After finding the price of a particular stock, usually the next number everyone looks at is the P/E ratio.

P/E is the ratio of a company’s share price to its per-share earnings.

A P/E ratio of 10 means that the company has 1 of annual, per-share earnings for every 10 in share price. (Earnings by definition are after all taxes etc.)

A company’s P/E ratio is computed by dividing the current market price of one share of a company’s stock by that company’s per-share earnings. A company’s per-share earnings are simply the company’s after-tax profit divided by number of outstanding shares. A company that earned 5M last year, with a million shares outstanding, had earnings per share of 5. If that company’s stock currently sells for 50/share, it has a P/E of 10. At this price, investors are willing to pay 10 for every 1 of last year’s earnings.

P/Es are traditionally computed with trailing earnings (earnings from the past 12 months, called a trailing P/E) but are sometimes computed with leading earnings (earnings projected for the upcoming 12-month period, called a leading P/E).

For the most part, a high P/E means high projected earnings in the future. But actually the P/E ratio doesn’t tell a whole lot, but it’s useful to compare the P/E ratios of other companies in the same industry, or to the market in general, or against the company’s own historical P/E ratios.

Some analysts will exclude one-time gains or losses from a quarterly earnings report when computing this figure, others will include it. Adding to the confusion is the possibility of a late earnings report from a company; computation of a trailing P/E based on incomplete data is rather tricky. (It’s misleading, but that doesn’t stop the brokerage houses from reporting something.) Even worse, some methods use so-called negative earnings (i.e., losses) to compute a negative P/E, while other methods define the P/E of a loss-making company to be zero. Worst of all, it’s usually next to impossible to discover the method used to generate a particular P/E figure, chart, or report.

Like other indicators, P/E is best viewed over time, looking for a trend. A company with a steadily increasing P/E is being viewed by the investors as becoming more speculative. And of course a company’s P/E ratio changes every day as the stock price fluctuates.

The P/E ratio is commonly used as a tool for determining the value of a stock. A lot can be said about this little number, but in short, companies expected to grow and have higher earnings in the future should have a higher P/E than companies in decline.

For example, if a company has a lot of products in the pipeline, I wouldn’t mind paying a large multiple of its current earnings to buy the stock. It will have a large P/E. I am expecting it to grow quickly. A rule of thumb is that a company’s P/E ratio should be approximately equal to that company’s growth rate.

PE is a much better comparison of the value of a stock than the price. A 10 stock with a PE of 40 is much more "expensive" than a 100 stock with a PE of 6. You are paying more for the 10 stock’s future earnings stream. The 10 stock is probably a small company with an exciting product with few competitors. The 100 stock is probably pretty staid - maybe a buggy whip manufacturer.

It’s difficult to say whether a particular P/E is high or low, but there are a number of factors you should consider!

First: It’s useful to look at the forward and historical earnings growth rate. (If a company has been growing at 10% per year over the past five years but has a P/E ratio of 75, then conventional wisdom would say that the shares are expensive.)

Second: It’s important to consider the P/E ratio for the industry sector. (Food products companies will probably have very different P/E ratios than high-tech ones.)

Finally: A stock could have a high trailing-year P/E ratio, but if the earnings rise, at the end of the year it will have a low P/E after the new earnings report is released.

Thus a stock with a low P/E ratio can accurately be said to be cheap only if the future-earnings P/E is low.

If the trailing P/E is low, investors may be running from the stock and driving its price down, which only makes the stock look cheap.

Ioannis - Evangelos C. Haramis was born in Greece in 1951 and he studied in Greece, USA and in Belgium. He has been active in the stock markets since 1972. Since 2002 he is New Business Development Managing Director at an Investment Bank and the publisher of http://www.greekshares.com/

Copyright © 2005 I.E.C. Haramis

haramis@greekshares.com

Let’s discuss commodities; with the latest Enron situation, it is important to understand the way things work. A commodity is anything useful, especially a transportable agricultural product or mining product. This comes from the Latin word “commoditas” meaning roughly advantage, convenience. So then what is a commodity? Well we consider Gold, Silver, wheat, corn, pork bellies, coffee, etc all commodities. If you look in the back of the WSJ or Investors Business Daily you will see a listing of all the commodities traded on the commodities exchange. Enron made some errors no doubt, but let’s not judge all commodity markets in haste.

