Is Your Brain Wired For Wealth?

It never ceases to amaze me how with all the various sources spewing forth investment information, few, if any of them ever devote any time toward talking about the most important "tool" that each of us has available to us as investors... I am referring to our minds.

Stunning investment insights are coming from one of the least likely fields you could imagine: neuroscience. Here is where researchers are using the latest breakthroughs in technology to trace the exact circuitry your brain uses to make the kinds of decisions you rely on as an investor.

Now, for the first time, we will take you deep inside your own brain to help you understand why you invest the way you do -- and, more importantly, how to enhance the workings of your brain to get better results.

The neuroscience of investing helps explain one puzzle after another: why we chronically buy high and sell low; why "predictable" growth stocks sell at such high prices; why it's so hard to understand our own risk tolerance until we lose money; why we keep buying IPOs and "hot funds" despite all of the evidence that we shouldn't; and why penny stocks that miss earnings forecasts by a penny can lose billions of dollars of market value in seconds .

Fortunately, the latest discoveries also point the way toward cures for bad investing behavior. Investors are human, therefore knowing how the human brain works and why we react the way we do to various situations are critical for developing a better understanding of the common mistakes that typical investors make.

For nearly our entire history as a species, humans were hunter-gatherers, living in small nomadic bands, pursuing wild animals, foraging for edible plants, finding mates, avoiding predators, and seeking shelter in bad weather. Those are the tasks our brains evolved to perform.

The human brain is a superb machine when it comes to solving ancient problems like recognizing short-term trends or generating emotional responses with lightning speed. But it's not so good at discerning long-term patterns or focusing on many factors at once -- challenges that our early ancestors rarely faced, but that we investors confront every day.

Now, the question this raises is how can you use these new insights into the brain to make yourself a better investor?

Whenever possible, you need to develop automated, irreversible investing habits that are tailor-made for neutralizing your brain's worst liabilities, while optimizing its greatest assets. Now here's how neuroscience leads to a new science of investing.

There is a part of your brain that initiates feelings of fear and it is known as the amygdala. These feelings can act as an almost irresistible force and therefore you must reduce your exposure to any images that can induce such feelings of fear, and cause your commitment to investing to weaken.

The human brain is wired to try to make predictions from past patterns and take risks in the search for a big reward. That makes sense only if you're following the footprints of a tasty water buffalo or looking for flowers that indicate an edible root plant. With stocks, that habit can lead you quickly astray as you invest in a few stocks based on past performance. Geniuses like Warren Buffett can get away with putting all their money in a handful of holdings, but the rest of us need to set limits on our prediction addiction.

Redouble your research if a stock or fund goes straight up, don't just enjoy the ride. The better an investment does for you, the more powerfully your brain will believe nothing can ever go wrong with it. Each time it rises, say, 50 percent, study it again more closely; ask what could go wrong; seek out negative opinions. The time to do the most homework is before bad news can catch your brain by surprise. There are no guarantees, but doing extra research just when things are going well is the best way to prepare yourself in case something later goes wrong, or seems to. You'll then have a better sense of whether it's a false alarm or a real one.

Build an emotional registry. Remembering what you did is only one way to learn from your own experience. Emotions can be an excellent guide to what you should and shouldn't do. But to use them as an accurate guide, you need to remind yourself of how you felt after your decisions (and their results). Regularly evaluating whether an outcome made you feel good or bad will help you learn from your behavior. Keeping a written record of your feelings is a good idea, particularly if you are a younger investor.

Look at the long run. Remember that your brain perceives anything that repeats a couple of times as a trend -- so never buy a stock or a fund because its short-term returns look hot. Check out the long-run, and never assess performance in isolation; always compare a stock or fund to other similar choices.

Because your prefrontal cortex is responsible for evaluating the consequences of your actions, and because advancing age impairs that part of your brain, always be on guard. Never open unsolicited investing e-mail.

And now let's talk about the biggest risk of all to you as an investor: underestimating your own tolerance for risk. Thinking you can tough it out, then suddenly finding you can't, is a recipe for financial disaster. Diversification --making sure that you never keep all your money in one kind of investment -- is the single most powerful way to prevent your brain from working against you. By always holding some cash, some bonds, some real estate, some U.S. and foreign stocks, you ensure that your prediction addiction can never force you into a single, sweeping bet on a "trend" that disappears. And by keeping your money in a broad basket of assets, you lower the odds that a meltdown in one investment will send your amygdala into overdrive.

