New Book: The Future For Investors

Many of you will recognize the name of author Jeremy J. Siegel, a finance professor at the Wharton School, who wrote the classic book, Stocks For The Long Run.

Earlier this month, Professor Siegel introduced his latest book, The Future For Investors, in which he offers up a plethora of rather fascinating facts and insights as he explains why the "tried and true" should outperform the "bold and new."

Interestingly, Jeremy Siegel appeared today as a guest on the Noon Business Hour where he made several comments that I would like to pass along for your consideration. Firstly, he stated that we have entered into a different type of investment climate where keeping your entire portfolio invested in U.S. equities no longer makes sense, and he suggests investing 40% of your portfolio internationally, and doing so by adding a Global Index Fund to your portfolio mix.

Siegel also recommended that "at least 50% of your portfolio should be indexed" (and this can be done with either ETFs or index mutual funds).

And finally, Professor Siegel suggests that it makes good sense to pay attention to high dividend paying stocks; to consumer staples type businesses such as Coca Cola, Pepsico, Procter & Gamble, and the Wrigley Company. And also, to good dividend paying utility stocks as well.

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Good News For Bond Investors!

One of our "Links" - Investing In Bonds - now posts the latest trades with only a 15-minute delay. This should be especially good news to folks who previously had to settle for day-old municipal bond prices.

This site also posts trades of investment grade corporate as well as most junk bonds, with a 30-minute delay.

Investors need those nearly up-to-the-minute prices because some brokers sell bonds for too large a mark-up or else they buy bonds for too little - because they figure that the average person has no way of knowing the latest prices.

NOTE: search our archive of previous articles for information about how to buy bonds wisely!

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How To Tell If A Company May Be Manipulating Its Earnings

As investors, it's important that we pay close attention to each company's cash flow. No matter how much the company may pad its performance figures - no matter how many bogus, intangible assets it creates on its books - it cannot create cash that's not there!

Follow the cash, and you'll almost always be a lot closer to the truth. And we've prepared a list of steps below to help you do just that. They are actually very easy for anyone with a knowledge of simple arithmetic. But your broker or financial advisor can also get the information for you.

If you're relying on faulty earnings information to pick stocks, you owe it to yourself to follow these 10 steps and hopefully avoid making a serious investment blunder. All it will take is a few minutes to calculate.

1. On the Internet, go to www,yahoo.com (listed in our "Links" section) and click on "Finance."

2. In the upper left-side of the screen, find the box "Get Quotes" and enter the ticker symbol of your company.

3. Immediately to the right of that box, you will find a pull-down menu. Select the item "Fundamentals" and press "Get Quotes."

4. In the box that appears, look in the column on the right labelled "More Info," and click on "Research."

5. Next, click on "Financials."

6. Then, click on the words "Cashflow Statement."

7. On the Cashflow Statement, find either the "Cash flow from operating activities" or "Cash flow from operations," and write that down. If it happens to be a negative number, like $20 million for instance, then right there you know that this company is not bringing in real money from its core business.

8. At the top of the page, click on "Income Statement," and find the net income for the current period. If this number is positive such as $10 million for instance, then it is not in sync with the cash flow that you just studied in Step #7... The company says it is making money, but the actual cash is going out the other way. And that gives you a second warning sign.

9. You could stop right here, but there are still a couple more issues that a good researcher should check into. Is this a significant discrepancy? Is it better or worse than some of the other stocks you're interested in? To answer these questions, click on "Balance Sheet" (also at the top of the page). About halfway down, find the most recent number for the company's "Total Assets," and write that down. Let's assume it's $100 million.

10. Subtract the net income from the cash flow. In this case it would be a negative $20 million minus $10 million, equaling a negative $30 million. Then divide that result by the total assets. In this case, it would be negative $30 million divided by $100 million, or negative 30 percent. That's not good. In fact, any company with a figure greater than 10 percent (whether negative or positive) is an indication of possible earnings manipulation. And the message these numbers are sending to you the investor is, Don't trust this company's earnings!

