Towards A Healthy Economy + Marketing World

If you are forced to evacuate from a major category hurricane, which is approaching a shoreline near you, perhaps you should consider that you will want to call your broker and have definite points at which the stocks you own will be sold if they go down or if they go up. Consider if you will that you may be out of touch from your broker and your stocks or mutual funds for a while.

If you are an online trader you may not have immediate Internet access for a long period of time. Without the ability to check on your portfolio or manage your mutual funds or make a trade with your stocks it might be better if you were in cash and out of the market during this time period on the most risky parts of your portfolio.

If that is not possible you need to make arrangements with your broker in order to ride things out in more ways than one. Hurricanes do affect the stock market and can affect your mutual funds in an adverse way.

Consider if you will that oil prices could go up significantly if the Gulf Coast of the United States of America is hit again with the major hurricane of large category like it was during the 2005 Atlantic tropical hurricane season. Depending on the diversity of your stock portfolio this could be a significant problem for you and you have a chance of losing a lot of money if you do not plan ahead. Please consider all thisse in 2006.

“Lance Winslow” - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; http://www.WorldThinkTank.net/wttbbs/

Have you often wished you could have got in on a tremendous money making opportunity before it took off? How would you feel if you had bought Microsoft stock when it first went public and your investment doubled 5 times? Imagine how rich you would be right now?

I’m not saying you should be in Microsoft stock at this time. In fact Microsoft’s stock has stayed in the $25 range for years now. Sorry, you missed that opportunity but there’s a bigger opportunity coming around the corner. In just a moment I will even tell you what’s driving the opportunity.

The opportunity I am speaking of, if you have not already guessed, is commodities. Why commodities? There are many reasons but to name a few, the margin requirements are ridiculously low compared to stocks, less time consuming, and they have the potential to generate more profits at a faster pace.

We all know that for the most part, wealthy people know how to increase their wealth. So why not follow wealthy people? The obvious difference is that they are able to invest more money than us but as long as we follow the same techniques and strategies our money will grow too.

Wealthy people are moving some of their money into commodities right now! Warren Buffet has profited over $70 million in commodities. Would you stop investing in commodities if you made that kind of money and there was still more to come? Neither would Warren.

Jim Rogers, co-founder of the Quantum Fund, was able to retire at the age of 38 after making hundreds of millions of dollars in commodities. He is so excited about what he sees in commodities that he came out of retirement and has already made millions more.

My belief is that, in the past, commodities received a bad name because people did not understand how investment cycles work. Some people were caught investing in them when they were out of cycle. However, commodities are in an up trend. According to experts these trends last for 10-18 years!

As promised earlier, I will reveal what’s driving this trend. It is China driving this trend. They are not only driving it they are pressing the accelerator down to the floor. They opened up their markets to the world and now they need more infrastructure to support their rapid growth. They have the fastest growing economy in the world. Another reason they are growing so quickly is in preparation of the 2008 Olympic Games that they will host.

Most automobile drivers sometimes complain about how high gasoline prices have gone. Well, commodities offer YOU a way to make money from this situation. You can either invest in unleaded gasoline or crude oil, from which gasoline is derived. Once you make money from this investment please join me in helping others by occasionally purchasing gas cards to give away or simply paying for the person’s gas behind you at the checkout line.

Finally, commodities offer a way for you to catch the next big fortune building opportunity. If you have not heard much about it that’s because the wealthy usually do not talk much about how much money they are making. The less fortunate would frown upon them if they did. China is fueling the growth for commodities in what I termed the “China ATM”, which stands for China Automatically Transferring Money. Are you ready to take money out of the “China ATM”?

© Copyright David Wells. This Newsletter and all contents are proprietary products. All rights reserved. You are welcome to forward the entire Newsletter to anyone interested.

Often referred to as The Money Motivator, David Wells is passionate about helping people “crack the wealth code” to become money magnets. Let him teach you the techniques Hillary Clinton used to turn $1,000 into $100,000 in the course of a year.

For more information visit his website at http://www.themoneymotivator.com or contact him at david@themoneymotivator.com.

The Whitney Theater (Hamden, CT) marquee advertised movies for children (”Gidget”…”The High and the Mighty”). Every kids matinee, the manager would pick a ticket out of a large popcorn box. He would give the winner candy, free soda and popcorn, or a toy connected to the movie.

