After some forty years of banking and investments, I retired in 2001. But since I do not golf, I soon found retirement to be very boring. So I decided to return to the investment world after ten months. However, those ten months were not a complete waste of time, for I had spent them in trying to utilize my forty years of investment experience to gain perspective on the most recent stock market "bubble" and subsequent "crash."

There were several people who saw the stock market crash coming, but they had different ideas as to when it would occur. Those who were too early had to suffer the derision of their peers. It was difficult to take a stand when so many were proclaiming that we were in a "new era" of investing and that the old rules no longer applied. Since the beginning of 1998 through the market high of March 2000, among 8,000 stock recommendations by Wall Street analysts, only 29 recommended "sell."

I am on record as having called for a cautious approach to investment two years before the "Crash of 2000." In an in-house investment newsletter dated April 1998, I have a picture of the "Titanic" with the caption: "Does anyone see any icebergs?"

When I resumed employment in 2002, I happened to glance at the chart on the last page of Value Line, which showed the stock market as having topped out, by coincidence, in April 1998, the same date as my "Titanic" newsletter! The Value Line Composite Index reached a high of 508.39 on April 21, 1998 and has been lower EVER SINCE! But on the first page of the same issue, the date of the market high was given as "5-22-01"! When I contacted Value Line about this discrepancy , I was surprised to learn that they had changed their method of computing the index for "market highs" from "geometric" to "arithmetic." They said they would change the name of the Value Line "Composite" Index to the Value Line "Geometric" Index, since that is how it has been computed over the years. Currently Value Line is showing a recent market low on 10-9-02 and the most recent market high, based on this new "arithmetic" index, on 4-5-04, ANOTHER ALL-TIME HIGH! If they had stayed with the original "geometric" index, the all-time high would still be April 21, 1998!

Later that year, I was pleasantly surprised to read in "Barron’s" an interview with Ned Davis, of Ned Davis Research, that said that his indicators had picked up on the bear market’s beginnings in April 1998, the same date as my "Titanic" newsletter! So, my instincts were correct! I believe that we are in a "secular" downturn that began in April 1998 and the "Bubble of 2000" was a market rally in what was already a long-term bear market.

Another development transpired soon after I resumed employment in 2002. I happened to notice one day that, in its "Market Laboratory," "Barron’s" had inexplicably changed the P/E Ratio of the S&P 500 to 28.57 from 40.03 the previous week! This was due to a change to "operating" earnings of $39.28 from "net" or "reported " earnings of $28.31 the previous week. I and others wrote to "Barron’s Mailbag" to complain about this change and to disagree with it, since these new P/E ratios could not be compared with historical P/Es. "Barron’s apparently accepted our arguments and, about two months later, changed back to using "reported" earnings instead of "operating" earnings and revised the S&P 500 data to show a P/E Ratio of 45.09 compared to a previous week’s 29.64.

But a similar problem occurred the next day in a sister publication to "Barron’s." On April 9, 2002, "The Wall Street Journal" came out with a new format that included, for the first time, charts and data for the Nasdaq Composite, S&P 500 Index and Russell 2000, in addition to its own three Dow Jones indices. The P/E Ratio for the S&P 500 was given as 26, instead of the 45.09 now found in "Barron’s." I wrote to the WSJ and after much correspondence back and forth, they finally accepted my argument and on July 29, 2002 changed the P/E Ratio for the S&P 500 from 19 to 30! I had given them examples showing where some financial writers had inadvertently confused "apples" with "oranges" by comparing their P/E of 19, based on "operating" earnings, with the long-term average P/E of 16, based on "reported" earnings.

Because I started to be cautious about investing as early as April 1998, since I thought that price/earnings ratios for the stock market were perilously high, I was not hurt personally by the "Crash of 2000" and had tried to get my clients into less aggressive and more liquid positions in their investment portfolios. But the pressures to go along with the market were tremendous!

