10 Common Investors Mistakes

Everyone makes mistakes, but knowing what can go wrong puts you one step ahead. Here are 10 common mistakes investors make. How many of them apply to you? Here’s where your investment manager can really add value.

No investment strategy. From the outset, every investor should form an investment strategy that serves as a framework to guide future decisions. A well-planned strategy takes into account several important factors, including time horizon, tolerance for risk, amount of investable assets, and planned future contributions.

Investing in individual stocks instead of in a diversified portfolio of securities. Investing in one or a few individual stocks increases your risk. Investors should maintain a broadly diversified portfolio incorporating different asset classes and investment styles. Failing to diversify leaves individuals vulnerable to fluctuations in a particular security or sector.

However, it is also possible to over-diversify and own too many investment products − particularly if an investor has a modest portfolio. This unfocused approach will generate higher overall fees and is less strategic. The best course of action is to seek a delicate balance between the two. Often, this can best be done with the advice of a professional or trusted advisor.

Investing in stocks instead of in companies. Investing is not gambling and shouldn’t be treated as a hit-or-miss proposition. When you invest, you assume a reasonable amount of risk to help finance enterprises you believe have positive long-term growth potential. Before buying a stock, analyze the fundamentals of the company and industry, and make sure it has basic corporate governance protections. You shouldn’t look at day-to-day shifts in stock price. Buying a particular stock because it looks like it's going up or because you like a company’s product or service is not a sound investment strategy.

Buying High. The fundamental principle of investing is buy low and sell high. So why do so many investors end up doing the opposite? The two main reasons are performance chasing and following investment fads. Just because a stock, a fund or an industry has done well in the past, is no indication of future performance. Similarly, buying a popular stock often leads to investing at the height of a cycle or trend – just in time to ride it downward.

Investors often end up buying high and selling low because they think short term instead of maintaining focus on their long term investment strategy. This is tactical, not strategic investing. Investors should not draw conclusions from the past but always look critically at the prospects for future performance past.

Selling Low. When a stock goes down, too many investors are slow to cut their losses and sell -- they hold on hoping to regain at least some of what they have lost. Smart investors realize that may never happen. Not every investment will increase in value and even professional investors have difficulty beating the S&P 500 index in a given year. Always have a stop-loss order on a stock. It’s far better to take the loss and redeploy the assets toward a more promising investment.

Churning your investments. Trading too frequently cuts into investment returns more than anything else. A study by two professors at the University of California at Davis examined the stock portfolios of 64,615 individual investors at a large discount brokerage firm between 1991 and 1996. The study found that, without transaction costs, these investors received a 17.7% annualized return, which was 0.6% per year better than the stock market itself. But, after transaction costs were included, investors' returns dropped to 15.3% per year, or 1.8% per year below the market. The solution is a long-term buy-and–hold strategy, rather than an active trading approach.

Acting on “tips” and “soundbites.” While breaking news and insider tips may seem like a promising way to give your portfolio a quick boost, always remember you are investing against professionals who have access to teams of research analysts. Too many investors use the media as their sole source of investment thinking instead of pursuing a professional relationship with an advisor. Seasoned investors gather information from several independent sources and conduct their own proprietary research and analysis before making an investment decision.

Just because information is new to you doesn’t mean it's really new. You can be sure that if you’ve heard it, so have many others. That means the information is likely already factored into the market price.

Paying too much in fees and commissions. Incredibly, investors are often hard-pressed to cite specifics on the fee structure employed by their investment service provider, including management fees and transactions costs. Before they open an account, investors should make sure they are fully informed about the expenses associated with every potential investment decision. To really gauge your overall performance, adjust all your investment returns for fees and expenses paid.

Decision-making by tax avoidance. While you should be aware of the tax implications of your actions, the first objective should always be to make the fundamentally sound investment decision. Some investors, to avoid capital gains tax, will allow the value of shares in a well-performing stock to grow to account for an inordinate percentage of their overall portfolio. Similarly, don’t hold on to a security past the one-year purchase date simply to take advantage of a lower capital gains rate. If you are concerned about tax, find a good tax advisor – don’t let it change your investment decisions.

Unrealistic expectations. Expecting returns of 20-25% annually can only result in disappointment or excessive risk-taking. According to Ibbotson Associates, the compound annual return on common stocks from 1926-2001 was 10.7%, but only 4.7% after taxes and inflation. Returns on long-term bonds over the same time period were 0.6% after taxes and inflation. It is important to take a long-term view of investing and not allow external factors to cloud actions and cause you to make a sudden and significant change in strategy.

Neglect. Individuals often fail to begin an investment program simply because they lack basic knowledge of where or how to start. Likewise, periods of inactivity are frequently the result of discouragement over previous investment losses or negative growth in the equities markets. To be certain, investors should continue investing in every market − albeit through different investment vehicles − as well as establish a mechanism to make regular contributions to their portfolios. Investors should also regularly review their holdings to ensure they are adhering to their overall strategy.

Not knowing your real tolerance for risk. There is always risk in investing. Determining your appetite for risk involves measuring the potential impact of a real dollar loss of assets on both your portfolio and psyche. You should be realistic and evaluate your level of risk tolerance and invest accordingly. In general, individuals planning for long-term goals should be willing to assume more risk in exchange for the possibility of greater rewards.



Content adapted from CFA Institute

Seven Reasons Why The Trend Is Your Friend

I will often joke about market technical analysis.

Daytraders often live and die by minute-by-minute moves and magical voodoo terms. Technical analysis is no more the holy grail than buy-and-hold investing. The presumption that the tail waggs the dog is dangerous and not grounded in any scientific evidence. Yet, my experience says it's of as much value as fundamental analysis in helping you determine if a stock could rise or fall. Above is the most recent analysis of the S&P Trend line which can help one reduce risk and increase profit opportunities. The idea is simple. Know when to plant seeds. Know when to harvest profits.

I was trained in Modern Portfolio Theory (MPT) in my business BBA program in the 70's.

Naturally at a University you'll learn what is believed to be the best researched and scientific based thinking of the time. Most often based upon utilizing mathematics to identify correlations and relationships in search of the holy grail of reducing ones risk while increasing the probability of maximizing your returns. So, all the Professors contributing to the knowledge of MPT, were strong mathematicians not past professional money managers.

The founding fathers of MPT, people like: Harry Markowitz Nobel Prize in Economics, 1990. Diversification reduces risk. The Role of Stocks James Tobin Nobel Prize in Economics, 1981 Single-Factor Asset Pricing Risk/Return Model. William Sharpe, Nobel 1990 Prize in Economics, for Capital Asset Pricing Model. Efficient Markets Hypothesis, Eugene F. Fama, University of Chicago. Fama was first to get access to using a Mainframe IBM computer to analysis massive amounts of historical data that had been collect in print.

