At some time in your life you have been on a river in a canoe and hopefully you had a paddle. You know about being up the creek without one.

You quickly learned that paddling up stream is much harder than paddling down stream. The lesson of going with the flow can be applied to many aspects of life and especially to the stock market. In the creek it is easy to know which way the current is flowing, but in the market it is much more difficult. At least that is what Wall Street wants you to think.

On the river there are markers and navigations buoys to help you with your passage, but in the money world there are few such true indicators. Actually it is very easy to determine the flow of funds in the market. Standing on the shore are people (brokers) shouting to go to the right and another next to him screaming to go to the left. “Buy, buy, buy”. Very few of them know which way the current is headed. You have to figure this out yourself.

Fundamental analysis is excellent, but it is very poor to let you know when and where to paddle (put you money). There are many technical tools available, but these can be difficult to master for many people and few brokers know or care to learn them. However, there is one very simple method that does work.

That method is too simple for brokers who want you to think that you need their “expertise”. They sure don’t want you to find out as you won’t have to pay them commissions any more. The paddle you need to have to propel in the right direction is called the 200-day Moving Average Paddle and you can get it free if you know where to look. You can make this yourself, but if you have a computer just go to the web site www.bigcharts.com and click on their Interactive chart box and they will do all the work for you. You can do this at the library of you don’t have a computer at home.

Using an index such as the SP500 you easily see that when the price (your canoe) is above the 200 line (the current of the river) you should be a buyer of stocks and mutual funds and when the SP500 price is below the 200 line you should be in a money market (even if it only pays 1%). You don’t want to be under water. This is a simple way to see the direction the market is flowing and will keep you from losing money when the market starts down.

No one knows when the current will change. And don’t try to guess. Let the river (market) tell you the direction of flow.

Get yourself one of those good paddles and learn to steer your own canoe.

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

First let’s see what protectionism is. According to Mr. Webster it is the advocacy, system, or theory of protecting domestic producers by impeding or limiting, as by tariffs or quotas, the importation of foreign goods and services.

That sounds pretty good. It is something that will protect the jobs of our workers from goods that can be produced elsewhere and undercut the prices of our local goods. How? There are a couple of ways. The merchandise or commodity itself is in very large supply in another country and is mined or grown there very cheaply. Not much you can do about that. Or the labor costs of production are vastly less than our own workers and the product can be manufactured for less.

The average worker in the U.S. makes about $12.00 per hour while the workers in Mexico get $2.00 and the people in China average 60 cents per hour. How do you compete with them? Answer - you can’t. So what do you do? If you are a shoe manufacturer in the U.S. you ask the federal government to levy a tariff (tax) on all imported shoes (or maybe just the kind you make). This sure helps that particular shoemaker who might have 300 employees making sneakers. Now the sneaker maker can keep his prices up and his workers working. That’s good.

But wait a minute. There are millions of feet that need sneakers and that means millions of consumers are paying more for comparable quality sneakers. Is it fair to give special consideration to a very small group that automatically penalizes the mass of consumers?

Examine the definition of tariff again and think it through to the end. A tariff is a tax on consumers.

You are paying more for certain goods (and there are about 13,000 separate tariffs) than you should just for the benefit of a few manufacturers who cannot compete in the world market. Every country is not just a unit unto itself any more. We now have a global economy that allows specialization of products. If a company cannot compete it should not be in business and should not penalize the majority of its citizens for the benefit of a few. You, the consumer, should not have to pay more for tomatoes, brassieres and steel just so our politicians can get reelected. That is what is boils down to. Unions will promise to back certain candidates if they will vote for tariffs (tax increases) that protect incompetent manufacturers. The steel tariff is an excellent example. Bush put on a tariff when he could have given a tax break to help modernize that industry. In the long run our steel production will disappear because of continuing inefficiency. If we get into a trade war where one country trumps another with more and more tariffs it is a guaranteed loser for everyone. Visualize this as building a house of cards. You end up with a game of 52-pickup. It could go to the ultimate of deflation and depressions for all the countries of the world.

Protectionism in all of history has never worked.

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

The ABC’s of Stock Trading Success

Stock trading success…why is it so elusive?

With all the trading information, systems, trading advice and assistance available today, the fact that most people who attempt to profit from trading Stocks lose money seems quite bizarre.