Commodity trading works best when there is a stable instrument of trade. Sometimes the instrument of trade is actually the commodity. If you looked most countries of the world today you would find that there are three basic instruments of trade; money, as in currency, precious metals and gems, drugs; like cocaine, opium, and arms, like grenade launchers, RPGs, bullets, machine guns, WMD, tanks, and surface to air handheld rockets. Yes, this can have horrible human rights issues, but we are discussing this from a theoretical standpoint, not condemning the obvious problems with mankind.

Many countries without a stabilized currency are trading everything in arms and drugs. Even human sex slaves and other unfortunate means; a travesty, which cannot be argued. The commodity trading of cultural products is of necessity to stabilize prices and to feed the world and help in the planning and allocation of funds for future needs. If a farmer cannot make an honest living farming a field then microeconomics tells us that eventually he’ll exit the marketplace. When there is a need for a product such as corn, sugar, oil, etc. and that need is so important to the people buying it, then they will be willing to pay in advance a certain price for it, so they can guarantee they will get it. For instance Kellogg’s needs sugar to fulfill the needs of their customers who will buy pop tarts. If they do not get the sugar the cannot produce the pop tarts. Everyone loves pop tarts, but if Kellogg has sugar than they cannot make the pop tarts to sell you at Wal-Mart. Kelloggs can due to commodities markets buy in advance and at a known price prior to the harvest of the sugar necessary to produce my Brown Sugar Cinamon Pop Tarts. Think about it.

"Lance Winslow" - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance in the Online Think Tank and solve the problems of the World; www.WorldThinkTank.net/

Most people think the stock market is a zero sum game because there is a buyer for each seller and seller for each buyer so each cancels the other and everything is equal. Not quite.

There are losers here, both the buyer and the seller because each one paid a commission to buy and a second commission to sell. This eats away at the profit of the winner and adds to the loss of the seller if he sold for less than he paid.

How does buying and selling of a stock effect the company? When you buy GM stock from your broker he is completing a transaction between you, the buyer, and someone else, the seller. The company has nothing to do with the transaction other than change the name of the shareholder on their record books. It has no effect on the corporation’s finances. It is merely an expression by an individual; fund or pension plan that they think the company’s stock will go up.

There is one time that purchasing a company’s stock does affect their bottom line. That is when you purchase a new offering called an Initial Public Offering or IPO. The money that you pay for that stock then goes directly to the company and not to another individual. That cash is used as the company sees fit usually to fund expansion to increase both sales and profits.

Now think for a minute about the people who decided to sell their stock in Phillip Morris because they did not want to own a tobacco company stock. Will this make any difference to the company? Not a twit. The person who bought that stock was interested in only one thing – will it go up so I can make a profit? That is why socially responsible investing makes no sense at all. It only makes the person feel better and is not a true investment decision.

Let’s say you bought a stock at $20/share and sold it at $40. Double your money. Great. The guy that bought it sold it at $60 and that person sold it to someone for $80/share. Everyone is happy. So far. But this last stock buyer now watches the stock head down and he decides to get out at $60. Mr. $60 watches it drop to $20 where it dies and does not recover. Sounds like Lucent doesn’t it? The last 2 buyers don’t think this is a zero sum game.

Let me add that I think the smartest guy in the bunch was the one who took his loss and sold out at $60. He limited his loss and still has money left to find a better issue. He was smart enough not to “wait for it to go back up so he could get out even”. Unfortunately, most people think this way. It may be close to a zero sum game, but you don’t want to end up with the zero.

Copyright 2005

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

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

It is commonly reported that the stock market averages about 10% per year return over the long term (decades). So the investor that buys and holds a diversified portfolio of stocks or mutual funds is led to believe that their portfolio will grow by 10% per year on average. You know the mantra, “Not to worry, I’m a long term investor. On average, I’m earning 10% per year.”

There is only one problem here. The facts, as you will see in a moment, state otherwise.

Let’s assume for a moment that an investor could match the stock market average return of 10% per year (not likely, by the way, as most professionals fall short of this goal). Further assume the market averages 10% per year over a four year period:

 Year - Ac Size - YR Return - Av Return - Av Return0 $100,0001 $ 80,000 -20% -20% -20%2 $ 72,000 -10% -15% -14%3 $ 93,000 +30% 0% -2%4 $131,040 +40% 10% +7% 

From the above example, you can see that our investor who managed to match the stock market performance year by year finished with an average portfolio return of only 7%, not 10%. Underperforming the stock market averages will always be the case, no matter what market period is selected - past, present, or future. So, can you expect to average 10% a year in a diversified portfolio of stocks and mutual funds (that you buy and hold) in a market that averages 10% per year? The answer is clearly, “No!”