Putting yourself on investing autopilot minimizes the opportunities for your brain to perceive trends that aren't there, to overreact when apparent trends turn out to be illusions or to panic when fear is in the air. That frees up your brain to focus on the harder work of long-term financial planning. Above all, you should take enormous comfort from knowing that the latest scientific findings show just how newly valid the oldest truths of investing really are.

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Some Thoughts On The Dow Theory

One of the best market-timing tools ever devised is the reknowned Dow Theory. It was formulated by the late Charles Dow, first publisher of The Wall Street Journal.

In brief, the Dow Theory looks at just two factors: the Dow Jones Industrial Average and the Dow Jones Transportation Average. And from the movement of these two Indexes, the Dow Theory determines whether the market's primary trend - the trend that lasts at least 18 months - is bullish or bearish.

The Dow Theory works using the concept of confirmation. Thus, for the market and the economy to be in sync, both the Dow Industrials and the Dow Transports should be moving in the same direction, thereby confirming one another. On the other hand, when both the Dow Industrials and the Dow Transports are moving in sync on the downside, making a series of new lows, that is generally bearish for stocks.

For the past several months, the last major signal under the Dow Theory had been bullish. In fact, as recently as March of this year, both the Dow Industrials and the Dow Transports closed above their previous important highs, thus confirming the bullish primary trend.

More recently, however, the market's performance has been less than stellar. Fueled by rising oil prices, both the Dow Industrials and Dow Transports have sold off sharply in recent trading.

Despite these pullbacks, the damage has not been severe enough to trigger a Dow Theory bear-market signal. However, both averages have fallen closer to key points on the downside.

In the simplest terms, market closing prices (not just intraday moves) below 10,012.36 on the Dow Industrials and 3382.89 on the Dow Transports would be bearish for stocks.

It's important to bear in mind that in order for the Dow Theory to move to the bearish camp, you would need both indexes to close below those important points. Any move by one average that is not confirmed by the other would not signal a bear market.

So to recap, market closes below 10,012.36 on the Dow Industrials and 3382.89 on the Dow Transportation Averages would be bearish for stocks and would likely trigger heightened selling in the market.

Conversely, should either or both of the Dow Averages hold their important lows, such resiliency likely would be a catalyst for a nice rally, perhaps to 11,000 in the Dow.

Note: Bob Brinker is very optimistic about the prospects for the second half of 2005!

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Building Wealth With Stocks

If it's wealth you want, then look to the stock market. No other investment available to intelligent investors with average resources, average willingness to take risks and limited time to spend on active management delivers as well as stocks over the long-run.

Stocks aren't the only things that belong in your investment portfolio, but they are the most important. And there are several categories of stocks to fit investors' goals, such as:

Growth stocks, which have good prospects for growing faster than the economy or the stock market in general. Investors buy them because of their good record of earnings growth and the expectation that they will continue generating capital gains over the long haul.

Blue-chip stocks, are a more loosely defined universe, including solid performers that could also be classified as growth stocks. Investors with an eye on the long-term and with little tolerance for risk buy these stocks for their undeniable high quality. They tend to generate decent dividend income, some growth and, above all, safety and reliability.

Income stocks, worthy of the name, pay relatively high dividends and also raise them regularly. Electric utilities and bank stocks fall into this category, which is favored by retirees and others in need of a relatively high level of income from their stocks.

Cyclical stocks, are called that because their fortunes tend to rise and fall with those of the economy at large, prospering whenever the business cycle is on an upswing, and suffering in recessions. Auto manufacturers are a prime example, though there are other industries whose profits are also sensitive to the business cycle and these include the airlines, steel, chemicals, and businesses dependent on home building.

Defensive stocks, are theoretically insulated from the business cycle because people go right on buying their products and services in bad times as well as good. Utility companies fit in here, as do companies that sell food, beverages, and drugs. In order to maximize profits, you need to buy these stocks on the verge of an economic downturn, which requires an ability to predict, that is rare even among the so-called experts.