Is this approach infallible? NO. But no matter how quickly a company's earnings are going up, if cash flow isn't going up at the same pace, then something's fishy. If cash flow is consistently going down while reported earnings are going up, you can be relatively sure something's wrong!

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How To Size Up Any Stock Quickly and Easily

If you have been using the Price-to-Earnings ratio as a tool for sizing up potential investments, you had better think again, because with all of the accounting tricks the corporate CFO has available to fudge its earnings, that "E" in the P/E equation is now highly questionable.

While Enron may have gained fame most recently for "fooling around" with its earnings numbers, they are by no means alone in this respect. Even Standard & Poors who publish the S&P 500 Index has itself been known to change the Index drastically from one week to the next simply by changing the way they calculate earnings.

So it's important for investors to realize that the time honored ways of analyzing the stock market are no longer relevant - having fallen victim to both "creative accounting" and "procedural changes."

And now I would like to recommend that you discard the P/E ratio and concentrate on Sales instead of Earnings and you do that by using the Price-to-Sales Ratio (P/S) when evaluating stocks for potential purchase.

The Price-to-Sales Ratio compares the price of a stock to that company's sales for the year. And because it is much harder to mess with the sales figures (but not impossible), the P/S ratio serves as a better gauge for determining the true value of a company.

When you crunch the numbers, the P/S ratio turns out to be a very valuable indicator. Stocks on average have traded historically at just under one times sales. Thus, if you buy stocks when they are cheap based on this ratio, you should do much better than you would if you bought when stocks are expensive.

The easy rule of thumb to remember for a rough estimate as to the fair value of any business is one-time sales. However, this does not mean that you should avoid all stocks that trade above one-time sales. Rather, the P/S ratio merely serves as a good yardstick for measuring whether or not you are paying too much or too little to invest.

The Price-to-Sales ratio is easy to find. It is listed on the Yahoo!Finance web site for each stock. And best of all, you don't have to be an accounting expert in order to use the P/S ratio to determine if a particular company is cheap or expensive.

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A Very Useful Web Site

I just added EdgarScan to our list of Links. You will find this Web site to be a gold mine for investors who like to dig deep into financial ratios. And besides that, it's an excellent place to begin your company research.

EdgarScan accesses company filings from the Securities and Exchange Commission's EDGAR computers and scans them for key financial tables. It standardizes the financial data so that you can easily find the numbers you need in order to compare values among companies. And on this Web site you can also view tables of financial data with links to the EDGAR filings containing the original figures.

You can also download the standardized data for a company as an Excel spreadsheet that contains columns for each 10-Q and 10-K filing for up to the past 13 years. If you want to weed out less desirable companies before you download data, the EdgarScan site has a java applet for graphing data called the Benchmarking Assistant. This is a very handy tool for spotting trends in values from financial statements.

EdgarScan also provides links to individual SEC filings. These links are grouped under the headings: Recent Filings; Quarterly Filings; and Other Filings. When you click one of the links, you're led to a page that allows you to view the filings by section. You can also download the entire filing as a text file, HTML file or Rich Text File that produces a nicely formatted file in most word processing applications.

And because the SEC form types do not have the most comprehensible names, there is a link at the bottom of the initial company page called "Glossary of Form Types" which you can click-on in order to read their descriptions.

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How To Widen Your Investment Horizon!

This past week we had two very interesting events occur. First of all, our own West Suburban Sub-Group meeting last Thursday, with special guest speaker Mr. Jim Henderson of Mast Investment Advisors in Northfield, IL.

The main focus of this talk was about Indexing in general and ETFs in particular. If you were there in attendance then you gained some very valuable information!

This morning (Saturday) the Chicago Chapter of AAII also held a very interesting meeting which focused on International investing, Global investing, and Emerging Markets investing. Once again there was some inportant as well as very valuable information presented.