Can you imagine the millions of dollars that must have been spent by countless traders on courses and Stock analysis software, that was wasted because the buyers didn’t understand the key principle of trading success I am about to share with you now.

We aren’t going to need any charts for this lesson…just your ability to comprehend the value of what I am about to share with you and your willingness to take action - right now I want to share with you the ABC’s of trading success.

If trading was an easy business to master and profits were freely available to all, every punter with a computer and a free charting program would be a millionaire and the streets of our cities would be clogged with chauffer driven limousines.

The fact that the majority of the population have no idea how to make a buck from the Stock Market, often after spending large amounts of money on education and trading losses, made me wonder why this is so.

I searched for the answer to profitable trading for years, until I found it in an unexpected place, when I wasn’t looking for it at all.

You may be able to relate to this story, or you might just be starting out and this will help you to reduce the time you spend in your initial learning stages and speed up your path to profits.

Let me tell you about Jim (not his real name…of course). Jim first started trading after answering an ad in the Brisbane Courier Mail for a popular trading education package that cost him around $1000.

Little did he know that the fateful investment in that course would lead him into the abyss of Gann analysis, and that it would eventually cost him thousands of dollars in courses and trading losses to pull himself out the other side.

He read the course, watched the videos, read the course, watched the videos…you get the picture.

Losses, losses, small profit, losses. He felt that because of his limited knowledge, he had to learn more and more in order to stop the losses and to start profiting from the market. So he spent more and more on courses - and his trading got worse and worse.

The more he learnt, the less he seemed to know and the worse his results became. Then, he finally learnt about the A, B, C triangle of success, in trading and in every other area of life, from one of his property mentors - John Fitzgerald.

The A, B, C’s stand for -

A - Awareness

B - Belief

C - Conduct

Awareness - He realised that he already did in fact know enough to become a successful trader and investor. He had studied many books and courses on trading and had everything he needed in the way of practical trading information to make a profit.

He was aware of what it took to trade profitably. He could become a good, a great trader, if he could just develop the second factor…

Belief - If he could bring himself to believe that he was a good trader, he would become a good trader.

He didn’t need more knowledge at that time, because he had a firm grasp of the basics. He simply had to believe in himself and his abilities and the profits would follow.

The third leg of the success triangle

Conduct - Was were he was falling down.

He would look at a chart of a Stock or market, and decide on a trading strategy using his understanding of trends – he was calm, detached and unemotional - just like his written trading plan told him to be.

His success rate was good at finding profitable trades - but his conduct was the problem…

He had no trouble placing the trade while the market was closed. He would simply call his Broker and give him the order.

Then, the market would open. His calm, detached, unemotional state would turn into panic.

He would feel physically sick at times, scared in case his analysis was wrong and he lost money on the trade.

He honestly believed that he couldn’t afford to lose any money (the poor mans mindset) so he focused on losing.

He got what he focused on… He watched his trades like a hawk, and at the first sign of a reversal against his position, he would either call his broker and exit the trade, or move his stop loss order to a place where he was virtually guaranteed of being knocked out by the normal fluctuations of the market.

He simply had too much leverage - he was over trading.

He was continually setting himself up to fail.

His conduct was the weak link in his trading success triangle.

Because he was continually losing money on his trades, albeit only small amounts, his belief system started to falter, and he saw himself as a losing trader even more - then he started to think he had two weak sides on the success triangle – conduct and belief.

He started to question the system he was using, which he had painstakingly back tested, over many markets on hand drawn charts and knew was solid, but his failure to have control of his conduct or belief made it look like it wasn’t a good system at all.

So, how to fix it…

He sat down and looked at his recent trading results, and noticed that on most occasions, if he had stayed in the trade, he would have made a profit. His system was valid. His Awareness was enabling him to find and execute profitable trades.

His Belief system needed a gentle prod after several losing trades in a row, but because he had done so much study and work on back testing, he knew he deserved to be successful.

He started to visualise himself in his trading room, making profitable, long term trades and enjoying the benefits that this type of trading would bring to himself and his family.

Then, he worked on his conduct. He again wrote out his trading plan, and decided that he would treat his plan like a shipwrecked sailor treats a life raft.

He would cling to it until he was forced out of a trade by the actions of the market, not by his fearful, emotional response to the actions of the market.

He started placing his stop loss orders in a position so that the market had to change trend in order to take him out of a trade. In other words, a logically placed, technically correct stop loss position.