One afternoon he read the numbers on my ticket stub. The prize was an air-pumped rocket. My friend Elly and I went to an open field, pumped it as hard as we could, and let it go. It went straight up, stalled, lost momentum, nose-dived and hit the sidewalk.

Stock Markets soar and crash too. Stock Market traders sometimes become kids with a toy. Every day the market pumps itself up. Indices spiral upward making many giddy with kiddish delight; nobody wants this rocket to fall from its lofty heights. With little notice, the market stalls, momentum is lost, and markets crash.

Simple laws of gravity inform us that upward moves of any force require energy and momentum. The stock market is ruled by the same laws. Markets cannot, will not, and have not moved in one direction without correcting. This means that bull markets are not forever, and bear markets are bearable.

“What happened?” My toy rocket did not give me any warning when falling to reality. Stock markets project warning signs when upward momentum stalls. You never want markets to go up forever. It is best when markets move up, pause, contract, and build a base before making their next move.

A base-line provides support for a market index like the Dow or the S&P. Long support lines give investors solace because it takes a lot of sellers to break through it. A support line or base (see image) is a trading pattern of stock buying and selling with little price change.

No support means the market index has potential to keep falling until it finds a support line/base or bottom. Markets stall when reaching a high price on average daily stock trading volume. Bulls (buyers) will strain to push the markets upward, but Bears (sellers) thwart the momentum. An excessive number of sellers (many more than the average) can force an index/stock to new lows.

“Make it go higher!” My toy rocket did not reach heights too fast. Elly and I were ten or eleven years old; we wanted that rocket to disappear in the clouds. Many investors act the same way; they want the markets to go up and up because it means more money. When markets hit successive days of positive returns, investors get starry-eyed. We like it when Neil Cavuto (among others) reports new highs for the Dow (read ” The Dow Jones Industrial Average: Failing the Average Investor” by Steven Selengut).

Dizzying heights cause most investors to miss subtle market moves. Stocks/indices must move higher on strong buying volume. When markets reach a bench-marked high level, getting past it will take three times the average number of daily buyers.If the price stalls at the bench-marked high and the buying volume is less than the daily average, index prices decline.

“Don’t worry.” Elly never worried; I always worried. When that rocket went off, I feared it would break a window or hurt someone. Elly said, “Just pump it Ray and let it go!” Some stock investors never worry. Wise Wall Streeters know that “The market needs to climb a wall of worry.” War, high oil prices, poor consumer sentiment, and Federal Reserve rate increases are walls of worry. Euphoric investors topple markets.

Something to Fear The Vix Index is the “fear index” When the Vix spikes, worry increases; when the Vix is down, optimism is excessive. Today, May 22, 2006), the Vix spiked.

The VIX “is a good indicator of the level of fear or greed in U.S. and global capital markets. When investors are fearful, the VIX level is significantly higher than normal.” (Antognelli, Ferreira, McArdle, and Traub. “Fear and Greed in Global Asset Allocation.” The Journal of Investing. (Spring 2000), pp. 27 - 32). Every rocket must return to earth for refueling. I learned this with my friend Elly and my toy rocket.

Want to build a toy rocket? Gary Rollins tells you how in his articleBuilding A Model Rocket Can Be A Great Learning Experience

Ray Randall serves clients as a registered investment advisor with his firm, Ethos Advisory Services, Essex, Massachusetts Ethos Advisory Services. He has wide experience within the financial services industry, writes a weekly newsletter for Ethos Advisory Services, and coordinates the developments at Echievements.com. Ray holds a Masters Degree from Gordon-Conwell Theological Seminary, Hamilton, MA. You may call Ray (617-275-5565).

Bottom line. No exaggeration. No hype. If you want to be rich, all you have to do is make a decision to do something that most people don’t do. And that’s to PAY YOURSELF FIRST.

What most people do when they earn a dollar is pay everyone else first. They pay the landlord, the credit card company, the telephone company, the government, and on and on. The reason they think they need a budget is to help them figure out how much to pay everyone else so at the end of the month-or the year, or their working life-they will have something “left over” to pay themselves.

This, my friend, is absolutely, positively financially backwards. And because this system does not work, people wind up trying some pretty strange ways to get rich.

When you boil it down, there are basically six routes to wealth in this country. You can:

• Win it
• Marry it
• Inherit it
• Sue for it
• Budget for it OR
• Pay Yourself First.

Let’s quickly review each of these methods.