I point up these two meetings in order to encourage you to participate in future presentations as you generally always come away with ideas and information that can make your small investment in time pay large future dividends!

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Looking ahead to our own upcoming meetings, next month in April, our speaker will come to us from the Options Institute and he will conduct an "entry level" presentation on options. So this will be your opportunity to learn about options - in case you have never really considered this aspect of investing - and this will also help to set the stage for the next step in your options education which we hope to present in the Fall of the year.

For our meeting during the month of May, our speaker will be a vice-president of Barrington Research in Chicago, and he will give us an "insider's view" of just how market analysts and those who make their living by rating and evaluating stocks do what it is that they do!

We'll have further details as the respective meeting dates come due.

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Food For Thought!

I received a very interesting e-mail today from a source whose observations I have found to be fairly reliable, and I wanted to give you the essence of what he had to say.

"Next week will be the beginning of one of the greatest interest-rate moves of our lifetime. That's when the Federal Reserve will meet in Washington, D.C. to decide on what to do about its official rates."

"It's a foregone conclusion that the Fed will raise rates. They've done precisely that six times in a row. But those rate hikes were a mere quarter of a point each. Now, the Fed is going to have to jack up rates much more quickly, lifting the lid on a pressure cooker that's been building up for months. They have no choice. The dollar has been falling, and events are now coming to a head."

Why Interest Rates Are About To Move Up So Sharply

"The dollar has been falling nearly nonstop for almost three years, and the largest holders of U.S. dollars are foreign investors and central banks which are getting sick of swallowing continual losses on their holdings. So now they're getting ready to cease buying U.S. dollars and U.S. dollar bonds."

"That alone is a disaster in the making because of the trade deficit which, according to a report that just came out on Friday, now stands at nearly $60 billion per month, or $2 BILLION A DAY. That's what we have to borrow from foreign investors and central banks to cover the trade deficit."

"The way we borrow is by getting them to buy our bonds. And until recently, buying our bonds was pretty much the only thing they could do with the extra billions they earned from all the goods they exported to the United States. But now they have virtually zero incentive to buy our bonds. Other choices, like the strengthening euro, are becoming increasingly attractive. The big danger: As soon as they STOP buying and begin shifting their money elsewhere, our bonds will immediately fall in value, driving interest rates higher."

"Last month, China's central bank was the first to hint at reducing their purchases of U.S. bonds. That alone was enough to trigger a mini-panic in our bond market."

"Two weeks ago, it was South Korea's central bank that caused another mini-panic when they said they might begin moving away from the dollar. Then just last week, it happened AGAIN - this time with one of America's closest allies, Japan. Just the HINT by Japan's central bankers that they were THINKING about a MINOR shift away from U.S. dollar bonds sent our bond market into a tailspin."

"And for good reason: These three countries alone hold a huge chunk of the trillions in U.S. dollars and bonds held by foreigners. Even if they hold onto every penny of their current holdings, the mere fact that they're slowing down their purchases of new U.S. bonds is an instant calamity to our bond markets. But with so much of their current holdings at risk, they're not only looking elsewhere for new purchases, they're also thinking about SELLING some portion of their massive U.S. dollar holdings."

Greenspan Is Between A Rock And A Hard Place

NO MATTER WHAT HE DECIDES NEXT WEEK, BONDS WILL PLUNGE!

"The only way Fed Chairman Greenspan can convince foreign investors to continue buying U.S. bonds is by paying them more - much more - in interest. He doesn't want to raise U.S. interest rates sharply because U.S. bonds will naturally fall sharply in price to adjust to the higher interest-rate levels."

"But if he DOESN'T do that, foreign investors are ready to stop buying U.S. bonds - or even start selling. And then, you won't just see a mini-panic in U.S. bonds - you'll see an all-out uncontrollable PANIC in U.S. bonds."

So What Should An Investor Do...?