Fama's, extensive research on stock price patterns was the foundation for Efficient Markets Hypothesis, which asserts that prices reflect values and information accurately and quickly. This was among the easiest of concepts to grasp. Yet, to this day this is the most misunderstood theory. Often those with no formal investment training such as journalist, will imply Fama's theory means the market must always be rational.

But the most valuable concept that I learned outside of the class room in real life money mangement pertaining both to the market and individual stocks was how to spot a simple trend and capitalize on that trend.

We spend a great deal of time trying to spot stocks heading in the right trend, or direction. Careful attention needs to be given to the support and resistance lines. These lines are also called trend lines.

Here are seven reasons why the trend can be your friend in investing:

1. These lines draw the general trend, or direction, the stock is heading. They’re not used for daily tracking, they’re more of a longer-term direction that the stock, mutual fund or commodity is heading. If you are using a longer term approach, the trend is what you really want to know, not necessarily the day to day wiggles in a stock.

2. Often times, the trend line will give you guidance in a stock for years, not just weeks or months. But these support and resistance lines are often bumpers, or guardrails, along the way. Stocks often drift toward their support or resistance lines and then bounce back in the opposite direction.

3. If you can pick off a stock you find attractive as it is bounces off the support line, it could be a terrific time to buy. The reason is you have a strong, logical place for your stop point...just under the support line, which is really close by. This helps minimize the amount you have at risk.

4. Some of the best winners come from stocks that are purchased just as the stock breaks through overhead resistance and forms new patterns. Holding the stock until it breaks support line (which might be possibly many months, or even years later) can really help your overall performance!

5. The reasons behind why a stock jumps through a brick wall are often not clearly visible. The reasons for the move may emerge days or weeks (or even a year!) down the road. But when a stock or a mutual fund breaks through the trend line, either up or down, it’s important news.

6. If a stock or mutual fund we are following breaks through it’s overhead resistance, we have a high level of confidence that the stock will continue to climb upward.

7. Lastly, if the support line of your mutual fund or your stock is broken, beware! This is a very clear signal we should consider selling a portion (or maybe even the entire) position. Breaking the support line is the ultimate sign that supply is now clearly in command. Your principal is now at risk.

Price-to-Cash Flow

The Price to Earnings ratio (or P/E) is probably the most common ratio in determining whether a company is under or overvalued. I would add that a much better measure used on Wall Street is Price-to-Earnings-to-Growth (or PEG. And one must always put more weight on Forward Earnings not Trailing Earnings.

The Price to Cash Flow (or P/CF) is another great ratio. Cash is vital to a company's financial health, especially in tight credit markets, in order to finance operations, invest in the business, etc.

And cash can't really be manipulated on the Income Statement like earnings can.

The reason why some people like this measurement better than the P/E ratio is that the net income of the Cash Flow portion rightly adds back in depreciation and amortization, since these are not cash expenditures.

Whereas the net income that goes into the Earnings portion of the P/E ratio does not add these in, thus artificially reducing the income and skewing the P/E ratio.

Many analysts prefer using the Price to Cash Flow metric to judge a stock's value.

And just like the P/E ratio is calculated by dividing the Price by its Earnings per share -- the Price to Cash Flow ratio is calculated by dividing the Price by its Cash Flow per share.

Also like a P/E ratio, the lower the number, the better.

Currently, the average Price to Cash Flow (P/CF) for the stocks in the S&P 500 is 9.6. For the 12-month forward P/E ratio, it’s 15.3.

But just like the P/E ratio, a value of less than 15 to 20 is generally considered good.

But make sure you compare the stock's P/CF to its Industry, since different Industries will have different numbers that are considered normal.

For example: the average Price/Cash Flow for Gold Mining companies is about 30, whereas it’s about 3 for Telecom.

There were 30 stocks that came thru this week's screen. Here are 5 of them:

BARE - Bare Escentuals, Inc.
CMN - Cantel Medical Corp.
HS - HealthSpring, Inc.
TTC - Toro Company
VIA.B - Viacom Inc.

Current Ratio Analysis

Current Ratio Education Combined With Zacks Analysis By: Kevin Matras



Current Ratio is calculated by dividing current assets by current liabilities. The higher the ratio the better, meaning the company has more liquid assets to meet its short-term obligations. A ratio of 2 or more (meaning a company has at least twice as many short-term assets than short-term liabilities) is generally considered good.

Currently, the average current ratio for the stocks in the S&P 500 is 2.09. This is a nice improvement from mid-year when it was at 1.75; and an even bigger improvement from the beginning of the year when it was at 1.67.

Screening for this is quite easy to do.

It's a ratio, so on any stock screener programs, including the Zacks Research Wizard, you'd want to first go to 'Ratios'. And then go to the 'Liquidity and Coverage' section. From there, you'll find an item called 'Current Ratio'. That's the one.

As for what value to use, I prefer to compare a stock's Current Ratio to the median for its Industry. And in this week's screen, were doing just that. We'll also add in some other items to help us find sound companies with solid prospects for the future. But please keep in mind variables like the individual companies and industry outlook are far more important than its current ratio in moving stock prices.

Screen Parameters. Below is just one example.

■Zacks Ranks = 1
(Only Strong Buys allowed.)

■Current Ratio > median for its respective X Industry
(Looking at the companies with the strongest liquid positions to meet their short-term financial obligations.)

■Current ratio > 2
(And at the very least, we want the companies to exceed the commonly held definition of good, which means greater than 2.)

■Projected 1 Yr. Growth Rate > median for its respective X Industry
(This means we’re looking for the companies with the best growth rates within their groups.)

■Projected 1 Yr. Growth Rate > 0
(I only want positive projected growth rates.)

■Price >= $5

■Volume >= 100,000

Here are 5 stocks that passed this week’s screen:
BLK - Snapshot Report BlackRock, Inc.
CBT - Snapshot Report Cabot Corp.
FIRE - Snapshot Report Sourcefire, Inc.
ISRG - Analyst Report Intuitive Surgical, Inc.
VRX - Snapshot Report Valeant Pharmaceuticals

Note: Current Ratio Analysis is only one of many financial ratio's and I'd say you would only use this as a confirmation of your investment choice based on economic and industry outlooks combined with the more important earnings and revenue outlook for the company you are considering investing into.

Buy Doom Sell Boom

Now that the DJIA just hit 10,000 (again) I thought it would be interesting to listen to what the wanabe market gurus and high paid experts were saying in the first half of this year. Here are just two examples of the many classic doom perdictions.