Speculative stocks, don't pass the usual tests of quality, but for some unknown reason, they tend to attract investors anyway. They may be unproven young companies. They may be erratic or down-on-their-luck older companies exhibiting some sort of spark, such as the promise of an imminent technological breakthrough or perhaps a brilliant new chief executive. Most speculative stocks don't do well however, so it takes big gains in a few to offset your losses in the many.

The secret to choosing good stocks is that there really is no secret to it. The winning techniques are tried and true; it's how you assemble and apply them that makes the difference.

Information is the key. Having the right information about a company and knowing how to interpret it, are more important than any of the other factors that you might hear credited for the success of the latest market genius. Information is even more important than timing. When you find a company that looks promising, you don't have to buy the stock today or this week or even this month. Good stocks tend to stay good, so you can take the time to investigate before you invest.

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The June 27, 2005 edition of Business Week

The current edition of Business Week is out and this is the 2005 Mid-Year Investment Guide issue.

On page 124, an interesting article caught my eye... "Now the Real Value Is in Growth" - and this tends to echo some comments that I have read elsewhere by several stock market observers.

The article points out the fact that after more than five years of sitting on the sidelines, in the past three months, the Russell 1000 Growth Index has nosed past the Russell 1000 Value Index by a little more than a percentage point.

That may not seem like very much, but the shift is huge considering that growth stocks, and the mutual funds that invest in them, have been lagging their value rivals since the year 2000.

Growth mutual funds - which focus on companies with significant earnings growth - are a core holding in many portfolios. And while growth funds have been closing in on value funds since March, the typical growth fund is still down by 1.7%, while the average value fund lost only 0.1% through the year ended June 10.

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The Successful Investor's Mantra

If you want to simplify your life and improve your investment returns in a single plunge, just remember one thing: when it comes to investing, always buy cheap!

A cheap price can do wondrous things like turn a seemingly unpopular investment into an excellent opportunity. And you don't always have to wait long for the market to recognize the value that you found.

If you are fortunate enough to find companies mentioned in the financial press that are trading at a discount to their net asset values (ex: book value - intangibles), then you have discovered the most reliable single indicator that you're getting a stock on the cheap.

Also look for companies that are considered to be losers, yet have lots of cash and zero debt. And if some of them were even profitable, then you can't ask for much more than that. In fact, smart, cash-rich businesses often take advantage of down markets to buy attractive assets on the cheap.

You can follow your favorite business. You can religiously use its products. You can even fall in love with the company's stock. But if you want to make money, you must buy shares in your favorite company when - and only when - they become cheap. And, the cheaper the better.

There are a lot of value-oriented strategies. Warren Buffett's strategy is the most complex. He pays what seems like high prices for companies that have high returns on shareholders equity. But Buffett only buys when the price is right. He may pay 20 or even 30 times earnings for a stock, but he'll only do that if the company can earn a high return on equity, something like 20% or more. Thus in relation to the value that he finds, Buffett will only buy when the price is low enough.

The bottom line message here is very clear. When good stocks get cheap, buy them. And after all, we are in a stock-picker's market at this time. So no matter what awful things may happen in the world from year to year, one fact that isn't going to change is this: it's difficult to go wrong buying what's cheap!

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The Infallible Indicator, and What It Means For Your Investments

It's a remarkable indicator, and one you simply can't ignore!

It has made only six predictions since 1970. And all six predictions were exactly right.

The predictions were for recession. There were six predictions, and there have been six recessions since 1970. And that's a perfect record for 35 years.

While this indicator has a perfect record for predicting bad times, it can be used to forecast good times as well. And best of all, it's simple to track, and should be included among your cache of investment tools. Knowing how to use this indicator to forecast a coming recession - or the lack of one - can keep you from rearranging your portfolio needlessly in anticipation of a market shift that never comes.

The last time this indicator said that a recession was just around the corner was from July, 2000 to January, 2001. And according to the National Bureau of Economic Research (NBER), the organization that dates recessions, the last recession lasted from March, 2001 to November, 2001. So the predicition gave us a signal well in advance of the coming uneasiness.

The other five recessions occurred in 1970, 1974, 1980, 1982 and 1990. And each of these recessions was preceded a few months in advance by a prediction from this indicator.

So what is this indicator? It's when short-term interest rates rise above long-term interest rates.