First, get out of the way of falling bond prices and rising interest rates. If you own any long-term bonds, get rid of them - immediately. Bonds are ALREADY beginning to fall in value. After the next Fed rate hike - no matter how small or large - they're going to fall a lot more.

Second, if you must borrow, then you'd better make sure you lock down a fixed rate. Avoid adjustable-rate loans like the plague!

Third, thanks in large measure to the dollar decline I've been telling you about, investments in gold and energy are going through the roof so stick with them!

"Finally, if Mr. Greenspan decides NOT to raise interest rates sharply very soon, foreign central banks are going to start selling their dollars and dollar bonds. And when they do that, I believe there's going to be a panic in the market of dramatic proportions. But I don't think that Greenspan is going to be that stubborn. He sees the handwriting on the wall. He knows how close to pulling the trigger the foreign central banks are. So the most likely scenario is for Greenspan to finally step up to the plate and start raising interest rates more aggressively - to help prevent an all-out panic."

So there you have it and I have to wonder if anyone cares to comment on what you have read here?

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How To Know Whether You Should Buy, Sell, or Hold a Stock.

We talked about this at one of our meetings last year and I've had a request to repeat the details once again and I'm happy to oblige the person who asked for this because it can help others as well!

Any time that you are thinking of taking an action with respect to stocks - whether it involves buying or selling - there are three very important questions that you need to ask and answer correctly.

Here's the first question to ask: Is the stock market expensive at this time?

There was a very intensive study taken of stock market activity from the period of calendar year 1927 up through mid-2002 which revealed some very interesting facts. Firstly, that if you buy stocks when the P/E of the overall market is above 17 (when stocks are considered to be expensive) you would make on average only 0.3% a year on your stock investment.

Secondly, if you bought stocks when the P/E of the overall market is below 17, you would have made on average 12.4% a year in stocks. And just buying and holding over the period would have earned you on average 8.03% per year.

Coming back to the present in order to answer the question of whether the stock market is expensive at this time, and using the S&P 500 P/E Ratio (Next 12 mos.) to answer that question, we see that as of March 1, 2005, the ratio stood at 16.4 which would indicate that as of that point in time, the overall market is not expensive. So the answer to the first question is NO. And this is a positive.

Now the second important question: Is the Federal Reserve in the way? As an investor, you should be aware of the fact that interest rates are the major factor affecting stock prices. And as interest rates rise, people are prone to sell stocks!

The interest-rate movements that have had the most dramatic effects on the market have been those changes in interest rates that are set by the Federal Reserve. Yet we find that 71% of the time the Fed is not in the way. But 29% of the time they are in the way, and this always occurs during any six-month period that follows a hike in the Federal Funds rate.

So you need to remember that the Federal Reserve is out of the way either, 1) after the six-month period has ended; or, 2) if the Federal Reserve cuts rates before the six-month period has ended.

Now to answer our second question: Is the Federal Reserve in the way?... With the recent upward revisions of the Federal Funds rate plus the prospect of more such actions by the Fed in the immediate future, the answer to this question has to be unquestionably, YES. And this is a negative.

Now for the third important question: Is the market going up? Market action is critical. Sixty-seven percent of the time the market is strengthening. Stocks have returned on average 12.6% per year when the market is strong. Thirty-three per cent of the time the market is weakening. And stocks have lost on average 1.6% per year in weak markets.

The Market Momentum indicator is simple. It's the 52-week average of stock prices. If the market is above its 52-week average, stock prices are strong. If the market is below its 52-week average, stock prices are weak.

The answer to the third question of whether the market is going up is definitely a
YES, and this is a positive.

With a negative reading on Fed action, the answers to our three questions tell us that at the present point in time, the market is a HOLD, and any action you might take at this time should be on the side of caution.
So just by knowing the answers to these three questions, you will know whether you should buy, sell, or hold at any given time!