I'll be the first to admit the most advance I was looking for was DJIA 9,500. But it has become clear to me I need to be looking to buy stocks on break-outs and pull-backs. And one can always find lower risk stock laggers to hold into year-end (as discussed in prior articles). Each day as I scan the market details I continue to find strenght in many stocks. Many stocks are above their 2007 levels. A few with excellent earnings outlooks like Apple and IBM are near their 2008 all-time highs!

But even in July, I was reading non-stop articles on SeekingAlpha.com from their mega posters preaching how, at DJIA 8,200, the market was due for a correction back to 6,500. When it didn't happen they wrote articles telling you why the market was wrong and they were right. The real problem was just to many kids with great educations but like knowledge of market history.

The lesson to learn? One must establish a long-term savings and investment plan. And one must understand that the market is a leading economic indicator not a lagging indicator. If you wait to invest only when the economy is ideal...you are too late! If you only invest when the economy is horrible and the market has declined by 40% you certainly stand a better chance at higher long-run returns.

What now? You, need to understand this market momentum can continue to push the market up, back to last summer's pre-Lehman Brothers collapse levels ( around DJIA 10,500 or S&P 1200 ), by year's end. Yes, at this point forget thinking you will see a 10% correction, about the most we'll get is 5% because traders and investors see benefits in buying the dips again. Now this momentum can turn negative in 2010 just as it did in 2002. But as professional traders say, "You need to trade the market you see not the one you think it should be" and "The trend is your friend" the two best money making ideas they never taught me in BBA or MBA investment classes.



The young man above was just one example of how individuals will extrapolate out the current trend (when making market predictions). Listen to one of the many high paid experts who was perdicting the DJIA would fall to 5,500 and the S&P 500 would fall to 400! Folks the S&P 500 is now at 1,100 ---- 275% above this guys perdiction.

In September I gave readers just one more example of how Blogger Youthful Investment inexperience (in understanding stock markets and the data behind charts) cost his followers thousands
Eleven Reasons These Charts Are Worthless

6 Articles 92 Stock Ideas

Want a stock idea that has been prescreened from a trusted source. Here you go...6 articles and 92 stock ideas. What's your favorite stock to buy now? Why?

5 small-cap stocks to buy now

5 Best Stocks to Buy Now

12 top stocks to buy at the bottom

4 Cheap Stocks to Buy Now

6 Best Stocks to Buy Now

7 Dividend Stocks Increasing Cash Payouts

33 Relatively Safe Dividend Stock Yields

20 Stocks with the Potential to Pop

Conservative Investors Should Consider Dividends

In today’s low interest rate environment with $3.5 trillion dollars earning almost zero, concervative investors might want to consider investing in financially strong blue chip companies that offer the potential for stable and solid dividends. A filtered of the 200 largest U.S. stocks (by market cap), reveals the 20 highest dividend yield companies (sort by yield %).

Company, Ticker, P/E, Yield & Debt/Cash Flow

Reynolds American Inc. RAI 16 7.4% 2.3
Altria Group Inc. MO 12 7.4% 3.4
Progress Energy Inc. PGN 14 6.3% 13.6
Duke Energy Corporation DUK 17 6.2% 6.0
AT&T, Inc. T 13 6.2% 2.1
Consolidated Edison Inc. ED 16 5.9% 14.7
Lilly & Co. LLY 5.9% 1.4
Verizon Communications Inc. VZ 14 5.9% 2.3
Southern Company SO 15 5.6% 7.7
Bristol-Myers Squibb Co. BMY 8 5.6% 2.1
Lorillard, Inc. LO 13 5.5% 0.9
Spectra Energy Corp. SE 13 5.3% 5.9
Dominion Resources, Inc. D 12 5.2% 4.4
American Electric Power Co. AEP 11 5.2% 7.7
EI DuPont de Nemours & Co. DD 44 5.1% 2.9
FirstEnergy Corp. FE 10 4.9% 4.9
PPL Corporation PPL 15 4.7% 6.9
Merck & Co. Inc. MRK 11 4.7% 2.6
Philip Morris International, Inc. PM 14 4.7% 1.9
HJ Heinz Co. HNZ 13 4.4% 4.1

Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in todays low interest rate environment.

Out of 20, 9 of them are utilities. Keep in mind utilities traditional carry high debt loads but benefit in today's low interest rate environment.

Four of them are tobacco companies. Tobacco, specifically international tobacco, (USA market has been dying for years) is proving to be exceptionally resilient to recession. However, not all of them are created equal. For example, Reynolds American and Altria Group Inc’s payout ratios are more than 100%. The best seems to be Lorillard, Inc. Its debt to operation cash flow ratio is 0.9. In other words, in theory it could pay off all its debt within 1 year.

Three of them are pharmaceutical and 2 are tech related. Mary Buffett and David Clark point out in their new book Warren Buffett And The Interpretation of Financial Statements, what seems like a long-term competitive advantage is often an advantage bestowed upon the company by a patent or some technological advancement. If the competitive advantage is created by a patent, as with the pharmaceutical companies, at some point in time that patent will expire and the company’s competitive advantage will disappear. If the competitive advantage is the result of some technological advancement, there is always the threat that newer technology will replace it. Today’s competitive advance may end up becoming tomorrow’s obsolescence. This has always been true and one must always keep in mind change is constant. Still, it's doubtful that there is anything within the next 12 months that will radically change the investment outlook for the companies above products and services demand. And even utility stocks will benefit from a improving industrial output economy.

Mutual Funds or Exchange Trade Funds (ETFs)are an even more conservative diversified investment play. The following are the top 10 dividend ETFs(by net assets)you may wish to consider:

# Fund Name & Ticker

1 iShares Dow Jones Select Dividend Index DVY
2 Vanguard Dividend Appreciation ETF VIG
3 SPDR S&P Dividend SDY
4 WisdomTree LargeCap Dividend DLN
5 Vanguard High Dividend Yield Indx ETF VYM
6 WisdomTree International SmallCap Div DLS
7 PowerShares Intl Dividend Achievers PID
8 WisdomTree Europe Total Dividend DEB
9 WisdomTree Dividend ex-Financials DTN
10 WisdomTree International Div ex-Fincls DOO

While these are all conservative alternatives it doesn't mean they can't decline in value if the market declines. Still, for those with large stock investment exposures now (or those just getting started) these stocks are worth considering now. Most of the dividend stocks listed above have barely risen in value, as investors passed up conservative stocks in favor of the most depressed stocks over the last 6 months.

Disclosuer: I hold long positions in AEP, LLY, VZ, MO

The Mutual Fund Money Market Fund Dilemma

$3.5 Trillion dollars earning almost zero.