This is one reason for considering alternative investments for a portion of your portfolio, such as a good trading system that provides superior returns in non-correlated markets.

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Why? Because I am going to shatter your conventional wisdom as I have many times in previous columns about the lies that Wall Street continues to tell you. This time we are going to go deeper into the economy to unearth the truth about lies the politicians are telling you.

Let’s understand from the beginning that few politicians understand basic economics. Just because they work in Washington does not make them experts about the laws that have been passed or those they vote upon. Politicians do not create jobs or wealth. Don’t feel you are the only one who can’t make head or tail out of government statistics.

The most misunderstood debate today is about OUTSOURCING. – sending our jobs overseas. From March of 2001 to January of 2004 manufacturing jobs declined by 2.6 million – a loss of 17%. BUT during that same period there was an increase of 17% in worker productivity and only a loss of 3% in jobs. More goods produced with fewer workers. Those jobs did not go overseas – only 300,000 did. The majority were lost to better machines and will never reappear. If employment efficiency had not increased we would have even higher unemployment today.

That is why unions hate new machines. Loss of jobs. If a company wants to remain competitive they must be able to produce at the least cost or you won’t have a job. Do you think you would have your job today if your company continued to operate they way they did 5 years ago? Employment continues to increase every quarter even though we lose about 7% or 8% of U.S. jobs every quarter.

Has anyone told you that thousands of foreign companies have opened plants in the U.S? We don’t hear about the small ones only the BMWs, Toyotas and Hondas. According to Peter Drucker, management consultant, we import more jobs than we export. Jobs increased by millions after NAFTA and because of NAFTA.

Will these layoffs continue? It depends upon your industry sector. According to the Bureau of Labor Statistics there were more mass layoffs (50 or more) during this January than any previous January in history - 239,454 – 1/3rd of those are in manufacturing.

The U.S. is still not producing enough new jobs to keep us even; that requires more than 150,000 new hires each month.

Political demagoguery blames everyone and anyone who is in office. Whoever the president is is the one to blame – rightly or wrongly. Every industrialized country today has a problem with excess production capacity and is doing weird things to keep their workers on the production line. We are not the only ones with job losses. That does not make the guy in the unemployment line feel any better.

It is our productivity edge that has kept as many jobs as we have now or it would be a lot worse. Free trade is the answer and not tariffs on other country’s goods. As I have written before tariffs are hidden taxes on the consumer and benefit no one. They have NEVER worked in all of history and make more problems than they solve.

Don’t listen to the political rhetoric. You may not like what I have said, but maybe it will start you thinking.

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

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

When purchasing mutual funds we are cautioned to read the prospectus, look at past performance, check out the fund manager’s record and see what their expense ratios have been.

We are also told that we should not buy funds with expenses exceeding 1% to 1.5%. When you ask the fund salesman (don’t forget he’s a salesman) he will assure you that the fund expenses are whatever is shown in the prospectus. He is telling you the truth, but not the whole truth, according the Securities and Exchange regulations. In many cases he has left out a big chuck of expenses.

The 1.5% expense means you are paying $150 each year of every $10,000 you have invested with that fund. The lower the expense is the more of your money is at work. As a fund becomes larger meaning they take in more money the expense ratio should drop, but it rarely does.he fund manager must make 1.5% to have your money stay even.

If you can find your way around the Securities and Exchange Commission internet web site you will find that the definition of expense ratio leaves out commission charges. Many funds will turn over their portfolio by 100% in a year. Obviously they are not going to buy and sell at no charge. The floor broker must be paid a commission for each share that is executed.

Sometimes brokerage fees are purposely inflated and the broker kicks back favors(they don’t call it that) such as research information, free computers and other favors. Been to the Hampton’s or Hawaii for that all-expense weekend seminar? Course not.

The SEC does not require that this commission cost be disclosed as an expense. Why? Their answer is pure government hokum, “We exclude brokerage costs because we have always excluded brokerage costs”. This is the SEC that is supposed to be the watchdog for the investor.

Leaving out this important fact will hide another .25 to .50 cents or more in some cases in expenses that you are paying for. When you call the fund to ask if their brokerage commissions are included the person to whom you are speaking probably won’t understand and will give you the standard answer that the number shown in the Prospectus is correct. Getting a true answer is like pulling an impacted wisdom tooth. If you can get one.