Price/earnings ratios do not enable us to "time the market." But comparing them to past historical performance does enable us to tell when a stock market is high and vulnerable to eventual correction, even though others around us may have lost their bearings. High P/Es alert us to a need for caution and a conservative approach in our investment decisions, such as a renewed emphasis on dividends. Very high P/Es usually indicate a long-term bear market may ensue for a very long period of time. We are apparently in such a long-term bear market now. But in determining whether the market is high, we must be vigilant with regard to what data mambers of the financial press are reporting to us, so we can compare "apples" with "apples." When the financial information does not appear to be correct, we, as financial analysts, owe it to the investment community to challenge such information. That is what I have concluded from my personal "odyssey" in the investment world.

After three years of the DJIA and the S&P 500 closing below their previous year-end figures, the market finally closed higher at the end of 2003. But the P/E ratio is still high for both indices.

Does anyone see any icebergs?

Henry V. Janoski, MBA, CFA, CSA is a 1955 graduate ‘magna cum laude" of Yale University and a member of Phi Beta Kappa. He received his MBA in finance and banking from the Wharton Graduate Business School of the University of Pennsylvania in 1960 and holds the professional designations of Chartered Financial Analyst (CFA) and Certified Senior Advisor (CSA). As a registered investment advisor representative with the title of Senior Investment Officer, he is located in Scranton, PA. His biography is listed in "Who’s Who in Finance and Industry" and in "Who’s Who in America." E-mail address: HJanoski@aol.com

When you become interested in a stock or mutual fund you can call your broker and he will send you reports on how the company is doing, what their management is like and what might be the projected earnings for the company and how the industry is doing. Great information.

You will apply yourself to this mound of papers to determine if you want to buy the equity. You might also send for more reports from independent analysts such as Morningstar. You will become buried in papers. That is what the brokerage company wants. The reason is very simple. If you buy the stock after doing all that research and it goes down instead of up they are not responsible for your stupidity. Of course, if it goes up they can take credit for providing all that great information.

Now let’s think for a minute. You received all that information that was already printed so it could be sent to you. It makes me ask when was that printed? How old is the information? If I can get all this stuff about the company it means that anyone can. What it boils down to is the information is just that - information and none of it will tell you that the stock will go up further because the whole world knows.

These brochures are made to help you BUY not SELL. In my years of experience I call them a work of fiction. No brokerage company is going to issue a bad report about a company at least until it is ready for bankruptcy and by then your investment dollars have disappeared.

I know your next question. If I can’t rely on those reports how am I going to buy anything? There is a better way. You will want to see the price action of the stock or mutual fund. All stocks undulate as they go up or down and you want to know the major trend.

On the Internet you can go to a web site www.bigcharts.com and type in the symbol of the stock or fund and request a weekly chart going back for about to 5 years. What you are interested in is what is it doing during the past 6 months to one year. If the trend is up it is a buy and if the trend is down or sideways don’t buy it or if you own it sell. See how easy that is. Brokers and financial planners won’t like it because it takes all the mystery out of buying stock and they don’t want you to know this simple procedure.

Analyst reports give you lots of useless information, but will not tell if the stock will go up after you buy it. If it isn’t going up don’t buy it.

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

It depends on your level of understanding of the market and the amount of money you have.

If you a sophisticated investor with a substantial amount invested you are probably already receiving more than one. If you have very little market savvy it will be difficult to choose one that fits the size of your portfolio. If you are just getting started my advice is don’t buy one - yet.

Most of the advice is Wall Street goobledegook and most of the remainder is stuff you can’t use anyway. Even the simplest letters have too much information and require more time than most working people have to act upon their recommendations.