In my comparison to the 1981 economy I noted how savers were paid to save not spend. The dilemma for today's savers is what to do with over $3.5 trillion dollars earning almost zero sitting inside Money Market Mutual Funds. In 1981 you could have locked in a 5 year CD earning 12%. Today you would be lucky to get 3.4%. This is just another reason contributing to the 55% rise (with only small temporary pull backs) in the American stock market since its march lows. Now that the major 10% pull back you were waiting for never came what do you do? Now you feel it's just too risky moving into the stocks that have risen the most.

What to do now is the dilemma. Here are some possible options cautious conservative investors can consider. These options were researched by Glenn Rogers a longtime contributor for BuildingWealth.ca and Seekingalpha.com.
Dividend ETFs

There are some relatively low-risk ETFs where you could park some money while we see how all this plays out. For example, take a look at these three funds, all of which are designed to track baskets of U.S. companies that offer respectable dividends.

The three are the iShares Dow Jones Select Dividend Index (NYSE: DVY), the Vanguard Dividend Appreciation ETF (NYSE: VIG), and the Power Shares High Yield Dividend and Equity Achievers (NYSE: PEY). Although all three of these ETFs have the same general goal, it's somewhat surprising to find that their performance has varied greatly. At the time of writing, DVY was down 12% year-to-date, VIG was flat, and PEY was down almost 20%. So, interestingly, these issues have not participated in the market rally so far, which may make them have much less down side risk if a 10% market correction does come in October.

Take a look at the holdings of these three baskets you'll notice some fairly dramatic differences. PEY is made up of the 50 highest yielding companies with at least 10 years of consecutive dividend increases. DVY is composed of companies that have provided relatively high dividend yields on a consistent basis over time while VIG looks a lot like the Dow Jones 30 Industrials to me.

Currently, PEY has a trailing 12-month yield of 5.3%, based on last Friday's closing price of $7.45. However, I should note that the monthly payments have dropped off significantly this year and I would expect the yield will be lower over the next 12 months. This ETF has the most diverse collection of holdings among the three, split between industrials, materials, utilities, telecommunications, and a few healthcare, media, and consumer goods stocks. About 40% of the fund is in the financial services sector. The portfolio emphasis is weighted heavily towards small to mid-cap companies, which explains why this fund fared worse than the other two in the market meltdown. However, it also appears to have more upside potential if the rally continues. The Management Expense Ratio (MER) is 0.59%.

The iShares ETF (DVY) has 101 positions and is a mix of large, medium, and smaller companies. Some names in the portfolio are immediately recognizable such as Kimberly-Clark, Chevron, and Dow Chemical. Others will only be known to dedicated stock-watchers, Watsco Inc., PPG Industries, and Scana Corp. among them. Distributions are paid quarterly and the last two have been about 39c a share (figures in U.S. currency). The trailing 12-month payout totalled $1.79 which would translate into a yield of 4.4% based on Friday's closing price of $40.78. But based on the payouts for the last two quarters, I suggest it is more realistic to expect distributions in the $1.60 range over the next year for a projected yield of 3.9%. The MER is 0.4%.

The Vanguard ETF (VIG) is the most conservative play. It is designed to track the Dividend Achievers Select Index, which is administered exclusively for Vanguard by Mergent, Inc. There are 186 securities in the portfolio with a focus on large-cap stocks. Top holdings include Wells Fargo, IBM, Coca-Cola, PepsiCo, Wal-Mart, and Johnson & Johnson. As I said, it looks a lot like the Dow 30 Industrials, only bigger. It pays quarterly distributions which have recently been running at about 23c a unit. The trailing 12-month payout is 99.5c for a yield of 2.26% based on Friday's closing price of $43.99. My yield projection for the next year is around 2%. The MER is a very low 0.24%.

Bank of America preferreds

If you are looking for higher yields and are prepared to take more risk, consider the preferred shares of Bank of America. They were downgraded to junk status last winter amid fears that BoA might not survive, however Moody's announced last month that it is reviewing their B3 rating with a view to a possible upgrade now that the company is profitable again.

The Series J issue, which trades on the NYSE under the symbol BAC.PR.J. This is a fixed-rate, non-cumulative preferred that pays a 7.25% dividend based on its issue price of $25. That works out to $1.81 a year so based on Friday's closing price of $21.50 the yield is 8.4%.

These preferreds traded for as little as $4.02 last February at the height of the credit crunch and the U.S. banking crisis. Obviously, they have recovered strongly since then as confidence in the banking system was restored by the massive U.S. government bail-out. The high yield indicates there is still some concern about BoA's future, but at this stage I think the company is recovering well and that the dividend is safe. There is also some capital gains potential here. The preferreds are not callable until Nov. 1, 2012.

Naturally holding only one bank preferred stock is more risky than a basket of dividend paying stocks so this is for more aggressive investors looking for more yield. However, note that they are very thinly traded so enter a limit order.

PowerShares Financial Preferred Portfolio

If you prefer more diversification, consider the PowerShares Financial Preferred Portfolio (NYSE: PGF) currently trading at $16. It is based on the Wachovia Hybrid & Preferred Securities Financial Index, which tracks the performance of about 30 U.S. listed preferred shares issued by financial institutions. At least 90% of the assets are normally invested in these securities.

As you are aware, the U.S. financial sector has gone through an extremely rough period and it is not clear that the full extent of the damage is known even yet. As a result, preferreds issued by the banks, insurers, etc. have been beaten down in price and are offering unusually high yields. The situation is not dissimilar to the one we saw in Canada late last year, except it is more extreme in the U.S.

This has resulted in preferred share yields that have never been seen before and may never be seen again. Currently, this ETF is paying monthly distributions of 11c to 12c a unit. Projecting this forward for 12 months, using the 11c figure, we could be looking at a cash yield of 8.25% based on last Friday's closing price of $16. But a word of caution: the distributions are not eligible for the Canadian dividend tax credit and will be subject to a 15% withholding tax if paid into a non-registered account in Canada. (The same holds for the BoA preferreds.)

PGF units dropped all the way to $5.16 but have since rallied strongly. However, they are still well below their 2006 issue price of $25 and I believe there is upside potential here in addition to the handsome payout. Top holdings include preferreds from Bank of America, Wells Fargo, Barclays, and JPMorgan Chase. About 69% of the assets are rated BBB or better by Standard & Poor's. The MER is 0.74%. This is my top pick for this month and we are adding it to the IWB Recommended List.

All the above are fairly defensive plays given the uncertain market we are likely to have over the next few weeks. Generally, I think the trend will continue higher after a correction, but it is wise to protect yourself on the downside, play a little defense, and add some more yield your portfolio. So hold your breath for the next few weeks. It's going to be an interesting October.

Here is are the highest paying FDIC insured CDs

7 dividend stocks you can count on

Eleven Reasons These Charts Are Worthless

Recently an individual (who unfortunately liquidated most of his stock holdings close to the market lows) ask me to explain how it was possible for the Stock Market to go up 55% when he had these two charts as proof (in his mind) it should be back to 1945 levels with earnings so low and P/E's at such an outrageous levels.

