who will protect your money. Just because he has learned an insane system doesn’t mean you have to be nuts too.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870

When will the stock market stop going down and start up again? If we knew that we?d all be jillionaires. So what do you do now while stocks are going down and stealing away your money every day?

What does history tell us? Here is one very interesting fact. From 1920 to 2000 there were 3 bull markets that lasted about 16 years each. It seems the most recent one ended at the end of 1999. What is most scary about this is that after these long bull markets each one was followed by another period when the stock market went down or sideways for another 16 years. Look on the bright side. We only have 14 more years to wait for the next bull market.

Wait a minute ?

Wall Street has been telling us this is only a correction and now is the time to buy. What do you think they are going to tell you? They have stocks to sell and must make commissions or they will be out of business. Someone has to buy that stuff and guess who got picked? Right. You.

There are only a couple of safe places. A government-backed money market fund or some government short to intermediate bonds that will pay you about 5%. Unfortunately, too many people still think the stock market is going to make new high prices, but it ain?t gonna happen. The smartest thing you can do is protect your money from further depreciation. If you don?t take action now you will see your money disappear at about 10% to 20% (maybe more) over the next couple of years. I know your broker said the market always comes back. Well, I hope it does - in your lifetime. But you have to be smart enough to protect what you have right now.

The few wise men of Wall Street who speak the truth ? Sir John Templeton, Warren Buffet and a few others ? have said you will be lucky to make 5% over the next few years. To me that means you can be safely in bonds and sleep at night.

The great secret of success in the stock market is not buying; it is selling. Any fool can buy, but unless you know when to sell you are in trouble. Go thru the stocks and mutual funds you own right now and ask yourself this question: Would I buy this puppy now? If the answer is ?NO? then the best thing to do is sell it and put your money in something that will not depreciate over the next 14 years.

Rule one: Don?t lose money. What are you doing to protect yours?

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

1-888-345-7870; al@mutualfundstrategy.com

No, this is not a symbol for some Latin number. The Wall Street mavens talk about this market timing device as if they knew how to use it to determine which way the stock market is going ? up or down. It is pretty obvious that brokers, analysts and financial planners have not learned the language.

What does it mean and can it be used to predict market moves? The VIX is actually a measure of volatility for those who buy and sell stock options think about the market. To make it simple you can find it displayed as a chart on the Internet at www.cboe.com. It measures the volatility of the market calculated by taking a weighted moving average of the implied volatility from eight puts and calls on the S&P 100 index. I hope I didn?t lose you here. Stay with me a moment and I?ll try to make it simple.

Every trader is looking for the Holy Grail indicator and recently the VIX seems to be it. Of course, like all indicators it will work until too many use it and then it will fail taking with it the spoils of the market ? their life savings.

It seems relatively simple to use and therefore attracts novices as well as professionals. When the indicator goes below 30 it would be a time to be short the general market such as the DOW, the S&P or the Nasdaq. When the numbers go above 45, which is supposed to show panic of investors, it is a time to buy. It is an inverse indicator. The lower the number the more complacency of the little investor ? SELL; the higher the number the greater panic ? BUY. Maybe it has become too simple because there is a sing/song that goes ?When VIX is high it?s time to buy, when VIX is low its time to go?.

If it were only that simple. Every timing device has its shortcomings. With the VIX the numbers can remain in excessive high and low levels for prolonged periods and therefore cause the trader to experience losses before the desired market movement occurs. Like all other timing methods it is best when combined with other signals such as the 50-day moving average, P/E ratios and other devices.

Having been a trader for many years I can assure there is no Holy Grail indicator. The VIX is but one letter in the alphabet of market language. You cannot be successful with one syllable. You must take the time to learn the entire vocabulary.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

1-888-345-7870; al@mutualfundstrategy.com

The Shadow knows. Remember him? It seems a shadow has a firm grip on this stock market. Since the terrible break in mid-April we had a rally and then a decline. Trying to choose a suitable stock or mutual fund has been like grasping at shadows.