There are literally hundreds of stock and mutual fund letters from which to choose. The first thing you want to know is what has been the track record - how much annual return has the advisor received for his readers over the past few years. Some will quote you wonderful figures, but these may be predicated on following all of his advice all the time. If that is the case you had better first ask how much money is required to buy at least 100 shares of everything he recommends when he recommends it. Don’t let him weasel out of it - make him give you an answer or don’t buy it. That amount may be more than you have so you must then pick and choose between his recommendations and you might not pick all the good ones, just all the bad ones.

There is one type of letter I consider essential to everyone. It times the market. By that I mean they tell you when the general market is going up and when to sell out because it is going down. Almost every broker will tell you it can’t be done. He tells you that because he doesn’t know how to do it and won’t take the time to find out. He is a professional loser and doesn’t deserve to be your broker.

The market timing service I have been using since 1986 is Fabian’s Investment Resource out of California. They have a 20-year real time track record.

In the last 100 years we have had 30 bear markets which are defined as the overall market going down more than 20 percent and some more than 40 percent. Even the best stocks and mutual funds will go down in a bear market because they act like ships - when the tide goes out all ships go down with it. You don’t want to have any market positions at that time.

The first basic advisory service should be for market timing. Check their claims and actual track record. Then as you learn more you may expand your horizon to picking individual issues or mutual funds.

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

In the last two decades, even though gold prices have dwindled from $850 to $350 an ounce, there are still market gurus who predict gold price to hit $3000 an ounce. Hecla seems to be quite bullish about the future.

With oil prices fluctuating between $40 and about $60 a barrel, the industrialized nations are totally dependent upon the foreign oil supply. The US government has a deal with the Saudis for that very purpose. The Saudis have to keep the oil flowing and we, in turn, will keep the monarchy in power. This is a healthy arrangement for both parties in the short run.

I have a serious problem with the $3000 an ounce gold price. If this prediction were to come true, what shall be the interest rate? Can someone answer it for me?

In contradiction to this Saudi deal, the Bush Administration is committed (not officially) but morally, according to the pronouncements of G.W. Bush to stabilize the entire Middle East region by establishing democratic systems of government in a decade.

We can’t have it both ways. We have not succeeded to find any viable sources of alternative energy thus far. The environmentalists won’t let us dig for oil and the car industry has invested millions in the development of better and more energy efficient cars.

At $3000 an ounce for gold, we must maintain an interest rate of at least 20% (my guess). The million dollar question is: what will happen to the mortgage business and the housing industry as a whole? The rate of inflation at present levels will not allow new home buyers to pay their mortgages. May be there will be a sudden boost in the GNP. But how? What will happen to the money supply? Are we going to keep on printing money as we do now?

This was one scenario thus far according to bulls. But the bears view the whole problem differently. The Oil Price Dilemma In 2004, we saw a big spike in the oil price. Some analysts today are even forecasting the price increases to more than $60 a barrel in 2005 or even $75 to $80 in the event of a major supply disruption.

The growing demand for oil specially from the U.S. and China underlies most of the price increases because oil is priced in dollars around the globe. A weaker dollar means less revenue for oil producers.

European Central Bank President Jean-Claude Trichet cited oil prices as one threat to economic growth. The world currently consumes more than 84 million barrels a day of oil. OPEC currently is producing 29 million barrels of oil everyday, roughly a third of world supply.

Are we going to be forced to pay $60 a barrel for oil? Does this mean that the OPEC nations can or may dominate the global economy thru oil? The banking industry has been in a state of turmoil for the last two decades. There are a few reasons for this. The illegal but quite prevalent Havala system of money exchange accounts for part of the problem. The next puzzle is the drug trade funded and operated under cover by some governments in power. The money from such trades (trillions of dollars) is laundered thru banks illegally. Civilized nations are supposed to be ethically run, but are they when it comes to large sums of money?

The rules of the banking industry are too old to fit in the fast changing climate of money transfer from the sale of oil and illegal drug sales. No one has come upon a solution thus far. The rate at which the oil and drug trade money changes hands is much faster than the rate at which the banks can successfully launder it legally. It means that trillions of dollars in cash remain unaccounted for. With that kind of cash it is not difficult to buy weapons or anything you like to topple a government with good planning.