He then reduced his position size to allow for these stop loss orders being further away from the price action, so that his account was never at risk of being totally wiped out by one serious loss.

He did a pre-trade and post trade analysis sheet, so he could analyze his performance and try to consistently improve his results.

(This can be as simple as a sheet of paper where you write down your order, the position of the market and your thoughts and feelings before, during and after a trade.

Or it can be an elaborate system of checks and balances that guide you through each of your trades. Be careful though - keep it simple or you probably won’t use it!)

Once he started to do this, he started to make money (with the exact system we have been teaching you on this Website).

(There are, of course, many other strategies and systems you can use in addition to the lessons we teach you to increase your profits, but to start with, these methods are all you really need to become a profitable trader.)

We are always learning and improving - every trader should strive to do this also.

When you are making consistent profits using the methods we have shared with you, investigate some of these additional entry and exit techniques, but not at the start. Keep it simple.

When he started to trade this way, he found it was far better to take a small position with a loose stop loss and be able to sleep at night, than his previous strategy of using maximum leverage and stressing out whenever he was in the market, to the point where he couldn’t stand to walk away from his screen in case the position went against him.

This method sets up lots of profits and a few losses. Much better than the alternative he had previously used.

He then started looking for Stocks that trended strongly for long periods of time, and was drawn to the US Stock Market.

He used exactly the same entry and analysis techniques I have shown you on the Website, and -

He bought Call options in Gen Probe Inc (GPRO) with the Stock at $27 and held on until the Stock price was $58 three months later.

He bought Pacificare Health Systems Call options (PHS) when it was trading at $24 and held them to $51 four months later.

And he bought Sandisc Corp Call options (SNDK) with the Stock at $24 and held them to $58 less than four months later.

(Please Note - these are not Stock recommendations, they are merely mentioned here for illustration and educational purposes and the trades are hypothetical examples).

Can you imagine the change in the size of his trading account balance?

None of these Stocks had given him any reason to sell earlier, so he simply held on for the ride…Awareness, Belief, Conduct…the success triangle.

The Awareness will come when you study and really ‘get’ the lessons on the Website and in the Newsletter.

Study the lessons carefully, read books written by the masters. Teach others what you have learned - you will gain a better understanding yourself.

All human interaction is a chance to learn or to teach.

By teaching someone else and sharing your knowledge, you will learn any subject at a deeper level. You ultimately go from an intellectual understanding to an emotional understanding (as Robert Allen calls them, an aha!) of your chosen area of interest, in this case, profitable trading. Try it…

The Belief will come when you back test the Trading Plan I share with you on the Stocks that you want to trade and prove to yourself that it does indeed work.

Visualize yourself making a series of profitable trades. Feel how good it is to see the market moving in the direction you expected it to.

Imagine spending the profits you make trading Stocks with your family and friends, and the time you will have to do the things you want to do instead of the things you have to do. Successful trading gives you the ‘time freedom’ to do whatever it is that you want to do with your life. Do it first in your mind, and then do it in the market.

Your Conduct - well that’s up to you. Will you ‘decide’ to look at your written trading plan as your life raft? Cling to it as your last defense against the emotions of fear and greed that live inside each one of us?

Will you trade with the trend, enter off 1 to 4 day reactions to the main trend, reduce your leverage or position size and put your stop loss orders out of the way, so the market has to change trend to get you?

If you do this, you should be confident that you can achieve trading success. That is our wish for you. Good luck.

Now, lets review today’s lesson -

The Trading Success Triangle has as it’s three sides - Awareness, Belief and Conduct

If any of these elements are weak or missing, the triangle has no strength

The sides are all important and are dependent on each other, but Conduct is the most difficult for the average trader to master

Fear and Greed act to change our conduct from what our rational thoughts tell us is the correct course of action, to actions that aren’t always in our best interests. By controlling Fear and Greed, we can make rational decisions that help us to become profitable traders

I hope this lesson has helped you in understanding the mindset of a successful trader a little better.

Understanding these three critical elements of trading psychology will put you well on the way to a profitable trading career.

Get this, and your trading success is practically assured. Miss the lesson, and your chances of making big money in the Stock Market are profoundly limited.

