When the stock market is going up and all your stocks and mutual funds are making money you feel like a genius. It is too bad that some folks don’t remember what happened in 2000. Of course, right now we are in one of those genius phases.

Your broker and financial planner are encouraging you to buy, buy, buy. And I can’t fault that at this time. You remember back in 2000 how many times they told you to buy, buy, buy while the market was going down, down, down. Are we in another of those periods now that are leading up to a humongous crash? Hey, I don’t predict, but I do listen to the voice of the market.

The great Wall Street mantra is "buy a good stock and put it away". Did you keep WorldCom and Global Crossing? Even if these were exceptions because of fraud a smart investor would not have lost any money. In fact he could have made a nice profit. But Al, they went under! Yes, I know, but the smart money still made out because they sold near the top.

As a former exchange member and floor trader I was not right every time I bought something and I especially did not like giving back nice profits that had accumulated. You don’t have to be psychic to know when to sell and don’t think you are going to be able to pick the top. A really smart trader waits for a stock or fund to start up and then jumps on it with both feet. When it starts down he jumps off looking for another equity that is going up. The wise trader knows he can’t buy the bottom and sell the top. What he wants is a big bite out of the middle.

When you make a sandwich most of the meat is in the center and a professional trader does the same with his trading. He wants to take a bite out of the middle of the move. You can do this too by looking for stocks, mutual funds or Exchange Traded Funds that have a nice upward pattern. As I said before buying is not the secret. Then what is?

You must learn to sell - for two reasons. First to protect your equity after your initial purchase and second to keep from giving back profits you have made as the equity advances. The great Wall Street secret is an exit strategy: knowing when to sell. Unless you learn to sell you will not be successful in the market. Brokerage companies do not want you to sell and rarely issue sell signals. You must decide how much you are willing to risk before you buy.

The simplest way is with a percentage stop loss order of 5%, 7%, 10%, 12%, whatever you can live with. Instruct your broker to place a trialing stop or you can change it yourself every week. Do not lower a stop.

Selling is the great secret you will never hear from your broker.

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

Copyright 2005

For the last 12 years we have seen the Japanese stock market slowly sinking from a high of 38,000 to about 8,000, more than a 75% loss and very close to the price of the Dow Jones Industrial Average. Why should we care about their stock market?

Please understand that the stock market price is a reflection of the overall economy of a country. Every major country has a stock market index related to their economic health. Today almost every one of them has been in negative numbers for the past 3 years. If you believe the numbers we are in a worldwide recession and the trend is still down. That means we can see further slowing of the world economic health. So what? Well, it could be the difference in your having a job or not having one.

Japan used to think that an unemployment number of 2% was terrible. It is now running about 5%. So, fewer people are working. Why should you care? Japan is our second largest customer for U.S. produced goods. If less people are working than there are less yen to buy American goods. Japanese businesses won’t have as much money to buy new equipment much of which is purchased here. What happens there could be a reflection of what could happen here.

Why has their market dropped so horrendously? The bankers made mortgages and loans to companies. Most bank do. However when a loan went bad (collateralized by stock of the company) they did not charge it against their books. When the stock went down they did not revalue it on their books. In the U.S. the banks are required to ‘mark to the market’ every reporting period. That means they must say what it is valued at at that time, not when they bought it. Japanese banks (and Argentine banks) are not required to do that so they show on the books a fictitious valuation for loans and stocks many of which are worthless. The investment community knows this so they keep selling Japanese stocks.

Can we do anything about it? Probably not because it is political and there seem to even fewer ‘honest politicians’ in Japan than we have in Washington. But we can learn a lesson that you must above all be honest with yourself. When you have a stock in your portfolio or 401K that is going down you should sell it so that the loss will not become greater. Most Japanese banks are broke and you don’t want to end up that way.

Brokers will tell you you don’t have a loss until you sell which is so much hog wash. How much is your portfolio really worth? And in what direction is it headed? Don’t let your investments become another Japan.

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

Copyright 2005

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

Just about now everyone is confused as to which way the stock market is going to go - up or down. For the past 3 years it has been headed south, but the Wall Street experts have told us that the market never goes down 4 years in a row so this has to be an up year. But no guarantees.