We had hoped the Caspian Sea oil to flow to the US, but that has not happened yet. The Iraqi war and the Afghanistan situation have both tilted the balance of power in the civilized (industrialized) world. But in whose favor?

The purchasing power of the US dollar continues to decline. The global political instability continues to remain a problem to contend with.

The vast changes in the crust of the earth have caused the ocean levels to rise and fall in some places. This will bring about dramatic changes. All these factors create a very flexible environment and we will see the changing weather patterns eventually bring about changes in the climate and vegetation in many countries.

What does the wave theory say about the stock markets of the future and the world economy as a whole? The mass migration of peoples of the earth will be the next step. This can mean that certain governments will lose support of their people and thus fall from power.

We can expect the stock markets to become more volatile than they have ever been. Fortunes will be made and lost. Let me remind those who dream of a $3000 an ounce gold price that the gold smugglers can bring tons of it from the Far East and South American routes, buy the most prestigious US properties and create chaos in the world economy. If this happens, you will not care about the DJIA. Why? Because it will cease to exist. We are talking about a very different ball game.

Ninety percent members of the UN are dictatorships. And they would not like to lose power should the gold price rise to $3000 an ounce. I quite forget that the US economy is not backed by gold. How can we have a gold standard? Well, we can’t for the time being. What’s your opinion?

Ostaro is a veteran media personality and has appeared hundreds of times on television, radio and in print media. A filmmaker, he frequently appears on radio nationally. He is the Producer of "Cobra’s Wish", a digital movie - a riveting romantic mystery) (http://www.cobraswish.com). He is the host/producer of the Ostaro Show (Time Warner and RCN Cable TV every other Fri and Sun in NYC) featuring the best in celebrity horoscopes. He appeared as a Swami in Woody Allen’s ‘Stardust Memories’ and is a member of Screen Actors Guild. Listed in Who’s Who in America, he is a positive thinker and the author of the “Art & Craft of Success: 10 Steps,” published by Svarg Syndicate Inc, NYC. Mr. Ostaro is a Premier Hindu Astrologer of New York City, he is a Kentucky Colonel, a Toastmaster (ATM), and an investment adviser.

http://www.ostaro.com; ostaro@ostaro.com

How many people went to a cash position this week? There is no question that this market has scared the bajebers out of many investors, me included. Fortunately, I started going to cash some time ago, but I did give back a substantial amount of my profit.

Your broker never wants you to be in cash. You might take it out or invest it in something else. "Don’t worry, the market always comes back." Yes, and pigs can fly. Fund managers are even worse. Because I recommend selling out temporarily and going to cash does not mean I don’t have a long-term program. It means I don’t want to participate in a down market. CASH IS A POSITION. It is the same as owning Vanguard Index 500 when the market is going up and being in a Money Market Fund earning interest while the market is going down, but not losing your principle. Make sense?

Brokers will tell you over and over that you cannot "time the market". WRONG. Just because they are not smart enough to do it does not mean it cannot be done. I have been doing it for years and have never been caught in a bear market. Even the Federal Reserve Board published a paper saying that "market timing" works. There are timing programs or services that can be bought that are very simple and easy to understand. To protect your retirement funds you must have this in place.

In my column last week I called the market a Stealth Bear. It looks like it has come out of its den. You don’t want to be around when the bear is running loose. It can hurt you.

During this past few weeks we have seen some tech stocks lose 80, 90% of their value, but how about good ole Proctor & Gamble dropping 30% in one day? That is a stock held in a high percentage of retirement portfolios and hundreds, if not thousands, of mutual funds. It is going to be a long time before we see new highs in the Nasdaq Composite and the reason is very simple. There are people and fund managers who own many stocks that they would like to sell to get "even". Know anyone like that? This effectively puts a cap on any resurgence back to the top.