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Chuck Carlson's Latest Market Commentary

Our friend Chuck Carlson writes a weekly Market Commentary, and in the latest edition he is very bullish on the stock market - at least for the next six months.

He cites the fact that the stock market is one of the 10 factors that comprise the index of leading economic indicators, and it is the best of the 10 in his view.

Carlson further points out the reason that the stock market is so good at predicting the future is that the stock market is all about future expectations. Stock prices trade today based on what the collective investor populace believes will happen in the future.

Chuck feels that what investors should be looking at is to see if the economy's fortunes are about to change, and the best place to spot that is by watching the stock market.

Finally, Carlson ends his commentary by saying: "Specifically, I would hate to see the Dow Jones Industrial Average fall below the 9700 level. That would not only be bearish for stocks but also for the economy."

So there you have it, and Chuck Carlson has been fairly well on target with his observations over the years so I would pay attention to what he says above!

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What To Say Whenever You Talk To Yourself About Investing

No lions are ever caught in mousetraps. To catch lions you must think in terms of lions, not in terms of mice. Your mind is always creating traps of one kind or another, and what you catch depends on the thinking that you do. Therefore it is your thinking that attracts to you what you receive!

-Thomas Dreier

Keeping Time On Your Side

I'm sure that you're acquainted with Benjamin Franklin's wise counsel that "a penny saved is a penny earned." In fact, a penny saved may be more or less than a penny earned, depending on when it is earned and how it is saved. The reason is rooted in a concept called the time value of money.

Which would you rather have, $10,000 today or $10,000 a year from today? I'm sure that you would choose to take the money now - any investor would - because you should understand that the value of $10,000 a year from today will be eroded by a year's worth of inflation and a year's worth of lost interest on the money. To make it easier to understand, if inflation is running at 5% and you could earn 7% in interest over a year's time, the thrill of being handed $10,000 today is worth about 12%, or $1,200, more than the thrill of being handed $10,000 a year from today.

The time value of money works against you if you're the one waiting to collect the money, but it works in your favor if you're the one who has to pay. Success with your money often lies in being able to identify the winning side of the time value equation.

It is the time value of money that permits state governments and other sponsors of sweepstakes and lotteries to promise fantastic payouts that actually exceed the amount of money they take in by selling tickets. However, you don't have to win a lottery to contemplate whether you're headed for the winning or losing side of the time value equation. As an investor, you must always keep in mind one basic principle - that a dollar you pay or receive today is worth more than a dollar you pay or receive tomorrow - and if you never forget this principle then you will wind up on the winning side more often than not!

Here's an example to prove the point: Ignorance of the time value of money can cause you to think you're doing something smart when you're not. Now you have probably heard high praise for the 15-year mortgage. Because you pay it off sooner than a 30-year loan, you pay less interest and thus save tens of thousands of dollars. But, the homeowner with the 15-year mortgage parts with the money sooner than the 30-year buyer, and the time value of money suggests some caution may be in order before exaggerating any claims of savings. You need the answers to two very important questions: 1) What else might you do with the extra money you'd be spending on the higher monthly payments required by the 15-year mortgage? and 2) How much could it earn if you invested it in something other than mortgage payments?

Suppose it costs you an extra $200 per month to pay off the loan in 15 years instead of 30. That is then $200 a month not available for investing in something else that might pay a greater rate of interest than the rate of your mortgage loan. If you could invest that $200 in something that pays 2% more than your mortgage, then that $200 per month earning 2% and compounded for 15 years will grow to almost $42,000. That represents your opportunity cost to pay off your mortgage early, and you must subtract it from any savings you think you've made by paying off your mortgage early.

Opportunity cost is the cost of doing one thing and not another. To make sure you don't overlook it, ask yourself before you make any investment or spending choice: What else could I do with the money?