Brokerage commissions are known to the penny and could easily be included in the prospectus, but these “soft dollars” as they are known are not made public to the investors seem to disappear.

Fund managers say these costs are insignificant and that investors should look at the fund’s performance. If they did that and really understood what they were looking at they probably wouldn’t buy 90% of the domestic stock funds.

This is just another example of how the investor has the wool pulled over his eyes and another reason I find prospectuses worthless.

Al Thomas’ best selling book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter for 3 months at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2005

Since I can remember, and that’s a long time ago, the Wall Street brokerage companies, mavens and mutual fund managers have been exhorting the mantra of Buy and Hold for all your investments. There have been erudite studies published that this is the only way to go.

Does it really work or has the little investor been lied to all these years. Of course, you know the answer if you have owned any stocks or funds for the past 3 years. From my analysis the latter is true. The big boys buy and sell all the time. If you look at the executives of companies it seems they all know when to sell – right at the top before their own company stocks decline. This is easily proven, as the SEC requires all listed-company executives must report both buy and sell transactions. It is not the same as an “insider” sale, but it might as well be, as those guys know if the company is making or losing money. The past couple of years the preponderance of stock sales has been on the sell side.

These sales are easily understandable, but why do brokerage companies want you to buy and hold, especially hold? There are 2 reasons. First, they want to move inventory out of their ownership to you. That transfers the risk and now they have your money.

Even more important, when you HOLD there is less stock for sale, less “float” (fewer tradable issues), and that means it takes less money to manipulate that particular issue.

Also fund managers don’t want you to sell their fund once you have bought it because they get paid on the amount of money in the fund not on the performance of the fund. This is a great rip off of the investor causing him to hold an asset that is worth less and less. Many of the large fund managers are paid 7 figure salaries. How can a so-called professional manager receive more than a million dollars to lose money for his clients? Yet, they do!

Buy and hold is a farce perpetrated on the small investor. There are 78 million mutual fund owners and 80% of them have less than $50,000 in their accounts. No one ever says SELL.

Here is one more fact you will not read in the financial media. Mutual funds only work during bull markets. The bull market that started in 1974 (some say 1982) definitely ended in 2000. The longer a bull market is in effect the longer is the bear market that follows and is usually about the same length of time. Scary, huh?! But true.

Now what? Buy and hold? The facts speak for themselves. If you are not a trader the safest place for your money during the next several years is in U.S. government bonds. They won’t pay much, but you won’t lose your money as this bear eats away at the stock market.

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

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

One Saturday morning, while he was sitting at his computer studying the market, David’s 7 year old daughter came up, tugged at his shirt sleeve, and said, "Daddy, why aren’t we rich?" He looked his child in the eye, and thought to himself, what a great question - Why aren’t we rich?

As she stood there expectantly waiting for an answer, he struggled to come to terms with the realization that, although he had focused his complete attention on trying to create wealth for more than 10 years, he had never actually made any real headway.

He had bought and sold many Stocks and several properties over those years, but had never made any real money.

He looked at his daughter, and asked, ‘What makes you think we aren’t rich, darling?’

She looked at him and said, ‘Because you said that if we were rich, you and mom wouldn’t have to go to work any more, and you both still work all the time. You said we could live at the beach and play in the sand every day. I want to know what you are doing about that. When can we go and live at the beach?’

Nothing like a child to cut straight to the heart of the problem - and what was he doing about it?

‘We’re not rich because daddy made some mistakes,’ he finally answered. ‘What kind of mistakes, daddy,’ she asked. ‘Well, I bought some shares that were going down and then didn’t sell them soon enough. Then I bought some houses but sold them again.’ ‘Why?’ she asked.

He had to think about that. He had no reason to buy those shares in the first place. He had no reason to hold on to them when they kept going down. He had no reason to sell the properties either. Her logic was flawless - why?

He had to change his strategy.

He owed it to himself and his family to finally get his act together and make some changes - that was the day the pain of not living up to his potential made him sit down and write out his trading plan and his goals…his strategy and rules - his life raft.

He started by writing out his vision - what he wanted his life to look like when he became a successful trader and investor, then worked backwards from there - through the details of how he was going to achieve his dream.