Win It: Can you guess the No. 1 way average hard-working people try to get rich in this country? They play the lottery. People in this country spend more than $8 billion a year on lottery tickets. That’s more than $250 for every person, including those not old enough to buy a ticket. Can you imagine if these same dollars had been invested in retirement accounts? Now let me ask you something else. Have you ever won the lottery? Do you know anyone who has? Did that person share any of their winnings with you? Exactly. So let this one go.

Marry It: How’s this working for you so far? There’s a saying that it’s as easy to marry a rich person as a poor one. Really? The truth is that people who marry for money generally end up paying for it for the rest of their lives. So let’s skip this one too-unless, of course, you really do fall in love with someone who happens to have money.

Inherit it: This obviously isn’t worth thinking about unless your parents are rich. And even if they are, isn’t there something a little sick about visiting them during the holidays, asking how they are, and then thinking “bummer” when they say, “I feel great”?

Sue for it: This one is big in the United States, where more than three-quarters of the world’s lawyers practice and upwards of 94 percent of the world’s lawsuits are filed. But Canadians are becoming more litigious too. While Canadians have usually left it to the Americans to sue each other for spilling coffee in their laps or abandoning the wheel of an RV on cruise control, some Canadians feel that, rather than earn, save, and invest, a better strategy is find ‘em. sue ‘em, and sock it to ‘em. In any case, it’s not a real system that can be counted on to build wealth.

Budget for it: You can scrimp, brown bag it, clip coupons, track every penny you spend, never have fun, and put off living for thirty years in the hopeful expectation that someday you’ll be able to retire and start enjoying your life. Yuck. That sounds terrible. No wonder this rarely works.

This leaves us with the one proven, easy way to get rich. And that is…

PAY YOURSELF FIRST

Pay Yourself First means just what it says. When you earn a dollar, the first person you pay is you. Most people don’t do this. When most people earn a dollar, the first person they pay is the government. They earn a dollar and, before it even makes it onto their paycheque, Canadians pay the government something like 30 cents and Americans pay somewhere around 18 cents in federal income taxes (often more). On top of that, for Canadians there’s the Canada Pension Plan, provincial health insurance and employment insurance. In the end, they wind up paying the government first as much as 35 or 40 cents of their hard-earned dollar. Seems like everyone is getting paid but the person who earned the paycheque.

The Secret is the Way Your Money Flows

You have a right to legally avoid federal and provincial taxes on the money you earn. The key word is “legally.” You can legally Pay Yourself First, instead of the government, simply by using what is called a registered retirement savings plan (RRSP) for Canadians or a 401(k) plan for Americans. You can hold a large number of investments in an RRSP or 401(k).

Who You Work for is Waiting for You at Home

As much as our employers would like us to believe otherwise, the reason most of us go to work each morning isn’t the company mission statement or even serving the customer. It’s ultimately about us. When it comes down to it, the reason most of us go to work is for the sake of ourselves and our families. We go to work to protect those we love. Everything else is secondary. We are our first priority.

Or are we? The truth is that we are not raised to put ourselves first. We are raised to be nice. We are raised to share. We are raised to help others.

These are wonderful values, and I believe in them. But there’s something else I also believe: the old saying that the Lord helps those who help themselves. I think there is timeless truth in this. So before you start laying out a financial plan, really focus on these questions: Are we helping ourselves? Are you helping yourself? Are you REALLY working for yourself? I’m not asking if you’re self-employed. I’m asking whether you’re really working for your own benefit and that of your family when you go to your job each morning.

Visit InvestorGazette.com today for articles about retirement income planning for the individual investor. The Investor Gazette - weekly edition of investment properties and investment opportunities.

During the life of a vertical call spread, the spread will trade
between its minimum and maximum values (between 0 and the
difference between the two strikes). In the case of a vertical
call spread, the spread will trade closer to zero when the stock
trades closer to or lower than the lower strike price. The
spread will trade closer to maximum value when the stock trades
closer to or higher than the higher strike price.

For example, let’s refer back to the August 35 - 40 call spread
chart on a previous page. In the column marked “August 35 - 40
call spread closing price”, you can see that with the stock at
$35.00, the spread is worthless. As the stock price climbs
toward 40, the call closing price increases until finally it
reach its maximum. Remember, this maximum gain occurs at
expiration. Before that time, the spread will trade with a
premium.