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An Important Tip On Buying TIPS

If you purchase Treasury Inflation Protected Securities, better known by the acronym TIPS, and you do so using a Mutual Fund like the Vanguard Treasury Inflation Protected Securities Fund, then you should be interested in an important bit of information mentioned on Bob Brinker's Money Talk Program this past Sunday.

The NAV (Net Asset Value) of TIPS can rise or fall depending on factors prevailing in the marketplace, and one way to keep an eye on the direction of the NAV for TIPS is to pay attention to the Base Rate, which you should be able to find in publications like Barron's or The Wall Street Journal.

The way this works, whenever the Base Rate of TIPS begins to rise, then the NAV of the TIPS Mutual Fund will fall. And vice versa. So staying current with the Base Rate will be a great help toward purchasing TIPS in a timely manner!

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How The Right Buy and Sell Orders Boost Your Profits

Let's say that you are about to place a market order with your broker. It's simple and frequently used, but it can cost you money. A market order instructs your broker to buy or sell shares at the prevailing price. Although your order probably will be executed a minute or two after it leaves your broker's hands (or even faster if you make your transactions online), as much as 10 minutes can elapse from the time you begin your call to your broker until your trade actually takes place.

That may not pose a problem on slow trading days, but if stocks are rising or falling rapidly, the price when your shares are sold may be different from what you expected it to be when you first decided to sell. For example, when the DJIA falls some 30 points in half an hour, a volatile $40 stock could drop as much as $2 while you are talking to your broker.

Fortunately, there are other ways to place orders that can protect you against rising or falling prices if you are a buyer, and won't cost you any more in commissions. By selecting the right type of order, a shrewd investor can reduce his risk and pick up a little extra profit.

One common alternative to a market order is a simple limit order. With it, you specify the maximum price at which you are willing to buy or the minimum at which you would sell.

Limit orders at a given price are executed in the sequence that they are received by the specialist handling the issue on the floor of the New York or American exchange. Orders that are bought and sold through the NASDAQ are executed in sequence by an automated system. This means that if your stock trades only briefly at the limit, your order may not be among the ones that are filled.

There is however a simple way to jump ahead of the line since most investors set limits at round-number prices, so you can place yours a fraction of a point higher or lower.

The risk that other orders may be filled before yours points up the main disadvantage of limit orders: you have no guarantee that you will actually buy or sell your shares. When you place a limit order, therefore, you have to specify the length of time that it will be effective. If you don't, your broker will assume that the order is a day order - one that will be executed only if the stock reached the price limit during that day's trading. The alternative is an open order, also known as a good-till-canceled order, which will remain in force until it is filled or you call your broker and explicitly cancel it.

To get a feel for an appropriate limit price, follow a stock closely for a month, noting how much it moves when the overall market has strong up or down days. A limit order too close to a stock's current price will not produce much more profit than a market order, while a limit too far away may never be filled. As a rule of thumb, you should set a limit at a price where the stock has traded within the past 30 days and no more than 10% away from the current price.

Market and limit orders are usually the only types available on OTC stocks, but New York and American exchange issues allow for other orders, the most important of which is known as the stop-loss. This order essentially sets a floor beneath a stock in which you have a prior profit - or a price ceiling on a stock that you have sold short. When a stock trades at or beyond your stop price, your shares will be sold as soon as possible at the market price.

For example, if you bought a certain stock at $61 in January and were holding it at $67 now, you could protect half of your profit by setting a stop at $64. If the stock declined by $3, your shares would automatically be sold, locking in $3 of profit.

With a good-till-canceled stop, you would adjust the stop price as your stock appreciates. Using the same example above, you would raise your stop from $64 to $67 if the stock hits $70. This strategy is called using trailing stops.

Setting a price on a stop presents the opposite problem of choosing a buy limit: your objective is to pick a price far enough below the stock's current level that the stop is unlikely to be triggered by day-to-day fluctuations. Set the stop about 5% below the current level of a stock you own, so that you will be sold out only in a serious declne.