He showed me a "Blogger" he followed had also advised selling everything after posting these charts and his commentary. The "Blogger" saw these (among other information) as clear and present doom the market would fall back to the March lows by August. Yes, last last month we were to have a 3,000 point drop. Why didn't it happen he's wondering. Perhaps, he's more upset about the reality he missed the explosion up.

After I ask what formal investment education and experience the "Blogger" had he said he had no idea only that he like his postings (more like he like his rants). It's best I skip my response to that response and get right down to and example of the valued "Blogger" words of wisdom below:

"Forget hoping for the rally to continue and forget "buy and hold" for the long term. Without earnings to support them over the next year, stocks are toast. And where are the earnings going to come from while banks are failing in increasing numbers (yes, it's getting worse not better), unemployment is rising (no, it's not stabilizing), and the residential and commercial real estate crash continue unabated (no, they're not stabilizing either)? If a business is not part of the fascist keiretsu business model that has evolved in this country, that business is likely to be in trouble.
.....
It's official: Gold Versus Paper is calling the top in the stock market (I think it was yesterday and today confirmed it).....next comes a re-test of the March lows before mid-August (i.e. at least a 25-30% drop in less than 12 weeks). General stocks, corporate bonds and commodities are going to get shellacked.....Now I am not saying the March lows will hold in the general stock markets - there's a good chance we go right through them. But this is a minimum downside target for the major indices....This bear is hungry for some bull meat. GRRRRRrrrrrrrr!"

Now aside from the GRRRRrrrrr ,which I thought was cute, I hope no one gets hurt by this type of financial entertainment.

Now, to be fair, I've heard many non-financial professionals with excellent educational backgrounds and desire to be viewd as a "guru" with thousands of followers, give similar commentary. Commentary on why these charts are proof the market is not rational and must fall to 1945 levels now. Over the last three months they keep modifying their perdictions to: "any day now".

You can bet, if I didn't know what I'll share with you these charts would have caused me to not have invested any money into the market during November Q4 2008 and February Q1 2009 too. But ask yourself why no Goldman Sachs type analyst hasn't published the same warning using these charts? Perhaps they can not afford www.chartoftheday.com charts? Oh, there free. Well, maybe its a world wide conspiracy? No, then lets get into more plausible explanations.

I've learned if the market is not responding to my logic maybe there is something I don't know.I'll give you eleven detailed reasons why the these charts have caused so many people to be wrong. Wrong because they do not understand the accounting of the numbers and wrong because they do not understand how interest rates and inflation and foresight not hindsight impact investment decisions.





1. The way S&P computes its PE is open to honest debate. Famous Finance Prof. Siegel (later joined by another Famous Finance Prof. Shiller) brought this up in February, creating a debate.

2. The often-quoted "earnings of the S&P 500" is a highly massaged number. There is no GAAP or annual audit process by an independent outside auditor. Not that an Accountant would understand Voodoo Math. It is not the actual total earnings (which are available on a separate page in the S&P spreadsheet, labeled "Issue Level Data"). S&P has to massage the numbers so that, when they replace a stock in the index, it doesn't create a discontinuity in the index's value. You know when comparing an apple to an orange you fell better if the orange is painted red.

3. S&P has replaced about 40 companies in the last 12 months. Most of the companies responsible for the biggest earnings losses have been removed from the index. e.g. GM, Fannie Mae, AIG. So when you replace companies with no earnings with other companies with earnings the smart money knows the future S&P EPS will be better than those who only follow trailing earnings expect. No fair you say...the accountants principle of consistency is broken. Your comparing an apple to an orange. L.O.L. You need to understand Wall Street is a jungle and without a guide you may get eaten alive.

4. Therefore, many of the companies presently in the index did not contribute to the TTM "earnings" that S&P uses in computing its own current PE. They do not go back and restate past earnings to reflect later changes in the index's companies. Once they close out a quarter's "earnings," that number is locked in forever. So if you getting the picture comparisons to the past are difficult at best and at worst worthless.

5. Wall Street analyst know that the current P/E in this chart is grossly distorted by the Q4 2008 banks that had to take massive write-offs against toxic loans. But two points: 1) many of those companies are no longer in the index. and 2) If you're smart enough to understand accounting, finance and math you know the financial sector was the largest sector in the index and at the market peak FAS 157 require banks use market-to-market models for mortgage valuations.

6. FAS 157s impact makes comparisons to periods prior to 2007 almost impossible without a team of CPAs and MBAs restating S&P EPS and P/Es back to 1938 when it was banded (you can guess why). Much has been debated about the role mark-to-market accounting rules played in driving down the values of financial services companies, including many large life insurers. Mark-to-market accounting was prohibited in 1938, but the Financial Accounting Standards Board reinstated and strengthened it through actions in 1993 and in 2007. Forbes magazine publisher Steve Forbes has been particularly outspoken about the 2007 action. Some analysts, even insiders, say banks like Citigroup and Lehman Brothers marked down some of their C.D.O. exposure by more than 50 percent when the underlying mortgages wrapped inside the C.D.O.’s may have only fallen 15 percent. Bob Traficanti, head of accounting policy and deputy comptroller at Citigroup, said at a conference last month that the bank had “securities with little or no credit deterioration, and we’re being forced to mark these down to values that we think are unrealistically low. Who's right or wrong is not the point. The point is how it impacts the math going forward and makes comparisons to the past periods to difficult.

7. It is a philosophical or mathematical question what the PE of an index should be, anyway. Should it be the median PE of all companies in the index? The arithmetic average? Should it be weighted in the same way that S&P weights the companies in computing the index itself? Should it be equal-weighted? All of these could have arguments made for them.

8. In computing the P/E, S&P substitutes the value of the index for "P," price. So you have a derivative number, the index value, standing in for P, and another derivative number, the massaged "earnings," standing in for E, in the equation P/E. You see the simple becomes complex enough to require a math genius to figure if it has an value for comparing one period to another.

9. The P/E is based on TTM "earnings" and current "price." It is backwards-looking. Wall Street makes investment decisions for the future based upon forward-looking EPS estimates. When someone says the P/E is not sustainable, or has not dropped to the typical lows of 8 or 10 seen in the 70's and early 80's recessions, that's an uninformed statement (to be polite). They also forget the financial sector earnings

10. Using the logic the chart implies with its lines you should do what? Buy when market trailing P/Es average 7 or 10 ? Can you name me a time in the last 20 years when P/Es on the S&P averaged 7? No. 10? No. So, this person would be waiting 20 years for something that's not going to happen for a reason they do not understand. The problem with these charts is they don't come with a team of financial analyst to figure this out for you. www.chartoftheday.com is in the daily cranking out of charts and Internet hits not making or losing money on stock market investments business. And if you had used a P/E cut off of say 20 you would have sold Apple Shares at $25 instead of $150 or Google at $100 instead of $500.