Please feel free to share this lesson with your trading friends and associates - they will thank you for 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

Congress recently passed another new law that is supposed to outlaw financial crime. Corporate officers will be sent to jail for “cooking the books” as it is called. Among other things it is taking the stockholders money and paying themselves huge bonuses for nonperformance. These guys are even worse than mutual fund managers who do the same thing – get paid big salaries yet continue to lose your money.

I can remember many years ago (I’ve got a few years on me) when they started building very fancy prisons with nice cells and tennis courts and nothing but a tiny fence around them. The story was these were being built for government officials who might get caught with their hand in the till and I have no reason to doubt it.

Today we have the new Sarbanes-Oxley Act that makes it a federal crime to commit financial fraud of various kinds. This new piece of legislation is going to be about as effective as the Brady Bill was in eliminating crimes committed with a gun. A crook is a crook is a crook. With or without a gun.

It seems that most of these high-priced executives that were convicted have been going to halfway houses. No bars, no fences, no cells. About 50% of inmates (?) in these “prisons” are those convicted of financial crimes. Most of the others are drug addicts and single moms. They can even get weekend passes to visit their palatial estates. Attorney General Ashcroft wants them to get the maximum sentences is a regular jail, but a group called the Sentencing Commission wants a lenient standard. I don’t know who is behind this group, but it seems to be in line with my motto of “follow the money”. The more money you steal the shorter the jail time will be.

We recently had Merrill Lynch and other major brokers fined $1.4 billion (yes, that’s a B) for their lying to stockholders by giving out false information generated by their “analysts”, read salesmen. Not one penny of this is going to the people who were cheated and none of the brokerage company executives will get any jail time.

Almost none of the individual company executives have been ordered to make even partial restitution to stockholders. Unless something is done this lenient policy will go into effect in the first week in January. If you have lost any money in the stock market these past 3 years I think it would be a good idea to let your Congressman know that you want those bums kept in jail until they give back as much as they have stolen or at least until they are as broke as their shareholders.

Many will agree that the punishment should fit the crime. Letting them serve their terms in halfway houses without repayment is not my idea of that. Maybe Washington should hear from you.

Al Thomas

Author of "If It Doesn’t Go Up, Don’t Buy It!"

Never lose money in the stock market again.

http://www.mutualfundmagic.com

Quick, look out the window. It’s raining. No, the sun’s out. No, it’s cloudy. Wait a second, it is changing again, but I can’t tell what it is going to do.

Kinds like the stock market. Up one day, down the next, then goes sideways. That stock I bought is not acting right. Maybe I should sell it, but I’ll wait another day. My broker (the weatherman) says it will go back up.

At the beginning of every year we hear stock market forecast (whether we want to or not) and every one of the “experts” is about as accurate as our TV weatherman. Be sure to take your umbrella. Every year the Wall Street Journal surveys more than 50 economists and every year about 1/3rd of them are right. A weatherman can do better than that. The analysis of these birds seems impeccable and when you hear them speak so confidently you are sure they are right. He must be right – he’s a broker/economist/financial planner and they know everything. Well, at least a lot more than I do – maybe.

Having owned a brokerage company and hired about 300 brokers I can assure you they don’t know any more than you do. It just sounds that way. The one question you should always ask any broker before you give him your money is if he had a winning year last year. The market was down overall about 25%. If he lost more than 5% you don’t want to know him. And if he says he made a bundle you had better question him carefully and ask for proof.

For the last 3 years almost everyone lost money. But this year it will be different. My broker said so. Only once before did it ever go down 4 years in a row and the odds of it’s happening again are astronomical. Now that’s logic for you. If you want to know what the weather is you look out the window. This same logic goes for the stock market. It is going down except for brief periods. As long as the major trend continues it would be wise NOT to buy anything.

Now that President Bush has given us his “stimulus” package and the Democrats have countered with theirs I wonder how long they are going to fight over how much and who gets what. It could be months before we see anything definitive from Washington. And that means you and I won’t be getting any relief until then.

Tell those guys in the Beltway that it’s raining and we need an umbrella – NOW!

Al Thomas

Author of "If It Doesn’t Go Up, Don’t Buy It!"

Never lose money in the stock market again.

http://www.mutualfundmagic.com

The Shadow knows. There used to be a radio program called The Shadow where the hero, Lamont Cranston, the Shadow, would overcome the shadowy forces of doom by clouding the vision of those around him. “Who knows what evil lurks in the hearts of men” was their intro line. They were great shows and you can still find them on the Internet.