Starting from a stock price of 37 , a price located directly
between the two strikes, (using our example of the August 35 -
40 call spread) we can see the approximate value of the spread
is roughly $2 dollars. This is because the August 35 calls and
the August 40 calls are equidistant from the current stock price
of $37.50. Being equidistant from the stock, both the August 35
and 40 calls will have almost the same amount of extrinsic value
in them. Thus, in the spread, the extrinsic values of the two
options cancel themselves out since you are long one call and
short the other. This would leave each option value consisting
of only intrinsic value. With the stock at $37.50 the value of
the August 35 - 40 call spread will be $2.50. The August 35
calls will have $2.50 in intrinsic value while the August 40
calls will have $0 in intrinsic value. The difference gives you
a spread with a value of $2.50.

A general rule of thumb is: if the stock price is located evenly
between the two strike prices, the vertical spread should be
worth roughly half of the value of the distance between the two
strikes. This will be true for vertical put spreads as well as
call spreads. From this rule, we can roughly estimate the
vertical spread’s price per different stock prices.

For vertical call spreads, if the spread is worth roughly half
of the difference between the two strikes with the stock price
directly between the two strikes, then as the stock falls to
lower strike and beyond, the spreads value will decrease and
move closer to $0. Time left until expiration and volatility
will dictate how close and how quickly it will approach $0. On
the other side, as the stock climbs toward and above the upper
strike, the spreads value will increase toward its maximum value
described by the difference between the two strikes.

For vertical put spreads, as the stock price decreases toward
the lower strike price, the spread will increase in value and
approach its maximum value as defined by the difference between
the two strikes. As the stock price increases toward the higher
strike, the spread will decrease in value and will approach $0.
Again, time until expiration and volatility will determine how
quickly and how close the spread will approach $0.

Share prices tick up and down every second of the day. It is a complex game played by many people around the world who are ready to invest huge amounts of money. The reality is that safe bets can be made using the available information, but investing in shares is still a gamble, similar to betting on a horse in the Grand National or picking a team to win the league at the beginning of the season. Anything can happen.

If you are a first time investor you may be feeling confident and willing to take a risk. However it is crucial to learn to walk before running. Beginners should steer clear of buying shares in an individual company. It is often pot luck and not the best way to start.

Although is sounds rather conservative, a collective investment like a unit trust or investment fund as opposed to single shares is a good place to begin. This method will allow you to effectively buy an investment in a variety of shares giving you a good range and importantly means you are reducing your risk related to any one share. Diversification is the key to any good investment strategy.

Another option is to invest in a Guaranteed Equity Bond. This allows you to gain returns from the stock market and also guarantee that you will get all your money back if it falls. Shares are an investment. People tend to give the market all kinds of properties it should not really have.

A couple of fundamental principals to adopt from the beginning which may sounds rather obvious but are widely recommended when dealing in stocks and shares are to-:

A. Only put in what you can afford to lose.
B. Not become emotional.

Try not to consider any bad investment as an amount lost. A major mistake many people make is once their shares have reduced in value they begin thinking of ways to recoup their loss. It just doesn’t work this way and there is certainly no what goes down must come up rule. The sooner you learn this the quicker you can begin getting a return. Almost think along the lines that shares have no history and are only as good as their current value. You must learn to let go of the past values.

If an investment value has fallen from £100 to £50 you must now ask yourself whether you would be willing to invest that £50 on the market and is this the investment that you would choose? There is no difference in the risk profile between buying a share new, or having a share that you have owned for a long time, because it does not change the chances of what will happen. Looking at it as a fresh investment is the only way to go.

Carrying out your own research is the best way to begin if you are serious about investing in shares. Understand the companies you are considering putting your money in to and how the markets work. Read and listen to as much as you can. The internet is an easy way to gather material in preparation however be aware that personal finance sections are often commercially driven and only include referrals to companies that have paid to be mentioned. Take everything on board, but the key is to recognise a lot of advice out there combines predictions, research, and educated guesses, but no one can provide a guaranteed future outcome. If they could the market would simply not be a market. That is why the stock market is all about risk. The risk that you may gain versus that you may loose.

Good Luck

Ciaran McVeigh is a currency broker at Foreign Currency Exchange in London, United Kingdom. FC Exchange
http://www.foreign-currency-uk.com/

I counsel a LOT of people about money. I see the same mistakes being made over and over again.

If you’ve made ‘em, don’t worry. I’m here to help you do it right THIS year! The fact is, moneymakers need a money coach, just like gymnasts need a gymnastics coach.