11. Last one and most important point, if it were not for the preceding ten points: You can't compare a $1 of earnings in a 1975-82 environment of 10-15% annual inflation and 10-20% Paul Volcker induced prime rates to a $1 of earnings in an under 5% inflation environment of the 90's or under 1.5% with a discount rate of almost ZERO in 2009.

Now you know why your wait for average P/Es on the S&P 500 to hit 7 to 10 like they did in the 70's and 80's caused you to just miss the greatest Bull Market or Bear Market rally of our life time.

Three Point Bottom Line:

1. A mediocre investment plan consistently executed in good times and bad is worth more to you over 20 years than any chart you'll every use to make investment decisions. Combine this with a strategic asset allocation plan and semi-annual reviews and focus on your profession, not the market. People do not plan to fail they fail to plan.

2. Time in the market is better than timing the market if you lack experience and training.

3. Research constantly shows just a few months of the year account for the majority of the gains. Now I've never know a person smart enough to consistently be right on that prediction. GRRRRRrrrrrrrr will come to that conclusion too, in about 20 years.

Why It's Not 1982 Again

Two Cases For A Continued Bull Market, Ronald Reagan style. Both cases made by two very qualified sane men based upon the 1982 Economy and Bull Market begining. But, as much as I wish it to be true, I'm afraid I must agree with other less optimistic Economist and Novelist Thomas Wolfe who concluded "You Can't Go Home Again". Still, the Perma-Bears need to face the trillion dollar fact. There is a trillion dollars inside money market mutual funds earning less than 1/2% looking to be invested on any little pull-back. Yes, it's possible we stay in Bull mode through year end on are way back to pre-Lehman Brother levels. Still, the 2001-2002 market is fresh in my memory and my worry.

Excerpts from James Grants Sept. 19th, 2009 article: From Bull to Bear. James Grant argues the latest gloomy forecasts ignore an important lesson of history: The deeper the slump, the zippier the recovery. Even more amazing is the fact James Grant is a student of financial history and Perma-Bear who just been converted to a Bull believer.

"...Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: "The most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period."

"Growth snapped back following the depressions of 1893-94, 1907-08, 1920-21 and 1929-33. If ugly downturns made for torpid recoveries, as today's economists suggest, the economic history of this country would have to be rewritten.
...
At the business trough in 1933," Mr. Darda points out, "the unemployment rate stood at 25% (if there had been a 'U6' version of labor under utilization then, it likely would have been about 44% vs. 16.8% today. . . ). At the same time, the consumption share of GDP was above 80% in 1933 and the household savings rate was negative. Yet, in the four years that followed, the economy expanded at a 9.5% annual average rate while the unemployment rate dropped 10.6 percentage points.
...
Our recession, though a mere inconvenience compared to some of the cyclical snows of yesteryear, does bear comparison with the slump of 1981-82. In the worst quarter of that contraction, the first three months of 1982, real GDP shrank at an annual rate of 6.4%, matching the steepest drop of the current recession, which was registered in the first quarter of 2009. Yet the Reagan recovery, starting in the first quarter of 1983, rushed along at quarterly growth rates (expressed as annual rates of change) over the next six quarters of 5.1%, 9.3%, 8.1%, 8.5%, 8.0% and 7.1%. Not until the third quarter of 1984 did real quarterly GDP growth drop below 5%."

Excerpts from Economist Michael Mussa Sept. 20th, 2009 presentation: Ex-IMF Chief Economist Rosy View as viewed by Kevin Hall -

"The recession is over and a global recovery is under way," he began, unveiling a pile of data and historical charts to support his view that forecasters regularly underestimate recoveries – and are doing so again.

Where the IMF foresees just 0.6 percent year-over-year growth in 2010 in the U.S. economy and 2.5 percent globally, Mussa sees 3.3 percent growth in the U.S. economy next year and 4.2 percent growth globally. He projects a U.S. growth rate of 4 percent from the middle of this year through the end of 2010.

All forecasts tend to under predict the recovery. … I think that's what we are seeing this time," said Mussa, now a senior fellow at the Peterson Institute for International Economics, a leading research organization in Washington.
...
Mussa pointed to forecasts made at the end of the 1981-1982 recession, the closest approximation to today's deep downturn. ...

The Reagan administration projected a growth rate from December 1982 to December 1983 of 3.1 percent, as did the Federal Reserve. In fact, the real growth rate turned out to be 6.3 percent."

Two excellent articles -with one common comparison flaw. They both use the 1982 Ronald Regan bull market beginning to make their case but ignore what happen in 2002 after a much smaller recession ended in 2001.

Both point to how Economist were too pessimistic in their growth forecast and correctly pointing out how the actual recovery starting in 1983 had six quarters of outstanding GDP growth (5.1%, 9.3%, 8.1%, 8.5%, 8.0% and 7.1%).

They make an excellent point about Economist forecast but even rosy glasses Ex-Chief Economist Mussa is forecasting only 3.3% GDP for the USA next year.

This leads me to ask three questions:

1. How can 3.3% 2010 GDP led to six quarters of quarterly growth like the 1983 time period they reference?

2. Why do they ignore what happen in 2002 when the market declined for three straight quarters back to the 2001 lows, after the recession official ended in 2001?

3. Is America's 2009 economy similar to 1982-83?

Unfortunately (for me) 2009 is not like the 1973-83 stagflation economy. Back then Treasury Secretary Paul Volcker's needed to crush inflation with the highest interest rates in American history. ( I wishes this was 1982 so my savings would be earning 9-12% in my MMFs instead of 0.25%. I feel like I've been robbed by the 2001-2009 federal reserve policy ) .

If you are under 40 and think mortgage rates are a little high take a look at the 1979 to 1981 Bank Prime Rate in America. Notice how in 1981 the banks started lowing the Prime Rate (resulting from the Federal Reserve lowering the discount rates) from 20%to 11% in 1983. Yes, I said 20%.

This move alone allowed Stocks to rise as the value of each dollar of revenue or profit became more valuable in a lower inflation and interest rate environment. This phenomenon is call P/E expansion. You can see the proof from 1982 to 1999 as the average Standard & Poor Stock P/E rose from 7 to 32 as inflation and interest rates declined and the economy became more robust.

The decline from 20% in 1981 to 11% in 1983 also generated that fantastic six quarters of high GDP growth. I'd conclude that cannot be repeated in this environment.