The stock market is kind of like the shadow. As you walk along with the sun at your back you cast a shadow. No matter which way you move the shadow stays ahead. Fast, slow, right, left. It doesn’t make any difference.

An equity market is the shadow of the economy staying out in front following every twist and turn. Depending upon the height of the sun the shadow may be long or short. You can see it either as a long term or short term prediction of the passage.

If you did not know what a shadow was you would not realize it is telling you something about where you are going. If you see the shadow fall across a hole you know you must step over or around it depending upon its width and depth. The path of our economy is predicted by the direction of the stock market. When things are good and everyone is making money the shadow seems to go up and when the economy slows (for whatever reason) the shadow darker and heads down.

At this time (11/04) the sun is shining brightly and the shadow stretches out long and friendly before us. The stock market is going up and everyone is feeling good, but we also know that tomorrow storm clouds may appear making our shadow seem to be a monster black image that hides the potholes in our path.

When that occurs we must be ready to put on our raincoat to protect what we carry through life. One of the most important is the money we have put aside for the time we wish to depart the path, sit by the road and contemplate all the beautiful things we have brought. That means we must guard against losing what we have created and not let the shadowy rain cloud wash them away.

That raincoat for your investments is an exit strategy for your portfolio. Without a plan to protect your assets it will be too easy to seem them washed away. This does not mean diversification which is what brokers want you to do. It means a plan to exit (sell) stock and mutual funds that are going down. This can be done with a simple percentage stop-loss order for your stocks and a mental stop loss for funds.

Brokers never want you to sell even though there may be a commission involved because once you money is in a money market neither they nor the brokerage company makes any money. You and only you care about your money so you must protect it. Think about an exit plan now and put it into place.

Do not become a victim of the dark shadow.

About The Author

Al Thomas

F*R*E*E investment letter www.mutualfundmagic.com

Author of best seller "IF IT DOESN’T GO UP, DON’T BUY IT!" Never lose money in the market.

Copyright 2004 Albert W. Thomas All rights reserved.

Former 17-year exchange member, floor trader and brokerage company owner.

You’ve decided to try your luck at trading stocks or commodities, but so called experts tell you that you need to determine your trading objective. What exactly does that mean and why is it so important? Well, it’s really a question of your trading philosophy. A trading objective basically identifies the horizon on which you’ve chosen to trade. For instance, a day trader will have totally different set of objectives and goals than will a long term investor. They look at the market through different sets of glasses and it can be very dangerous to your trading account to try to mix and match trading styles.

Let’s first look at the most common trading objective – long term investing. Long term traders are usually more concerned with company fundamentals such as earnings, annual growth, and sales to name a few. They may use some technical indicators such as price charts and graphs to help time their entry points, but fundamentals are generally more important to them. Long term traders are looking for that home run trade that will pay very large profits. Therefore, they can be right as little as 20-25% of the time and stay earn a nice profit. They have been known to hold a given stock for several years.

The other end of the trading objective is the day trader. Day traders go into the market each day looking for quick small moves of less than a point – known as “scalps”. They use technical charts exclusively and typically buy large positions which they often sell within minutes. Their profits on a given trade is much smaller than those a long term investor would generally make, so therefore day traders must have a very high winning percentage of trades – usually 60% or more to be successful.

These trading objectives are two extremes and are discussed here to illustrate a very important point. If a day trader takes a position based on short term indicators from a chart or other technical indicator, it would be a huge mistake to change that trade into a long term investment because the trade setup wasn’t based on a long term trade. Inexperienced traders will often do this when a short term or swing trade goes bad. Instead of cutting their losses by simply selling the position, they change it into a long term trade hoping that the position will become profitable. DO NOT change your trading objective – stick to you trading plan. This rule will protect your account.

Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To investigate and learn more about trading stocks, visit his website, http://www.earncashathometoday.com/trading-stocks.htm

The Macedonian Stock Exchange (MSE) is not operating successfully. True, some of the parameters which we use to measure the success of a stock exchange have lately improved in the MSE. For instance, the monthly money volume has increased together with the number of transactions. But this is a far cry from success.

Who is to blame? Is the current management of the MSE incompetent?

I do not think so. Actually, I think the MSE has an excellent management team, doing their best to incorporate new trading techniques and to list new firms. The problems lie elsewhere.