There is one type of order to avoid: the discretionary order, which allows a broker to buy or sell as he sees fit. Discretionary orders create potential conflicts of interest for the broker and can land you in an arbitration dispute. Since it is your money at stake, you should take the responsibility for buying and selling.

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2004: The Year in Review

Buy-and-hold equity investors had plenty to smile about in 2004. Total return for the S&P 500 Index was 10.87%, while most other asset classes posted even stronger results. US large-cap growth stocks were once again the weakest relative performers among major asset classes.

Here are the one-year total returns through December 31, 2004:

S&P 500 Index.............................. 10.87%
Russell 1000 Growth Index.................. 6.30%
Russell 1000 Value Index................... 16.49%
Russell 2000 Index......................... 18.32%
Russell 2000 Value Index................... 22.45%
Wilshire REIT Index........................ 33.17%
MSCI EAFE Index............................ 20.25%
MSCI EAFE Growth Index..................... 16.11%
MSCI EAFE Value Index...................... 24.31%
MSCI EAFE Small Cap Index.................. 30.80%
MSCI Emerging Markets Free Index........... 25.56%

Returns on international stocks for dollar-based investors were generally enhanced by local currency appreciation relative to the US dollar in both developed and emerging stock markets.

The positive returns, however, were generally compressed into the final four months of the year. The S&P 500, NASDAQ Composite, and Russell 2000 Indices all reached their lows for the year on August 12 amid considerable pessimism regarding the outlook for stocks. At that time, year-to-date results were negative for all three benchmarks.

Almost every year brings its share of surprises, and 2004 was no exception.

* Small company stocks surprised many observers by outperforming large cap stocks by a significant margin. After outperforming large cap stocks every year for the previous five years, many observers believed large cap stocks would win the relative performance race.

* REIT securities in the US also surprised many observers by bouncing back from the worst one-month loss since October 1987, and then going on to outperform the broad stock market by a large margin, the fifth consecutive year of superior performance.

* Perhaps the biggest surprise was the behavior of interest rates. Fifty-two out of fifty-four economists surveyed by The Wall Street Journal in early 2004 expected yields on ten-year US Treasury notes to rise from their year-end 2003 level of 4.25%. News events throughout the year appeared to support this prediction. Sales of new homes, autos, and consumer goods remained healthy, the Federal Reserve raised the target rate for federal funds five times, and prices for oil and key industrial commodity prices rose sharply. In addition, the federal budget deficit swelled to a record high and the US dollar exchange rate fell relative to most major currencies. In such an environment, most investment professionals were confident that interest rates could only go up. They didn't. Although short-term rates rose, yields on ten-year Treasury notes ended the year at 4.22%, slightly below where they began.

Many investors place great emphasis on assessing the outlook for business conditions when developing their investment strategy. And it should be pointed out that the observations mentioned above are not meant to suggest that all forecasts are inaccurate or that ignoring troublesome news events will always represent a profitable investment strategy. But it illustrates why earning capital market rates of return that are there for the taking often proves so difficult for many investors.

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NEXT MEETING: Thursday, March 17, 2005 - Updated

This month we will begin our Spring Speaker Series by welcoming Mr. Jim Henderson, of Mast Investment Advisors located in Northfield, Illinois. He promises to tell us all about several interesting investment strategies that you should find to be very useful. And I have also asked him to talk about Exchange Traded Funds (ETFs) as well. There will be ample time for a question and answer period following this presentation.

We meet from 7:00 to 9:00 PM at DePaul University, located at 150 West Warrenville Road in Naperville, Illinois. The room number will be posted on an easel located near the reception desk in the main lobby.

And as always, these meetings are open to anyone who shares our interest in investing, however we do request a $5.00 contribution per meeting from anyone who is not a member in good standing at the time of each meeting. The membership dues are still just a very modest $15.00 per year to help defray the expenses involved in maintaining a group such as this!

Please refer any questions or comments to: rwm123@hotmail.com

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