Now just think about Car, Clothing and Appliance sales in 1982. The big three were all American. Imports were a much small percentage back in 1982. Today most appliances and clothing (just to give two examples) would be made outside America. In 1982 as those lower interest rates increased sales, American factories employed more American workers, who in turn had more money to buy more stuff (of which a much higher percent was made in America and nothing was made in communist China or Vietnam).

Now flash forward: Federal Reserve discount rates are already close to ZERO (no spending is being held back by high interest rates like 1981-82). Consumer debt is still at high levels and a recession like this causes even dual income employed families to want to spend less. Today when Americans do spend more money a much larger percentage goes to employing people outside America (than 1982-83).

Janet L. Yellen President of the Federal Reserve Bank of San Francisco (far more qualified then I) sees no comparison. And Nobel Prize Economist Paul Krugman explains why there is no comparison using the same logic.

"A lot of what we think we know about recession and recovery comes from the experience of the 70s and 80s. But the recessions of that era were very different from the recessions since. Each of the slumps — 1969-70, 1973-75, and the double-dip slump from 1979 to 1982 — were caused, basically, by high interest rates imposed by the Fed to control inflation. In each case housing tanked, then bounced back when interest rates were allowed to fall again.

... Post-moderation recessions haven’t been deliberately engineered by the Fed, they just happen when credit bubbles or other things get out of hand. And that means that the Fed can't just cut interest rates and boost housing. This recession is very different than the early '80s".

The Bottom Line

NO, this is not the beginning of the 1982-87, Ronald Reagan, Bull Market style economy. No I'm no Bear, just a Bull (on tip toes) who remembers the 2001-2002 market. Yes, we can defy gravity and remain in Bull mode for the remainder of the year. Still, this decade will not be remembered for the great American Bull Run. This decade will be remembered as the decade for emerging market stocks.

1982 will be remember for many things like the Jackson Thriller album.



July 27, 1982 | GetBack Media

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The World Wide Stock Market Recovery

World stock markets rallied on Thursday, with London following Wall Street, striking its highest level so far this year, as investors grew more optimistic about the prospects for a global economic recovery.

Tokyo shares surged 1.68 percent on Thursday, tracking overnight gains on Wall Street where New York stocks climbed to the highest level in 11 months on upbeat factory data. Markets were also lifted by rising commodity prices which gave a shot in the arm to the energy and mining sectors.

Elsewhere in Asia on Thursday, Hong Kong jumped 1.71 percent, boosted by resource stocks on the back of rising commodity prices, dealers said.

Chinese shares closed up 2.02 percent on Thursday, also led by oil and metal stocks.

The USA economy and employment outlook may be an L shape or W shape recovery. But for now the world markets are clearly in a V shape recovery mode similiar to 2003. Lets hope it's not similiar to 2001 when we had a major market recovery after the 9/11 market colapse only to decline back down in 2002.



The MSCI World Stock Market Index reached a new 11-month high yesterday, rising to the highest level since early last October. From the March bottom, the index is up by 65% (see chart above).



The Bloomberg U.S. Financial Conditions Index reached a two-high yesterday, closing at the highest level since August 8, 2007 (see chart below).

More Green Shoots & New Market Highs

For the fourth straight month the leading economic indicators are pointing up. Now two regional manufacturing surveys show manufacturing activity is rising. And July home sales surged for the second consecutive month. All this positive news pushed the market to new highs last Friday August 21st, preventing the much expect market correction, for now.

Five More Positive Economic Indicators Denied Perm-Bears Satisfaction.

Since the March 9th market bottom, we have been witness to the greatest American stock market advance since the 1930's. Those brave investors who dared jump into the eye of the hurricane or stayed the course are to be congradulated for having faith in the long-run. But this is no time to party-hardy or dump a ton of new money into a market that has soared 52% in just 165 days. This is a time of thanksgiving and reflection. Now is also the time to question how likely is this good news to continue without some bad news and market pull-backs.

1. The Conference Board said its index of leading economic indicators rose for a fourth straight month in July. The index, intended to forecast economic activity over the next three to six months, suggests the recession has bottomed and the economy will soon start growing again. Six of the 10 indicators that make up the index rose in July.

2. A survey of manufacturers in the mid-Atlantic region on Thursday showed that factory activity rose in August for the first time in nearly a year. The report by the Federal Reserve Bank in Philadelphia followed a similar survey reported Monday by the New York Fed that also found an increase in manufacturing activity after months of negative results. The rise in both surveys indicates manufacturing is growing even in areas without significant auto-related production, economists said. The auto industry has enjoyed a big boost from the government's Cash for Clunkers programs.

3. July had the fewest job losses in almost a year. The government said companies cut 247,000 jobs in July, a large amount but still the smallest loss since last year. Yes, this is one of those less worse is good news. One can see the inverse correlation of declining new unemployment claims which peaked in February and have been falling for five months. Bears point out the last two weeks have seen claims rise.

4. The official unemployment rate drop unexpectedly to 9.4% in July its first drop in 15 months. Yes, many private economists and the Federal Reserve still think rates could top 10 percent by next year. Yet, this was a positive surprise as an increase was expected. And as any Economist will tell you unemployment rates are a lagging indicator.

5. Home sales in the Midwest surged 8.5 percent in July, the second straight annual increase, as new home buyers snapped up properties to take advantage of a temporary federal tax credit. Nationally, home resales rose 5.6 percent in July, the first annual increase since November 2005. Affordability is driving sales -- the median sale price fell 15 percent to $178,400.

"Looks like the recession ended in June," Tim Quinlan, economic analyst for Wells Fargo Securities, wrote in a research note. The National Bureau of Economic Research, which officially declares the start and end of economic cycles, has in the past set an end-date to recessions after two to three straight months of gains in the leading indicators, Quinlan said.

Now For The Bad News

The Mortgage Bankers Association, said more than 13 percent of American homeowners with a mortgage are either behind on their loan payments or in foreclosure — a record tally as the recession leaves more people unemployed. About a third of new foreclosures between April and June were prime fixed-rate loans, up from one in five a year earlier.

Markets are always forward looking. And it's ditto for this market too. Yet, this doesn't mean the market has ESP to foresee the 2010 economy. No, it just means it expects to see an improved second half of 2009. Remember the 2001 brief recession? It was declared officially started in March and ended around November 2001. The market after a climatic September sell-off after 9/11 turned and climbed into March 2002. The Market then tumbled all year long reaching new lows in anticipation of a disappointing weak recovery.

One of the real big economic worries is the need to create new jobs (not just maintain jobs). Scott A. Heintzelman, CPA, CMA, CFE a Partner with McKonly & Asbury, LLP has dug deep into the Bureau of Labor Statistics report to uncover their measure of labor underutilization a.k.a. Real Unemployment. The Real Unemployment Rate is 16.8%.