He saw in his mind the 4 bedroom apartment on the beach, the red Ferrari 360 Modena, the plasma screen computer monitor in an office overlooking the surf beach 7 floors below, the family holidays in the Greek islands, the significant donations to worthwhile causes and children’s charities.

He visualized all the tremendous benefits of becoming a successful trader.

He realized that he was afraid of losing, and that fear was just too expensive to let it control his life any longer!

He decided that he would no longer accept anything less than full compliance with his trading plan.

He decided that he would take every trade entry signal and follow his trading plan as if his life depended on it.

As if, after each trade was closed out, he had to stand in front of a Panel of his trading Mentors, and explain his actions to them - why he entered where he did, where he placed his stop losses, why he exited when he did.

And if they weren’t convinced he followed the rules of successful trading, he would be taken out and shot!

This certainly focused his attention on only trading strong trends - trends where the price bars were trading above their respective moving averages for long trades, or below for short trades, and the Stock price was moving strongly in one direction.

He pretended that if he couldn’t justify his trading decisions to his trading Mentors, he was dead…

That was the day he resolved to study his selected group of Stocks, the ones that had a track record of trending strongly, every day. He would then take every trade his system produced, put his stop loss orders in the market as he entered each trade it a place where the trend had to change to take him out of the trade, and he would hold every position until the trend changed.

He would act ‘as if’ he was a great trader, even though his record up to that point had been less than inspiring…

That innocent question from a child turned out to be the start of David’s successful trading career.

He started to trade profitably and consistently for the first time in his life. He thought he was doing well, and indeed he was making money.

He knew from his wealthy mentors that rich people are different; they make rational decisions based on facts, not emotions. They understand the value of money - they respect it as a tool for building a better world. They buy well for logical reasons and hold until there is a valid reason to sell.

Then one day, he closed out a trade, and excitedly told his daughter, ‘Daddy made a big profit in the market today darling, come and look and see what I did.’

His daughter came over to the computer and looked at the screen as he excitedly showed her where he had bought a Stock and then sold for a $3000 profit. She looked at him and said, ‘But daddy, it’s still going up, why did you sell it?’

His smile faded as the power of that question sunk in…why had he sold it? What was he doing getting out of such a strongly trending Stock just to take a profit? What would his trading Mentors say?

She was right…the market was still open, so he bought back in again. He had never been able to bring himself to do that before - he was becoming a great trader!

The rally continued and he kept buying more as it rallied. The trend finally changed, but his profit on that trade, when he eventually got a valid sell signal, was $14500!

His daughter’s question 2 weeks earlier was worth over $11000!

That was the last time he ever got out of a trade based on his emotions. His fear of the market was gone - thanks to some simple questions from a 7 year old…

So now, it’s your turn. Whenever you are preparing to place a trade, find a small child, even if you have to borrow one, and ask them what the trend is. Then don’t trade the other way!

If your trading isn’t as great as you know it could be, decide to create a trading plan now that will become your life raft.

Remember, fear is just too expensive.

If you are afraid of losing money, reduce your position size until your fear goes away.

Once you have made a series of small profits, you will be trading with the markets money and you can increase you position size according to your growing confidence and account balance.

If you have a series of losses, reduce your position size again until you get back on the right track. Stick to your trading plan - whether it’s the one that Peter outlines for you on the website or something else you have tested by paper trading until you are confident that it works.

Then, just do it!

To Your Trading Success,

Tony Spann and the Team

Stock Trading Review is dedicated to helping you succeed as a trader by sharing with you simple and easy to follow tips and techniques.

Discover more insider secrets and the exact proven strategies to trade stocks profitably: http://www.stocktradingreview.com

Copyright(C)2005 Stock Trading Review

Ever done any whitewater rafting or canoeing? Long periods of tranquil river followed by short periods of terror. Suddenly the water grips your vessel and you are pushed and shoved by massive currents over which you have no control. Missing boulders you paddle as hard as you can. You almost lose everything and think to yourself, “Why didn’t I portage that last rapid?”

Remind you of the stock market lately? Nice steady up moves of equity growth in your portfolio followed by gut-wrenching waterfalls when the market takes back most of your gains.

You got into that canoe because you wanted to. Did you have any lessons on how to control the ride or when it might be a good idea to portage? Maybe you didn’t or maybe you got the wrong lesson. You didn’t want to crash or drown.

The same goes for the stock market. You might have read a book on how to invest your money or worse yet you might have received information from a broker or financial planner whose reason for helping you is based on commission. If you are a small account don’t plan on getting much “help”.