The old saying is that the stock market climbs a wall of worry. We watch sharp moves up followed by days, sometimes weeks of weakness and then another shot to higher prices. From 1982 to 2000 this went on until we absolutely, positively knew it was going to continue forever. The current mindset is you can’t lose if you just "hang in there". Mr. Average-stockholder has lost about 50% of his money so far and has chewed his fingernails to the nub. Now what?

I hope you don’t need a house to fall on you to realize we are in a long-term bear market, one that could last for years. In a bear market the action is exactly opposite what you see in a bull market - sharp declines followed by slow agonizing rallies that don’t quite make it back to the previous high prices. This is called climbing the Hill of Hope. This is a slippery hill to which you will not make it to the top. Hope is the most expensive word in an investor’s lexicon.

The smartest (?) analysts (?) and talking heads on TV continue to tell us the market always comes back - if you live long enough. They fail to tell you that every bull market is followed by a bear market of about equal length. This last bull ended after 18 years and if cycles repeat we have 15 more years of the downward path to follow. I know - "this time it is different". Let’s hope so, but I don’t want to have my money on hope.

The DOW Industrial Index has been down 3 years in a row and only once in history has it gone down 4 times to newer lows. Did you know that the DOW Transportation Index has been down 5 years straight? Can there possibly be a sixth year? Your answer is as good as mine.

There has recently been some liquidation of mutual funds from 401Ks and IRAs, but the amount is small. It has been reported that there is about 3 trillion (with a T) in mutual funds. The talking heads speak of 10 and 20 billion leaving the so-called "safe haven". As a percentage of total assets this is a spit. One of these days not too far in the future (probably this year) investors will suddenly get the idea to head for the door. And they all seem to do it about the same time like lemmings headed over the cliff.

This will look like a major bottom in the market - and it might be if the P/E ratio can get down to around 10 or less. Until it does they will still be trying, unsuccessfully, to climb that Hill of Hope.

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

Copyright 2005

Dollar cost averaging is one of the most popular ideas in the investment community. Everyone seems to like it and it has become a watchword among stock and mutual fund brokers. If it is properly done you will make money, if not you will lose money or at best stay even. Let’s examine the basic premise behind this method of investing.

You decide to buy shares in Mouse Trap, Ltd.(symbol CHZ), a computer company that produces sophisticated hardware. The shares are now selling for $40 and you want to purchase approximately $1,000 worth each month. Today you buy 25 shares. Next month the stock has gone up to $43 so your purchase is 23 shares (I’m rounding these off because you can’t buy fractions of shares.) The following month it drops back to $40, you get 25 more. Then at $37, you have 27 shares. At $35, 28 shares. At $32, 31 shares. You have invested $6,000 and have 159 shares at an average cost of $37.75.

With the current price of the Mouse Trap at $32 you have a loss of almost $1,000 (159 X $32 = $5,088). The object of buying any stock or mutual fund is to have more money than you put in, not more shares and less money. Who came up with this anyway?

Many years ago a broker talked his client into buying a thousand shares of Gravy Train (symbol EZSt) at $50 per share. In 30 days Gravy Train had spilled down to $30 and the broker didn’t want to tell his customer the bad news, but he had to call him so he came up with this: "Great news, Mr. Mushroom, Gravy Train is now at $30. If you buy another $50,000 worth you can get 1,666 shares and own all 2,666 shares at an average price of only $37.50. Isn’t that wonderful!" So far a "wonderful" loss of $20,000. There is a basic rule I learned a long time ago as a floor trader: NEVER ADD TO A LOSING POSITION.

I am in favor of dollar cost averaging, but there is a right way to do it. Only buy more shares as the price advances. Each purchase should be at a higher price per share than the previous price per share. This applies to both stocks and mutual funds. One good stock can make you a very rich person; one bad one can put you in the poorhouse.

In 1996 one of the hot stocks was Boston Chicken selling in a range of $30 to $40 per share. You could really own a lot of these shares had you continued to pour in money. It currently is selling at 50 cents per share. And mutual funds are not exempt. Lexington Troika-Dialog Fund was $24 in 1997. Today it is $3.00 per share. If you had dollar cost averaged UP your only loss would have been your first purchase.