As your MoneySmart(tm) coach, here are the mistakes in thinking and behavior I want you to avoid:

* Don’t think of your refund as free money - or lottery winnings. It’s not! That refund is your hard-earned dollars that you loaned Uncle Sam interest free - all last year.

* Don’t spend the refund - or OVERSPEND it - when you haven’t gotten the cash in your hands yet.

* Don’t spend the whole refund to pay down debt.

OK. So now you’re MoneySmart(tm) about what NOT to do with that refund in 2005.

Next, here are my EASY MoneySmart(tm) moves that YOU can make to best handle your in’come tax refund this year.

First, divide your refund into thirds - 3 equal amounts.

Why 3 equal amounts? Because we want to use that refund -
however small or large - to handle the past, the present
and the future.

Use one third to handle the PAST by paying down debts.
Start with your most pressing debt…either the one with
the highest interest rate, or the one with the biggest
consequence for not paying it down.

Use one third for something you need or want in the PRESENT.
If you can, use that money to have some FUN. Do something
that is NOURISHING to you - something that makes you feel
GOOD. How about a mini-vacation, or an evening of fine
dining and great entertainment, or a day at the spa?

***Of course, if the brakes on the car are shot, or you have
some other pressing need, you’ll need to do that FIRST.***

Finally, use one third to handle some aspect of your FUTURE.
Here are several MoneySmart(tm) suggestions for you to think about.

*Put money in your Anti-Emergency© Fund.
(see http://www.phelps-creek.com/archives/Anti-Emergency.htm
for details)

*Put money in your Rainy Day Fund (see http://www.phelps-creek.com/archives/safetynet.htm for details) or save for your retirement through your 401(k), 403(b), IRA (traditional or Roth).

*Put money into college education funds (Coverdell IRAs or
529 plans) for your kids or grandkids.

Why is this “thirds” approach such a great idea? Because
you’ll be taking care of a variety of wants and needs -
AND taking several easy MoneySmart(tm) steps forward towards
your BIG goal of financial freedom!

THAT is how you can have MORE fun with YOUR tax refund in 2005.

As always, if you have any questions, please go to my web page www.cindymorus.com for contact information. I’m here to be YOUR coach, and make sure YOU succeed.

Cindy

PS…

Now is also a GREAT time to “check out your paycheck”:

* Re-evaluate how much money you are contributing to your
401(k) or 403(b).

* If you got a whopping refund, remember you were just
sticking YOUR money in Uncle Sam’s pocket. No point in
giving Uncle Sam an interest free loan! Adjust your
deductions so that you have just enough taxes withheld
from your paycheck.

PPS…

If you’re paying outrageous credit card charges (and so many people are) you’ll definitely want a free copy of “A Credit Expert’s Secrets: You Can LOWER Your Credit Card Interest Rates”. With my MoneySmart(tm) coaching, you be able to save hundreds (or maybe thousands) in credit card interest payments this year. Get a free copy of “A Credit Expert’s Secrets You Can LOWER Your Credit Card Interest Rates” when you sign up for at: www.cindymorus.com/newsletter.htm

Cindy Morus (http://www.cindymorus.com)is a Certified Financial Recovery Counselor specializing in showing women and their families how to achieve financial well-being and peace of mind. She is also a Certified Credit Report Reviewer. Get a free copy of the “A Credit Expert’s Secrets: You Can LOWER Your Credit Card Interest Rates”e-book when you sign up for the “MoneySmart Nuggets” newsletter.

The patterns of any particular investment will detail the
relative risks and rewards undertaken with each investment.
Risks can be defined as “the chance or possibility of
injury, damage or loss.” Risk focuses on the future and our
ability to forecast that future. In turn, the ability to
predict the future is largely dependent on what you’ve
learned from the past. The best you can do is to study the
record and draw on experience - your own and that of others.

On the surface, the relationship between risk and return
seems straight forward. In general, you will find that risk
and return move in the same direction. In other words, if
you accept a higher risk, it is possible to achieve higher
returns. High-risk investments invariably promise a high
return.

But equally important, where it is possible to win big, you
can lose big. And the odds are always with the “house” (the
provider of the risk-return). If all it took to create
instant wealth was assuming high risks, then you could
assure yourself of millionaire status simply by attending
the race track every day and betting all your money on the
long shots!

Avoiding Risky Investments

No other advice on investing is complete without a few
important warnings. The investment industry has its share
of unscrupulous people who, at best, will mismanage your
investment, and at worst, steal you blind.