Brokers are not taught how to make money. They are taught to make recommendations that will not get them sued if you lose your money. The basic Wall Street tenet of Buy and Hold is totally wrong. Unfortunately, even the brokers believe it. When you have a stock or mutual fund that is going down they never tell you to sell – “you are in for the long haul”. WRONG. Of 33,000 stock recommendations last year only 127 were “sells”. After stocks have declined 50% they tell you to “hold”. You know where. Brokerage companies do not want to offend the corporate executives and mutual fund managers; they seem to have forgotten who is paying them.

When you are whitewater rafting you had better know how to guide yourself through or around the rapids to the calm water. When you invest in the market you must learn the first basic rule – protect your capital – so you won’t crash and lose all you have worked for. In canoeing it means learning when to paddle or portage. With investing it means learning when to sell, be in cash and out of the market. Know when to hold ‘em, know when to fold ‘em.

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

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

This is the continuing story of our two imaginary traders, Peter and Paul.

Peter is a professional trader, Paul is not. Peter has a tested, proven, written trading plan that he follows each time he enters a trade, Paul does not.

Peter and Paul have had vastly different Stock trading experiences - Peter has just made another substantial profit - this time from the Bear market, Paul has lost heavily.

A chance meeting with Peter’s group of friends one day at lunch launches Paul on a learning curve that will see him become a good trader, but not without some hard lessons along the way.

In discussing the different attitudes of our two hypothetical traders, Peter and Paul, I have tried to share with you the thought processes that make a successful trader.

If you read any of the marketing material from the Financial Planning community or the Mutual Fund promoters, they all stress the principle of diversification.

They say it enhances returns while minimizing risk - Peter believes that ,as Frank Watkins says in his book, Exploding the Myths, "Diversification is another word for risk minimization, but it has very little to do with making profits."

As one of the World’s greatest Investors, Warren Buffet, has said on many occasions - diversification is simply an antidote for ignorance!

Diversification for diversification’s sake simply means that you will have your money in a lot of Stocks or markets that aren’t performing to their fullest potential - some will be rising, some will be falling, some will be going nowhere.

Hardly the best way to run your trading Business is it?

Peter’s view of diversification is different to that of the herd - use technical analysis to find several quality Stocks that are rising, then buy all of them in equal dollar amounts to reduce the risk of one Company crashing and taking all of his capital with it. When these quality Stocks stop going up, sell, take a profit and move on.

Why hold Stocks in a Portfolio that are not rising, or worse, falling in value, simply because you want to have some diversification?

If you look at the typical Brokers Portfolio recommendations, they will include Stocks that are in various stages of trends, both up and down. When you ask them why they would recommend something that is falling in price, they tell you, "Well you have to have some diversification.

And based on fundamentals, it’s valued at much more than the Market is quoting it. Don’t put all your eggs in the one basket, spread your risk through different sectors, etc. etc."

Peter merely takes the prudent step of diversifying across several quality Stocks that are rising in price. Simple.

Below are some charts of Stocks that Peter found met his criteria - of course, this is in no way a recommendation to go out and buy any of these - they are simply examples of Stocks that met Peter’s buy criteria at the time of entry.

They might not fit the buy criteria now, and some have given Peter sell signals, but they will give you an idea of what to look for when a Broker or well meaning friend gives you that ‘hot tip’ and says you should buy as many of ’such and such stock’ as you can get your hands on straight away.

(Charts available at www.StockTradingReview.com)

Study the charts above and you will notice that all of these Stocks were trending strongly with small reactions. The moving averages crossed and gave a buy signal - some gave a sell signal early and then another buy signal, and then they never looked back.

Of course, not every Stock Peter bought rallied like these did. If they didn’t, they were sold and the proceeds were used to buy something that had more potential.

These are the types of trends Peter looks for and diversifies into.

He doesn’t buy, hold and hope for profits, based on some imagined intrinsic value that his Broker says the market hasn’t identified yet…

Remember though, if things don’t go according to plan, Peter gets out quickly and looks for the next trade - but while the price is going his way, he simply looks for opportunities to compound his position.

"Remember this simple rule", Peter tells Paul with monotonous regularity - "With any Stock you are considering buying, don’t buy it or hold onto it if it isn’t going up!!"

Pretty simple advice, really…

To Your Trading Success,

Tony Spann and the Team

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