Remember the object of investing is to make money not own a lot of shares.

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

Copyright 2005

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

It is finally catching up with them. The brokerage companies I mean. For years they have been feeding bad food to their flock and now the flock is rebelling. The customer has been low man on the totem pole for too long. That food has been the disinformation that has caused customers to lose large sums of money.

Last year there were 33,000 brokerage company recommendations for thousands of stocks. Things like Strong Buy, Buy, Long Term Buy, Outperform, Underperform, Neutral, and Hold. The one word that was missing was Sell. Of those thousands of messages sent to their clients only 125 were Sell. Something is very seriously wrong here. While the market was going up in 1999 the so-called analysts whose job it is to figure out if the company is a BUY candidate were telling you to buy everything in sight. Anyone could have used a dart and thrown it at the long listing of stocks in the newspaper and hit a winner almost every time.

What happened to the in-depth analysis of the brokerage company geniuses when these same stocks started down. I know - Hold. They call it Buy and Hold, but I call it Buy and Prey. In 2000 over 1,000 stocks on the Nasdaq lost more than 90% of their value and today many of those companies have gone under. Why were you not notified and told to sell? Because the brokerage companies were making more money doing Initial Public Offerings (IPO) than they were making commissions on your trading.

To say the naughty word "Sell" would have made company executives mad and they would not have given the brokerage company a shot at their next Initial Public Offering (IPO). To heck with the customer; he doesn’t count. There are cases where analysts were fired because they told clients to sell out.

Now that the lucrative IPO market has dried up maybe the brokerage companies will begin to realize they have a fiduciary responsibility to their customers. Hundreds of thousands of customers’ accounts have lost 40%, 50% and more of their equity. If the short-sighted brokers had protected these accounts they would have hundreds of millions of extra dollars left so the customer could trade again which would mean millions more in commissions for the house. Now the dollar cost averaging technique is left with no dollars to invest.

Customers are afraid to put more money in the stock market because they have been so badly abused. They know something is wrong, but they don’t know what so they wisely hold onto their money and refuse to pour more into losing propositions. Brokers want the customers to buy stocks and not put their dollars into a money market account where they make no commission.

The golden goose has lost quite a few pounds, but let’s hope the brokerage companies have learned that by treating customers with respect and feeding them properly will bring them greater rewards.

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

Copyright 2005

Unfortunately, most of you who are reading my column are suffering some substantial losses in the stock market. Whether it is mutual funds or individual stocks everything with mighty few exceptions is going down. Maybe you are just giving back some nice profits, but maybe it is beginning to bite into your original principal.

You are wondering what should I do? I know, I’ll call my broker. He knows all about the market. Please! Don’t ask your broker. I already know what he will tell you. The usual Wall Street smoke and mirrors answer. "Don’t worry. This is just a healthy correction in a bull market. It will come back". It makes me sick to hear this kind of nonsense from a supposedly informed and intelligent (?) person. By the way, what is "healthy" about a 38% "correction"?

If this guy was so smart when he had you buy these stocks and mutual funds then why wasn’t he smart enough to have you sell before you gave back 50% or more of your portfolio? He is working under the guise of investment conventional wisdom that is conventional but not wisdom. "Mr. Mushroom, you are in for the long term so don’t worry about these aberrations." YUK! That is what you are - a mushroom. Grown in the dark and fed you-know-what.

There are times when you should have on only one position - CASH. Cash is a position, but brokers are not taught that. They never heard of it.

When I was a floor trader guys would come to me and say, "Al, what do you have on?" and my reply, "Nothing" drew a shocked look. "How can you be down here on the floor and not be trading?" It is very simple, I was there to make money, not to trade. Many times you should not be doing anything. It is the same for the average investor. He should be in cash when there is a bear market as there is right now. How long it will last I don’t know, but I will know when it is over and the bull has returned. Your broker won’t know because he has not been trained to make money, only to make commission.

Every stock and mutual fund you own should be examined regularly (preferably weekly) and a stop placed under each position so (just in case) that hummer decides to tank you will be out with your profit. Never let a winning trade go to a loss. You must protect your capital at all times.