I have no idea if the market is going to go lower, but the tendency is toward more selling, not buying. This is a good time to have a position called CASH.

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

I have watched my cat play with a bag of catnip. At first he is having fun and slowly he becomes drunk with pleasure and then finally he becomes so tipsy he falls over to sleep it off. The pleasure part is great, but I am not sure if he awakes without a hangover.

Rocket (that’s his name) reminds me of a one of those people who buy a stock and hold it. At first while it is going up there is great pleasure and then euphoria until they know they are market geniuses. That’s the drunken stage. Finally when the market turns against them they fall over not having enough sense to quit (sell) and later when realization returns they have a huge hangover (called hindsight) - and no money.

Can these 4-footed animals teach us 2-footed beasts anything? Can we be smart enough to quit while we are ahead? Rocket (and his friends) continue to make the same error time after time. We are supposed to be smarter so let’s learn from their misconduct.

If you own stocks and/or mutual funds and the market is going up it is super catnip and we keep buying knowing that somewhere over the rainbow we are going to be rich and retire like kings. Almost none of today’s investors ever think about selling. Wall Street tells us to buy and hold. They don’t want you to sell because if you do they quit making money. Brokers make nothing on money market accounts.

Today with money market accounts paying less than 1% investors know the market will come back up. That is what all brokers preach. That is their catnip; their promise of better times ahead (with no plan to protect your cash). If they take that catnip promise away you might sober up and get rid of those losing stocks and mutual funds.

The great mother of all stocks, AT&T, well, it used to be, has dropped from $100/share to $14. What are those widows and orphans eating for supper now? Not steak. Maybe cat food.

When your equities are no longer rising and many are declining it is time to exit the market. Give up the catnip. When the trend stops its upward angle it is time to sell. Of all methods of investing the safest and most reliable is trend following. It is the catnip on the way up, but when the trend starts to decline you realize you are one smart cat and you are sober and walk away (sell).

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

Cat or dog? Maybe Zebra. Shucks, I don’t know, but my broker keeps telling me it is a bull and to buy this and that. It looks like he is right - for a change. I remember he said the same thing in 1999 and 2000 and I ended up losing most of my money. But it looks good right now.

Yes, it does look good now and I have been a buyer since the middle of last year. Is this another bubble? The talking heads on CNBC-TV say we are back in the bull market again.

My one rule has been to buy when the market turns up and it sure has done that; however, there is another rule that has kept me from losing money and that is to sell when the market starts going down. The nice thing about this is you don’t have to be a market "expert" to know when this happens. All you have to look at is the price of one of the major indexes such as the S&P500 or the NASDAQ Composite to see when they penetrate their 200-day moving average. One that I watch all the time is the Investor’s Business Daily Mutual Fund Index that is in the first section of the paper. You don’t even have to buy it as you can read it at the library.

Anyone who tells you he predicts when or where the top or bottom of a market will be is usually guessing unless he has a proven real time track record of making those calls for many bull and bear markets. Predictors are usually wrong, but trend followers are almost always right. The reason is simple. Once the underlying facts, whether physical or emotional, come into play and a new direction is found the stock market will follow that course until another major set of facts comes into play.

This can be seen when the market becomes very overbought and overvalued as it was in 2000 and very oversold as it became in October 2002. A new set of circumstances were initiated and the general market took off in another direction. These long-term trends are relatively easy to determine by anyone who will to listen to the voice of the market.

Long term trend following has a drawback. You will not be a buyer at the bottom or a seller at the top because of the time delay, but you will never lose large sums of money as many did from 2000 to 2003. The use of this simple method will not require research or loads of useless information that Wall Street insists you need. You will be able to determine on your own when a major trend changes and then act accordingly to either buy or sell.

Those who have been wise enough to observe saw the trend change and became buyers last Spring and Summer and now have nice profits.

Yes, it is a bull.