A stock exchange is a very important financial market. It is a highly efficient and visible instrument of financing. In the West, it is used to finance most of the needs of corporations, way above financing available from banks. Individuals and firms save some of their income and invest it. The stock exchange is meeting grounds for savers wishing to invest their savings - and firms looking for investments.

Another function of stock exchanges is to assist governments in financing their internal borrowing requirements. Governments sell obligations (called bonds) to investors through the stock exchanges in their countries. A stock exchange is, therefore, an indispensable tool for re-financing national debt.

But a few conditions must prevail before a stock exchange functions properly.

The most important condition is the existence of a healthy, growing economy in the stock exchange’s country. Investors flock to robust economies and shy away from sickly ones.

On the face of it, the Macedonian economy belongs to the latter category. High unemployment, low savings, retarded growth, a gaping trade and payments deficits. But this is an optical illusion. The economy is in much better conditions that most Macedonians would care to admit. The unemployment figures are skewed. They reflect efforts to evade paying social taxes - not real unemployment. The economy is growing, even by official estimates. The black economy is growing even faster. The deficits are covered by enormous capital infusions from donor countries. Macedonia is receiving more international credits per capita than Russia. It is always convenient to blame the worsening economic climate - but the cold, objective figures do not bear this out.

When an economy is growing - the profits of companies (including those listed in the MSE) will grow with it. This makes the shares of these companies an interesting buy.

Since no one is buying - we must look for the problem elsewhere.

A prospering stock exchange is linked to the existence of the right micro and macro economic management. Macedonia has more than its share of problems in this respect.

The process of transformation of businesses with social capital had four basic flaws:

first, it introduced no new management, ideas or capital to the beleaguered firms which were "transformed". The market simply does not believe that they were transformed. The same people run the same shows under a different hat.

Second, such transformation violates the concept of Hierarchy, a chain of command.

It blurs the distinction between labour (workers) and capital (owners). What is wrong with that is that a ship must have a captain - and only one. Someone must have the authority and the responsibility. Collective management is no management at all.

Moreover, innovation change and revitalization are all prevented. What change could come from the same set of worn out managers? How can thousands of owners decide to worsen the conditions of the workforce - if owners and labourers are one and the same? So, management is polluted by irrelevant, non-economic considerations: power struggles amongst groups of workers, social considerations and political ones.

We identified one villain. The other one is high (real) interest rates. When interest rates are high, three effects prevent the resuscitation of the stock exchange:

First, firms have high financing expenses (interest payments) - which reduces their profits. Second, it is not worthwhile to borrow money and to invest in shares.

Third, it is more tempting to invest money in bank deposits, yielding high interest rates - than in shares. High interest rates are the poison of stock exchanges.

The same is true for low savings rates. If people and firms do not save - there is no capital available for investment in stocks.

This, exactly, is the current situation in Macedonia : impossibly high interest rates coupled with exceedingly low savings. There is basic mistrust between clients and their banks. They prefer other ways of keeping their money.

But all the above is far from exhausting the list of pre-conditions for the proper functioning of a stock exchange.

Investors must have timely, accurate and full information about the firms that they invest in. This will allow them to respond in real time to developments in the company and to prevent losses. This will also make it difficult to cheat them - which is were we come to the question of accounting standards. Only lately have the accounting rules in Macedonia been revised to conform to the Western systems of accounting. Even now, the similarity is very slight. Macedonian firms maintain a double accounting system. One set of books is tax-driven. It is intended to show losses or profits at the whim of the management. An elaborate scheme of hidden reserves lies at the heart of the typical financial statements of the Macedonian firm. Another set of books - if they are kept at all - reflects reality. This is an enormous barrier to foreign investment - and foreign investors are the driving force in every modern stock exchange.

The trust of investors in the stock exchange is based on legislation to protect their property rights against the firm’s management’ against the authorities and against other investors who might wish to rig the market or manipulate the prices of stocks.

But legislation without an effective judicial and law enforcement systems is like a stock exchange without money. To enforce property rights in Macedonia takes ages and even then the outcome is not certain. Laws, regulations are in their embryonic stage and some of them seem to have had an abortion: they were hastily and unwisely copied verbatim from legal codices of other countries (Germany, Britain).

Last - but definitely not least - is the existence of a fair, transparent and non-corrupt marketplace. The stock exchange, the banks, the regulatory authorities, the police and the courts have to be above suspicion. For the market to be utterly efficient - it must be utterly free of any ulterior considerations and motives. Corruption distorts the market’s allocative mechanisms and powers. It is easily discernible in dealings in the stock exchange for all to see. A stock exchange is, after all, the showcase of the local economy.