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

Copyright 2005

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

Caught in a whirlpool and being sucked under. No life vest or other device to save you. Gurgle, gurgle. Down you go.

This last couple of weeks in the stock market kinda feels like that whirlpool when you look at your financial statements. Of course, your broker will tell you this is a "normal correction and it gives you a chance to buy more so you can dollar cost average. He could be right about this being a correction, but dollar cost averaging down is 100% wrong. The proper way to average into a financial holding is buy more as it goes up in value, never down.

There is a basic law of physics that applies equally well to many things including the stock market. An object in motion will remain in motion in the same direction until interrupted by another force.

Keeping that in mind before you buy any stock or mutual fund is very important. Just because something looks cheap does not mean it will increase in value because you bought it. Usually there is a compelling story to go with it, but that doesn’t mean anything.

How can you know if what you are going to purchase has a chance of going up so you can profit from it? Let’s go back to the basic law of physics. Is it going up now? Many professional traders will want to see an equity that has been moving steadily higher for at least 3 or 4 months and rising at the rate of at least 3% per month. They also don’t like sky rockets that are going almost vertically as these are too dangerous and many times will fall as fast as they climbed.

You must also protect your capital at all times. Anyone who purchases stock or mutual funds without an exit strategy is doomed to lose his money over time. How? Very simple. You may very easily put a stop-loss order in place that will not allow you to lose more than 10% of your investment. Brokers discourage these as they have to watch them - and you should too. Your stops orders should be placed immediately after your purchase and before you hang up the phone. At the end of each month if your equity has gone up you should move up your open stop loss to lock in any profit that is accumulating.

If you will go back to study the price action of stocks and funds you will see that once an equity starts in a certain direction - either up or down - that course will be maintained for many months and sometimes years.

People hate to lose money, but one of the important rules is never to lose a lot of money. Small losses will not kill you, but big losses can make that gurgle, gurgle sound.

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

Copyright 2005

One of the great truisms of Wall Street is "Don’t fight the Fed". For the long term investors this has resulted in greater profits. When the Federal Reserve Board hikes interest rates look out and when the do it 3 times in a row it is called "3 jumps and a stumble". We have just gone through the stumble and it has been costly.

When you go back in history you will find that the stock market has almost always gone down substantially after the Fed has jumped interest rates 3 time in a row. As of this writing the Fed has lowered rates twice and we are looking for a third cut very soon. When that happens you will know that there is very little likelihood of the market going lower.

The stock market moves more on anticipation than fact. Another old saying is "Buy the rumor and sell the news". Because of what Mr. Greenspan has done we anticipate the market will rally and the rumor is he will do it again so we have two reasons to think that stock prices will move higher. He caused all this mess and now we look to him as our savior. It should be as the Queen of Hearts said, "Off with his head". Unfortunately he is appointed and cannot be removed from office even by the President. Just don’t give him undo credit for lowering interest rates when he should not have raised them in the first pace.

For the smart long term investors when they see the Fed raising interest rates they should immediately pay attention top their stock and mutual fund holdings with the idea of selling them and placing the funds in a money market account. The investors won’t be making any capital gains, but they also won’t be standing in front of the train as it comes barreling down the track and runs them over. No, you don’t have to sell immediately as it takes several months for interest rate increases to take effect - usually about 9 months.

When rates are lowered there will also be a time lag of 6 to 12 months which gives you opportunity to start picking some winners for the next bull market. Forget that Wall Street conventional wisdom of "do your research". Research is basically worthless. If you can find it out then everyone else already knows it and it has been reflected in the price of the stock. Let me give you a method that is too simple for your broker. He will tell you it won’t work except it does.

Every Friday there is a listed in Investor’s Business Daily on the back page about 40 charts of the week’s best performing stocks. Notice they are all in uptrends. You could buy almost any one of these and check it weekly to see that it remains in the trend. When it falls out, sell it.

There are other equally simple methods your broker will not recommend. They want to keep the Wall Street mystique. Once you find out how easy it is to make money you won’t need them. It is your money. Are you willing to work a little to make it grow?