Two great Wall Street gurus, Elaine Garzarelli who manages multimillions of investors’ dollars and George Soros, king of the hedge funds, each have a different take on the future.

Elaine thinks the Dow Jones Industrials will be at 12,000 to 12,500 by the end of the year. Big George says we are in a bear market and must be very careful where to invest money right now. Another pundit I saw on CNBC whose name I can’t remember made a very good case for a trading range for the next several months.

Let’s examine the psychology of the majority of investors at this moment in time. Almost every one of them has been beaten with a large stick and big paper profits have been taken from their wallets. They haven’t really lost anything, but their enthusiasm for putting more money into the market has been greatly diminished. Most of the financial columnists and talking heads are saying this is a time for caution. The old buy the break conventional wisdom seems to have disappeared. How is this going to affect the entire market?

It takes more buyers than sellers to put the market up. That takes conviction and enthusiasm, both of which seem to be lacking. Until the little investor gets back his confidence it makes sense that this market has more chance of going sideways than of making any new contract highs.

There is so much bearish sentiment about what Mr. Greenspan is going to say next week that it may turn into a nonevent. In fact because of all this negative sentiment whatever he does may already be factored into the market. Even if it is a sharp interest rate increase the market may throw it off and move up much to everyone’s surprise. A negative event followed by a market rise is quite bullish as we saw from the unemployment number on Friday. That 3.9% unemployment number should have made the market go down, but it went the other way. We could be in for a rally this week.

I believe that if a stock or mutual fund is not going up with a strong momentum you should not buy it. Right now almost all mutual funds are going sideways. There is plenty of time to get invested so the best thing to do is wait until a definite upward trend is established and then buy it.

Since none of the great market mavens can agree then who must you rely upon? You know. You must reply upon your own judgment. Not a broker, not a banker, not an economist, not the guy on CNBC. You. Your guess is just as good as anyone else. You.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

1-888-345-7870; al@mutualfundstrategy.com

There is a current movie entitled ?Eternal Sunshine of the Spotless Mind?. It is about a man who has had a painful love affair and will do anything to rid his mind of those pain thoughts of a former love. He sees an advertisement that offers just such a service. It seems his former lover has the exact thoughts and she goes through the same treatment. Guess what? They meet again, do not recognize each other, and fall in love again.

Does any of this sound familiar?

May I gently remind you of what happened to your stock portfolio in 2000 to 2003? Please. Don?t shoot the messenger. You fell in love with the stocks or mutual funds in your 401K and became wildly emotional about all the money your were making and how you thought about buying one of those islands in the Bahamas for early retirement. Then came the road crunching detour and you are left with a broken down portfolio by the side of the road.

Along came a shiny red tow truck and a mechanic who said he could fix everything. Slowly you began to forget the previous gut-wrenching journey and your car is now running (not as well as it used to) and seems to be getting better as this mechanic from Maul Street is working on it. Hey, I think I?m in love again.

If you cannot remember what happened in the past you will repeat those same errors in the future. Every great statesman has been a student of history. Every great investor has studied the history of the stock market to try to determine what the future will bring. Cycles continue to repeat and repeat because people forget the past. Those who are smart enough do not fall into the repetitive trap and instead take advantage of it.

One of the most predictable is the long cycle of the stock market. It usually runs about 16 to 18 years. There is the up cycle which is invariably followed by a down cycle of equal length. Within each long cycle are several short cycles of 6 month to 2 years with a resumption of the downward move until the cycle is completed.

Do you realize we just completed an 18 year up cycle in 2000? Now the market is completing a one year advance within that cycle and may be getting ready to head down again. How is your spotless mind doing? Have you forgotten your lesson from 2000? Are you willing to make that same mistake again?

If you choose to forget you are doomed to repeat your losses. This time use your whole mind to learn from a past mistake so you will not see your money disappear ? again.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870