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

Very few people, even professionals, have heard of the Dalbar Study that originated in 1995. Its purpose is to determine the profitability of trading for the small investor of mutual funds. Their results are even worse than I thought.

The BuyNHolders will love the results as it "proves" that buying and holding is better than trying to switch to so-called "hot" funds. My readers know I think that mindless buy and hold is a guaranteed loser - and I can prove it.

During the greatest bull market of all time from 1984 to December 2002 the study came up with an annualized return of 2.57% compared to 12.22% for those who bought and held an S&P500 index fund. These dummies did not even keep up with inflation. The reason was they were switching from fund to fund after it had made its major move and they had no exit strategy if it did not make money.

I would guess it that they paid commissions which immediately put them in the hole. My recommendation is never to buy anything except a no-load mutual fund that does not have a redemption fee.

They also did not have a method to buy a fund with an excellent performance, but also had no plan as to when to sell. Every successful professional trader will tell you that you must have an exit plan as soon as any purchase is made. During any bull market there will be rotations among sectors. During periods of time, usually about 6 to 10 months, a particular sector will outperform all the others. For example, Asian funds might do well for 6 months and then fade, internet funds will do well for 10 months and then telecommunications will take the lead, and so forth.

A sector will do well and as more and more people find out about it the value of the stocks within that sector run to their valuation peak and go no further. That sector runs sideways or starts to fade.

Very few investors realize that mutual funds will only make money during a long term bull market. That bull ended in 2000. Going back in history as far as you want to you will find that every bull market has been followed by a bear market of equal length. During these bear periods there will be short-term opportunities to buy, but they must be held for only brief periods. The key to these is learning to time the market and pick the strongest sector funds. You can learn to do it on your own or subscribe to a proven timing service.

To me the Dalbar Study has proven that you (not your broker or financial planner) must learn market basics if you plan to profit from 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.

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

As I said in Part I everyone in the insane asylum looks normal, but at least the doctors are sane. Unfortunately, in the insane asylum known as the stock market all the doctors (brokers) are also insane.

The doctors in the insane asylum went to medical school to learn how to treat the patients so the could get well. On Wall Street you go to the doctor (broker) who is supposed to help you become financially well, maybe wealthy. Almost none of these Wall Street experts ever learned their profession. They have all been taught the three great prescriptions that make no sense at all: Do Your Research, Buy and Hold and Dollar Cost Averaging. This is what the brokerage houses teach.

As I said previously research is worthless, as it will not tell you if a stock is going to go up. Buy and Hold is taught the wrong way. It is OK to Buy and Hold as long as the stock is going up, but not when it goes down. No broker is taught how to protect a customer’s money.

When I was a floor trader I learned in a hurry not to hold on to something that was losing money. The very simple prescription for this is called a Stop Loss Order. Brokers hate them and will discourage you from entering them. Why? Because it means he will have to watch your account because if a stop order is not properly and timely executed he must pay it out of his pocket.

Brokerage houses do not teach brokers how to use this simple method to protect capital. The house does not want to become known that it will sell a company’s stock when it turns weak. The brokerage company makes more in good will from the poor performing company than they do in commissions from you because if they ever encourage selling it means they will not get a chance to handle an Initial Public Offering (IPO) for that company. Suppose they did have a stop protection policy for customers and they then had an IPO that came out at $30 per share, but instead of going up it went down. The customers would not lose more than $3 or $4 per share because of their protective stops, but the house would then be stuck with all the unsold stock. It is OK for you to have this money-losing dog, but they sure don’t want it in their inventory. You can see how logical this is, but you won’t hear it from a broker. Stop orders are not insane.

The insane conventional wisdom that both brokers and customers have been taught cannot remain once it is exposed to truth.

You must take the initiative with the stocks you own to protect yourself from loss of capital. If your broker argues with you there is one solution - fire him and find a good broker who will protect your money. Just because he has learned an insane system doesn’t mean you have to be nuts too.

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