Market Results: The Biggest Advance Since The 30's - Thank you, I'm leaving the party early.

This has been the strongest market advance since the 1930's. The perm-bears have missed the greatest six month advance in their lifetime. Still, it's hard to image another 10% advance without more than a 5% pull back. But it's possible. In August 1981 the market rose for 12 straight months with only a few 5% pull-backs.

I'm thankfull for the last 1,000 point gift driven by so many green shoots. But I'm cashing in most of my general market chips (S&P Index Funds) before the party ends and the market disappointments arrive. I'll be happy to jump back onto the bandwagon after a pull-back.

Market Up 50% -greatest advance since 1930's

Will Newton's Law of Gravity apply in August?

After a 50% rise from the March 9th low any prudent investor would rationalize it's time for a 10% correction. Of course, in June after the DJIA had fallen 6% from a high of 8,600 everyone was talking..."head and shoulders"..."sell now were going back down to 7,500". Yet, the market denied many "experts" their prediction once again. It soared up over 1,100 points to reach 9,200.

The now 50 percent S&P rally from the March lows is the best move in stocks since the 1930s!!! The Nasdaq is up an astounding 59 percent. Stocks have recaptured the levels from early October.

What Now?

Ok, now what? Well, if you do not believe in little green shoots and assume this is a cyclical Bull in a secular Bear market like in 1929-34 then you're cashing in your chips or shorting any stock that's had a big run. But as I watch the daily market indicators I see mostly strength and little weakness. Why? How can this be? Is this rational?

Drawing Wisdom from past legends.

Let's draw wisdom from a man who needed his father to bail him out financial when he was nearly wiped out at the onset of the Great Depression in 1929...John Maynard Keynes said it best: "The market can remain irrational longer than you can remain solvent". And a more famous money manger legend, Sir John Templeton, said Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. I'd say were still in the "skepticism" phased based upon all the disbelief about "green shoots".

Adding in my insight.

Yet, is the market really irrational, rational or just plain emotional? Maybe it's all of the above. This I know...the market is always forward looking. The cumulative wisdom of the market is betting the economy will be better in the second half of 2009 then the first half.

And now investors in the market are being helped by two groups: FIRST -traders who believe the market must correct (so they short stocks) and SECOND -by the billions of Money in Money Market Funds where people are realizing their earning less than 1/2 of 1%. With 6 months of a positive market MMF people are now more emotional comfortable with moving money into the market which pushes prices higher and forces those short-traders to cover their bets. Thus, it's the inverse of last summer where selling begets more selling.

Historical facts about August

Since I'm not paid to make forecast for Finance Toolbox or selling investment news letter subscriptions let me just leave you with some additional education for you to consider. According to market research in an article written by Nick Godt of MarketWatch here are the facts:
The market, as measured by the broad S&P 500 index, has advanced in August 60% of the time in the 81 years since 1927, for an average gain of 4%, according to Standard & Poors. And since 1999, August has brought gains seven times out of 10.

Since World War II, August months have tended to bring gains but not by as much as in other months of the year, according to RDM Financial. Since 1945, August has returned 0.4%, placing it 10th among the 12 months of the year.

"However, when the economy is rebounding, then the market has tended to put in a much stronger performance [in August]," said Michael Sheldon, market strategist at RDM.

Many market observers believe that back in March, the market has hit its lows of the bear market that followed the financial crisis. And on the 14 occasions that have followed bear-market bottoms since 1932, the S&P 500 has risen 10 out of 14 times in August for an average gain of 1.2%.

"Past performance is never 100% guarantee of returns in the future," Sheldon said. "But the outlook for August continues to be more positive than some would think," he said . I'm with Michael the correction may have to wait until month end or September.

Lenny Dykstra Bubble Signal

What clues are there you may be in a bubble, ready to pop? In every market be it Stocks, Real-estate, Artwork or Tulip Bulbs there are always clues. Clues that you are nearing a turning point. A Moment in time where the trend begins to change. Those moments are often very hard to identify because the overwhelming majority believe, the trend up or down will continue. Thus you have your first clue your near the market peak when everyone wants to be involved. You need to start thinking about selling, when everyone else is buying. The second clue is when people with no prior background within that market become instant overnight gurus on the subject and seek to help you invest -for a fee of course.

Now, normally trends last for years...so do not assume it's over after just 1 or 2 years. Often, trends last for multiply years, even a decade. In the beginning few believe the trend will continue but by the end...everyone believes the trend will never end. So, what are your leading economic indicators that the trend maybe ending?

Well, it's that moment in time when a 25 year old computer programmer making $43,000 gets approved to buy 5 over inflated real-estate properties valued at over $2 million -to flip. It's that moment when your little sister has a Wall Street investment banker who wants to securitize her Lemon Aid stand revenue into an IPO.

And it's that moment in time, when a former tobacco chewing...street brawler...baseball great..with steroids in question tells you he's become a financial stock wizard -after just one year of study!

This my friends is called the Lenny Dykstra Bubble Signal. The first video is kind to Lenny. He's been coached by his lawyer to clean up his speech after other interviews captured Lenny as he really is on video. Just one year earlier he and his promoters, including CNBC Jim Cramer, had made a short movie (below) to pitch him as a former Baseball Star turned Financial Wizard. The goal was to attract investment money from other rich sports figures for his "Players Club Magazine". business and expensive investment advice subscriptions. The video was a masterful sales pitch for Lenny. Had Lenny been required to speak I doubt he could live up to the legend. I can understand why people would have invested with Madoff...but Lenny?



While Lenny's critics accuse him of being a con-man. I think that's to harsh. I'd bet he even had some good intentions. But he surely became overly confident he would become the next Donald Trump. Today, he and his lawyer want to portray Lenny as a "victim" of mortgage fraud. A "victim"?! Just one year earlier they wanted you to believe Lenny was a "Financial Wizard"!!

Lenny is emblematic of America's financial crisis and the American economic system built upon excessive debt spending. Lenny is no victim. Lenny is guilty. Lenny is guilty of living beyond even his wealthy means!



Warning: This video contains Lenny as is, unedited.

Just in the past two years, Dykstra has been the subject of at least 24 legal actions, including 18 since November. He's been sued by publishers and print companies, by three different groups of pilots and by a Maryland-based financial and litigation consulting firm that offered expert testimony on his behalf in an earlier lawsuit. The list of Lenny's carnage gets even more bizarre and must be read to be believed.

Look for the Lenny Dykstra Bubble Signal, years from now, to know if you are in the next market bubble or at the market peak.

Son of Modern Portfolio Theory

The Father of Efficient Markets Hypothesis is Eugene F. Fama. His son Fama Jr. explains his fathers work in common sense terms...sparing you the pain of learning all the mathematics' and research that lead to this discovery.