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

Copyright 2005

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

When most analysts, financial planners, fund specialists and investors try to decide whether to buy a particular stock they immediately go to the financial statements to determine the growth potential of the company. Numbers and more numbers. Then management analysis and industry speculation. Unless you are an experienced financial analyst (and there are not very many good ones) the numbers in the reported statements can be very misleading - just as the company Controller wants them to be.

Let’s not consider fraud as there has been plenty of that both here and abroad. They are all honest (I hope). Most corporate executives want to remain within the law so they report statements that are true to the FASB - Financial Accounting Standards Board.

As the old saying goes, "Numbers don’t lie, but liars can figure". If you are good with accounting techniques you can make a bankrupt company look good - on paper. On CNBC-TV many folks watch the CEOs telling a great story about their company. You sure don’t expect them to tell you the whole truth and nothing but the truth, do you? That is why I always hit the mute button. And many times when you look to see what the insiders are doing in this wonderful (?) company this executive and his buddies are selling out.

Then there is Morningstar that gives us those twinkling heavenly bodies. Nothing like a 5-star mutual fund - that has lost money for the past 4 years. So much of their information is old and if they know it you can be sure that has already been factored into the current price. How about those peer groups? Suppose this particular peer group is ranked 99th out of 100 or even 15th or lower. One question: why do you still own it?

Why are you putting your money in the stock market at all? The idea was to make more money. Right? Yet the majority of little investors will hold a stock or mutual fund while it goes down and down. Wouldn’t it make more sense to sell out once it loses a certain percentage from its highest price after you buy it? If you bought it at $20 and it is now $40 is it now time to sell? I don’t know so why not let the price action tell you. If you only wanted to risk 10% when you bought your stop-loss would have been $27. It now should still be 10%, so you will be out at $36 if it starts down. Suppose you tracked that stop all the way up to $80? This is why I have always preached that stops make you money.

The best (?) analysts know very little more than you. They just have a bigger vocabulary about the market. You and your dart board can do as well. All any truly smart investor needs is common sense and the ability NOT to fall in love with any position. Know when to hold ‘em and 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.

Copyright 2005

For the year 2000 we have seen hundreds of mutual funds lose 40%, 50% and more of their value. This does not seem right since the fund is supposed to be managed by a professional. How can this "professional" do such a bad job? More than half of the funds this year will not out perform the S&P500 index which closed down about 10%.

What is going on?

When you put your money in a mutual fund you are supposed to be hiring someone who knows how to make money. He should be able to do a better job than you. But he has not. If this person worked for me I would fire him. You don’t hire people to lose money for you.

Now that you have fired this bum let’s examine why he did such a poor job (pun intended). Each mutual fund has one or more analysts who are supposed to be able to determine if the stock of a company is a good buy. That means will it go up?

These so-called analysts do the kind of research that Wall Street says is necessary before purchasing a stock. Yes, they do all the standard things that anyone can do such as determine company growth, profit margins, P/E rations, cash flow, etc., etc. They get all that wonderful information from Morningstar and apply statistical analysis you and I would never think of. And when it comes right down to it what do they have? You can research something until you are blue in the face, pile on information upon information, but there is one thing all this nonsense will not tell you. Will the stock go up?

The kids who do this analysis (sorry, kids, you’re only a man when you pick a winner) have an agenda. For the fund-type analyst he wants to find a stock that will not go down because that hurts the fund manager who gets paid not by performance but by the amount of money he can keep in the fund. He gets to skim his percentage off the top every year and never has to make the investor any money. Like paying someone to mow a parking lot.

Let me give it to you in plain language. Fund managers don’t know how to be wrong. It is OK to be wrong, but when they have picked a dog and it starts down they refuse to get out to preserve capital. There is no excuse for any mutual fund to lose 30% or more of its capital. They only know how to buy and hold. Many times there is nothing to buy and cash is the only good position, but they don’t seem to understand that.

When I was a floor trader on the exchange I was only right about 40% of the time, 20% I got out even and 40% I took a hit. When I was wrong I ran, did not walk to the nearest exit. Losses must be kept small. These money managers have never learned that basic rule. In one of the Woody Allen’s movies he was asked what he did for a living. He said, "I am a money manager. I manage peoples money until it is all gone." Does that sound like your fund manager?

Isn’t it time to find a fund that is going up?

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

Copyright 2005

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