But there is a problem which towers above all other problems and it is almost endemic to Macedonia. It helps to explain much of the predicament of the stock exchange in Skopje. It is the fact that the market is missing its most important player: the Government.

Investors - both foreign and domestic - look for the Government to be active in the local stock exchange. Governments throughout the world use their stock exchanges to sell shares of state-owned enterprises to their populace. The stock exchange becomes a mechanism for the distribution of the national wealth - as embodied by the state owned enterprises - to all the citizens. As we said before, governments also use the stock exchange to borrow money from their citizens.

The Government of Macedonia does neither. It totally ignores the MSE. Not one company was privatized through the MSE. Not one Denar was borrowed from a Macedonian citizen through it. A government’s activity in the stock exchange is proof that the government believes in it. Therefore, if it does not operate in the stock exchange - it proves that it does not believe in it. If the government does not believe in the stock exchange in its own country - why should the investors believe in it?

There are a few additional structural characteristics which are considered to be the hallmarks of a healthy stock exchange. But those are the by-products of all the above mentioned conditions.

A stock exchange must be liquid so that investors would be able to convert their shares into cash easily and expediently. It must include many investment options - professionally put, it must be diversified. This will allow the investors to choose from a variety of investments and also to reduce their risks by dividing their money among a few types of investments.

The management of the stock exchange can help it by introducing efficient trading techniques, computerized trading and settlement systems and so on. The faster investors meet their money when they sell their shares - the more they will be inclined to operate in the stock exchange that allows them that. The easier it is for them to liquidate their assets by meeting buyers - the more they will prefer to work in that stock exchange.

Investing in the stock exchanges in the markets of the emerging economies has been an unfortunate decision in the last three years. Stock exchanges from Russia to Hungary and from Lithuania to Poland have jeered wildly since the end of 1993.

They resembled a roller coaster in their performance, going up and down by tens of percents annually. There are exceptions to this rule. The Ljubljana Stock exchange, for instance. The trading volume there has gone up 10 times since December 1993 - and the market capitalization is up 30 times. But this is because of the performance of the general economy in Slovenia. In Croatia, the government is privatizing its holdings in state owned companies by auctioning shares to the public through the Zagreb Stock Exchange. This has helped it a lot.

Newly-established stock exchanges are highly volatile and very dangerous. Volatility goes hand in hand with risk. They are long term investments. Since 1988, they outperformed the more established stock exchanges in the world, like Wall Street.

But these stock exchanges are growing fast, they are cheap by any measure and they are the best investment that a country can make in its own future.

About The Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia.

His web site: http://samvak.tripod.com

04/28/2005

NASDAQ dropped -12.5% year to date in 2005. S&P500 index suffered -5.7% this year. US stock market has been terrible over past few months.

Not only general market is down, oil stocks recently had a significant correction as well. It is easy to be nervous because of the short term setback. However, to succeed with long term oriented value investing, we can not be distracted by the volatile short term market movement. It is time to step back and look at the big picture of the current stock market and review investment strategy to profit in this kind of tough environment.

Stocks in General and Oil Stocks

Below chart is past 1 year performance chart between Energy Index ETF (ticker: XLE) and S&P500 index (ticker: SPY). By looking at the chart, even a fool will know that oil market is booming while US stock market in general is struggling.

Simply put, the current US stock market is not in bull market. The heydays of 1980’s and 1990’s when anyone can simply put some money in S&P500 index fund or a decent US mutual fund to earn 10% to 20% plus annual performance is long gone. I expect for the next 8 to 10 years, the US stock market in general will be stagnant.

If you have believed that 20 years of stock market performance between 1980 and 2000 is stock market average performance, then you will be shocked to know that just before that period in 1960’s and in 1970’s, US stock market went nowhere. Dow hit 995.15 in 1966 and Dow was back to 800 in 1982. If you were the long term investor who invested in Dow index fund between 1966 and 1982, you got a negative -20% return overall for your 16 years of loyalty, how would you feel about that ?

Still remember the NASDAQ peak of 5000? In my opinion, NASDAQ is screwed up index with full of expensive stocks even today. I predict that we may have to wait another decade to revisit NASDAQ 5000.