They’ll come at you with Ponzi schemes, pyramid deals, real
estate that’s never been any good and never will, and
telephone offers or email offers of stock or funds or oil
leases or gems or precious metals, etc., that offer large
and easy returns with no risk.

These salespeople play on a universal desire to “get
something for nothing” and to “get rich quick.” Most of us
are not immune to a good pitch. However, by just taking the
simple precaution of thoroughly investigating an investment
offer yourself or through a trusted accountant, lawyer,
financial adviser, etc., you’ll greatly minimize the risk.
The best caveat to bear in mind is: “if it sounds too good
to be true, it probably is.”

Watch out for the Ponzi and Pyramid.

In their eagerness to make a lot of money quickly, many
people and millions of dollars every year are sucked into
Ponzi schemes and pyramid deals. In the former, expect to
lose your money, and in the latter there’s a very high
probability that you’re wasting time and money.

In the 1920s Charles Ponzi invented a simple, alluring
investment fraud that’s still practiced today. In its
simplest form, a swift-talking promoter will ask you to
give them, say $5,000 to invest in a spectacular, usually
secret, investment to which the promoter has access. They
promise a spectacular return of, say 20 percent in three
months.

At the end of the three months, they offer to deliver
$6,000 (your investment plus your return) but suggests that
you let it all “ride” for an even better return in another
three months to six months. What you don’t know is that
there is no investment. The promoter is simply gathering as
much as they can from as many suckers as they can convince.
Then they have to pay Peter, it comes from Paul.
Eventually, the promoter disappears with the bulk of the
“investment” money.

A Pyramid scheme is an illegal type of multilevel sales-
except usually there is no product sold. You are asked to
pay ($500, $1,000, $10,000 etc.) to become part of the
pyramid. The amount of your payment to the promoter
determines your position level in the pyramid and “allows”
you to promote the pyramid to others. The more people you
bring into the pyramid, the higher you rise and the closer
you get to the big payoff.

Financial Risk

For most investors, financial risk is the most immediate
one. It centers on the simple question, “If I put my money
into this investment, will I at least get my money back?”

Your best protection against financial risk is to explore
any investment to the point where you understand the
factors that risk and/or secure your principle. When you
buy a common stock, for example, the financial risk is tied
to the credit and operating histories of the company
issuing the stock.

So you analyze the firm’s financial capacity (ability to
generate income). A firm that can’t pay its debts or has a
low financial capacity and a comparatively high financial
risk. A company with earnings high enough to pay fixed
costs many times over is thought to pose a lower financial
risk.

Generally, such vehicles as certificates of deposit,
commercial short-term paper, federal savings bonds and
Treasury securities are considered of low financial risk.
Whenever you evaluate the risk inherent in a given
investment, ask yourself:

1. What kind of risk is involved?

2. What is the extent of this risk?

3. Is the potential return worth this risk?

By first learning a set of criteria with which you can
evaluate an investment, and then considering those
objectives in light of your personal factors, you’ve begun
acting like an investor.