Current Stock Market Average Valuation is Not Cheap

Currently SP&500 index trades at about 17x average PE today. Although this valuation is not terribly expensive, it is not that cheap either.

Over past 100 years of US stock market history, market usually bottomed at average PE of 10. That happened in 1974 or 1929 or 1980. We are not there yet, not even close over past 5 years even though the technology stock bubble bursted in 2000. In a major stock market bottom, we should see plenty of big cap stable companies trading at PE of low teens. Now look at this: Coca-Cola (KO) PE 20, Walt Disney (DIS) PE 24. Even worse, a no-growth stock like Sun Microsystems (SUNW) is still trading at premium PE of 19.

What is the Overall Earning Outlook of US Stock Market?

Even though the current stock market valuation is not that cheap, if earning is good, market should do fine.

Are we going to get excellent overall earning outlook in the next few years for the US stock market in general? Unfortunately, my answer is no. My take is that US stock market earning overall is decent, but not good enough to trigger a bull market. This market is still digesting the past bubble over-valuation coupled with poor earning outlook.

Here is one reason of my not-so-enthusiastic earning outlook: the rising oil and commodity prices.

The Booming Commodity price

Commodity and oil market has been booming since 1999 and the high commodity price is taking toll on overall stock market earnings. Companies need to pay more for the things needed in business: steel, copper, oil, natural gas etc. Historically, when commodity market was shining, stock market did not do very well, and vice versa. In 1960’s and 1970’s, oil and commodity had bull market run for nearly 20 years while Dow Jone index had horrible performance for nearly 20 years. From 1980 to 2000, the stock market soared while oil hit as low as $15.

The Bull Oil and Commodity Cycle Could be Very Long

Jimmy Rogers is famous investor who co-founded Quantum Fund together with George Soros. In his recent book titled "Hot Commodities", he is predicting that the current commodity bull market can last until 2013 strictly due to supply and demand.

In one chapter of the book titled "Goodbye, Cheap Oil", he clearly lays out the reasons why oil and natural gas bull market can last until next decade. This is as simple as supply and demand: rising demand coupled with declining supply.

The supply of oil and natural gas was diminished partly due to extremely low oil and gas price in 1990’s. Over past 35 years, there was no major oil discovery in the world while the old oil fields deplete. Oil and natural gas production level of a well does not stay flat over the life of a well reserve. The production level of a well actually declines gradually due to geophysics of oil well until the reserve is fully depleted. Even there is new oil field discovered, it will take a decade after the discovery to actually produce oil! Increasing supply to meet demand is a very difficult and slow process.

Coupled with declining supply, the demand of energy from China doubled since 1990 consuming 8 percent of world’s oil in 2004. US economy is growing with increasing oil demand year over year while US oil production has seen sharp decline over past 50 years.

Still the oil price is not that high on historical basis. Even with today’s oil price of $50 a barrel, the oil price is still significantly lower than the inflation adjusted peak price of $90 a barrel in 1970’s.

Value Investors Do Not Need a Bull Market to Make Money

As scary as the potential trouble in stock market, this kind of tough environment is great money-making time for value investors to pick up cheap shares.

Warren Buffet is the greatest value investor in the world. He averaged 20% annual investment performance over past 50 years. However, Mr. Buffet’s performance in bear market of 1960’s and 1970’s was actually 30% per year return, much higher than his average performance.

Focus on Dirt Cheap Stocks and Booming Commodities Market

Stocks do not go straight up or go straight down. There will be huge run up or sharp sell off in short term. While market is not in good shape, this is and will be wonderful time for long term oriented value investors.

Commodity price is volatile. Just like stock market, commodity price does not go straight up or straight down. Although oil price weakened recently, I firmly believe that oil price is not going back to cheap oil price below $40 a barrel. As long as oil and natural gas prices stay high, oil stocks will do fine in its business. As painful as the recent sharp sell off in energy stocks, energy stocks in general are still very cheap and my investment strategy is to continue to stay long term oriented in them.

In the short term, it is very hard to know when a stock will go up or go down. But I do know that valuation and earning matters and investing in cheap stocks trading significantly below market average will be rewarding in the long run.

Article by Henry Lu of BlastInvest LLC, a premium investment newsletter publisher in Connecticut. Visit http://www.BlastInvest.com for FREE "how-to" investing assistance, web services and more.

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/