Fundamental analysis, the study of profits, revenue, income,
assets, etc. etc. It was the mainstay of stock market investing
for decades and decades. Finding a diamond in the rough, was
what investors looked for, it is what mutual fund managers use
today as their main tool. It is what is done by hundreds, if not
thousands of brokerage houses, stock market investor services,
and mutual fund managers every day of their lives. Numbers
poured over, fed into software programs, then analyzed again. So
much so that there is not one single fundamental analysis
surprise left to be found in large cap stocks. That is so
fundamental to the success of our large cap philosophy
(www.livingonlargecaps.blogspot.com) that it bears repeating
again. There is nothing new to be learned in fundamental
analysis of large cap stocks. Everything is already known. I
suppose we should thank the countless analysts who put in
countless hours fundamentally analyzing the numbers for us so we
don’t have to. Because without them, we would have no beginning
point. So is that to say fundamental analysis has a purpose? Of
course it does. Do we use it? You bet. It is one of the first
things we do use. We use in it screens, and we also use
analyst’s recommendations that are based largely on fundamental
analysis. We buy no stock without corroboration of analyst’s
reports, and many of our screens have an analyst’s reports
factor to them. So in a sense fundamental analysis is THE most
important factor of our selecting stocks. Without a good report
from fundamental folks, we don’t look any further at the stock.
We know stock analysts also have opinions about where the market
is heading, and about the sectors as well. We like that too. We
want to be where the action is. An exceptional fundamental stock
will not move, if people are not focusing on it. And there is
the rub with fundamental analysis, and that is why
fundamentalist either make lousy traders or don’t believe in
trading. They are long term investors, philosophically superior
to technicians in their way of thought. But stocks only move if
they are the focus of traders. (traders for our purposes could
be mid-term speculators as well, which frankly is probably where
we fit in.) So reading an analyst report, or with large caps you
get the benefit of a pool of analyst’s reports, gives you an
idea whether or not the stock will be moving in the near future
(3-6 months.) A stock that is rated a hold is likely not to do
much of anything rather than track the market or the sector. A
stock that is rated a sell, likely has already tanked. But a
stock that is rated a buy, is worthy of a technical look. Do we
analyze rates of growth, % of debt, stuff like that? Nope, it
has already been done. Our job is to find the hot sectors, and
the hot large cap stocks in that sector. And then take those and
see if they are poised to move.. Long term moves of an
individual stock or the market in whole is a process of thought.
But every wiggle and waggle along the way is a process of
emotion. A stock poised to rise, based on solid fundamental
analysis also needs to have emotion behind it, to actually rise
in our time frame. We are not interested in holding a stock with
15% growth rates for a year to see if that results in a 15%
stock price increase. The fact of the matter is that stock is
going to rise and/or fall 15% in a year’s time no matter what.
But if we know that it has received high marks for it’s
fundamentals, and then look at its charts and see technically it
is also very healthy then we have something. A stock that does
not fair well through analyst’s reports is not even worhty of
our looking at its’ chart. There are so many options in large
cap stocks that we want EVERY advantage we can get. We want
every selection to be a winner. When your average trade only
nets you 4%, you cannot afford to be wrong.

I’ve been involved in online trading, specifically with stock and index options, for several years. In this time, I’ve spent a great deal of time thinking about value and the fact that anything, be it a stock or currency or even a house, is worth exactly whatever someone else will pay for it. Sure, there are a million and one pricing models (especially in financial markets) that will tell you precisely what something should be worth. But in the final analysis, if nobody will pay that much, then it’s not actually worth that price.

Let’s illustrate this concept in a very simple fashion. I’m an American so I’ll
use U.S. currency to make my point.

What is a $20 bill worth? Without over thinking it and talking about inflation,
exchange rates, etc. let’s just say that it is generally believed to be worth
$20.

Would you pay me $20 for a $20 bill? I’m going to guess probably not, as there
would be no real reason to do so. You would have to go to the trouble of
getting me your $20 and I would have to go to the trouble of giving you my $20
bill, and neither of us would be in a better position than we were before.
Therefore, I would like to present the idea that a $20 bill is not actually
worth $20 since nobody would likely pay $20 for it!

So how much would you pay for a $20 bill? Would you pay $19.99? Is it worth
the effort for 1 cent? No? How about $19.50? $19? Shall I keep going?

In a free and fair market it is the market itself which determines value, and
given a large enough market, that value should be fairly accurate. I read an
article online some time ago about someone who decided to conduct an experiment
just for fun. He put a new $5 bill up for auction online and began the biding
at 1 cent. He crafted a creative description of the note, and waited to see the
results. When it was all said and done, the bill did in fact sell - for
slightly over $3. He then spoke with the winning bidder, who said he had made a
profit many times online by purchasing currency for less than face value
(including a $20 bill for less than $10 as I recall).

The conductor of the experiment left it at that - nothing more than a somewhat
humorous exploration into what people think something is worth. But to me this
meant so much more.

A dollar is not actually worth a dollar… so what is it worth? What
would you trade for $1? For $20? For $100? $1,000? And if a dollar isn’t
actually worth a dollar, is a share of stock worth $50, or in fact anything at
all?

The answer is yes. At any given moment it is worth precisely what someone is
willing to pay for it. No more, no less. Money and value are merely ideas,
they are not absolutes.

Consider this carefully the next time you are convinced that the stock, option,
currency, house, or anything else you want to buy, is worth what you’re about to
pay.

Jonathan van Clute is a full time investor, educator, speaker, and online
options and sports arbitrage trader. In addition to his business activities, he
is also a musician, video editor/animator, and one of the world’s greatest
Segway Polo athletes. He can be reached via email at jonathan@PMLinvestments.com
and is speaking at an upcoming teleseminar, visit
http://www.snurl.com/vcfmv for details.