There is a good reason why this is such a rare occurrence. In a world with little inflation, long-term interest rates should be higher than short-term interest rates. It all comes down to risk... If someone lends you a dollar that you're going to pay back tomorrow, the lender isn't worried about risk and won't demand much, if any interest. But if you're going to pay that dollar back in 30 years time, then it makes sense for the lender to ask for more in the way of interest.

Why do short-term rates ever rise above long-term rates? It's generally because of actions taken by the Federal Reserve in trying to slow down the economy. After all, the main weapon that the Fed has available to use in slowing down the economy is short-term interest rates. And if the Fed raises them significantly to levels above long-term interest rates, it usually results in recession a few quarters down the road. And this seems to happen every time.

Right now, Alan Greenspan is trying to slow down the econony, and we can see that the spread between short-term interest rates and long-term interest rates has been narrowing. And while it doesn't happen very often, whenever short-term interest rates do rise above long-term interest rates, then watch out.

One would think however that with his coming departure from the Chairmanship of the Federal Reserve slated for right after the New Year in 2006, Alan Greenspan will do whatever is needed to forestall any recession from happening while it is still his watch!

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Here's A Potential Way To Beat The Market

If you want a shot at beating the market, you're better off with stocks that aren't widely followed. And if you do your homework, you might uncover a gem that has been overlooked or is unmistakably underpriced. Indeed, it's possible to quantify this phenomenon. Companies that are neglected by Wall Street do better over time than widely followed companies.

In the 1980s, a study was published that documented what has come to be known as the neglected firm effect. The use of the term "neglected" meant that the stock had few analysts tracking it and/or few institutions owning it. Thus, on the basis of how many analysts provide earnings estimates, the average number of analysts following stocks of similar size is 24.

This study which takes both analyst coverage and institutional ownership into account also shows that up to half of the S&P 500 stocks are neglected by analysts.

A brokerage hires analysts for two main reasons: to make investors want to buy securities from the firm and to make companies want to issue their securities through the firm. And that's why most analysts are never bearish!

With a lot of analysts following a stock, then, there's a lot of pushing to buy the stock, and it may be less of a bargain than its wallflower peers.

Like any other investment criterion, neglect is not enough to make a buy by itself. You have to do your homework... So much for underfollowed stocks.

What about stocks that have virtually no coverage at all? These tend to be the smallest companies. Here, the neglected stock effect gets muddled by another phenomenon, which is whether small companies in general happen to be in favor on Wall Street. Thus the time to be in small stocks is whenever you feel that they are in position to assert their traditionally superior performance.

Thus, there are two ways to exploit the neglected stock effect: by buying big, underfollowed stocks or by buying small, unfollowed stocks.

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This Week In Barron's

The June 20 edition of Barron's is out and contains several very interesting articles. The Midyear Roundtable appears in this edition and twelve noted investment minds give us their views on what we can expect during the second half of the year.

Then if you have been ogling Google, you should read the article on page 30 entitled, "Google's Value? Search Me!" This article highlights the fact that Google's stock ascent into the stratosphere has left even the most ardent bulls agog. But as the price soars, so does the risk.

One of Google's many unique business practices is its flat-out refusal to provide Wall Street with any help on how to model the company's future financial performance. Google offers no quarterly or annual earnings guidance and declines to give any details on the direction the business might take in the months and years ahead. As a result, making forecasts about the company's profits, and stock price, involve inherent peril.

...Well that's just a taste of what the article has to say about Google. So if you're interested in reading further then you might pick up a copy of the current Barron's.

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Four Investment Books You Really Should Read!

Warren Buffett has been quoted as saying that there really are only four investment books that you need to read in order to excel at investing. And if you will read them carefully, with understanding, and can absorb the information they contain, then you will have a much better chance of becoming a very successful investor!

Here are these four books that Buffett recommends:


1. The Intelligent Investor, by Benjamin Graham.

2. Security Analysis, by Benjamin Graham & David Dodd.

3. Common Stocks and Uncommon Profits, by Philip A. Fisher.

4. Paths to Wealth Through Common Stocks, by Philip A. Fisher.


Note: The first three titles should be readily available from both Amazon.Com and Barnes & Noble. Item #4 however is out of print. But you might do as I did by searching the SWAN catalog at your local library, and this is how I was able to obtain a copy of "Paths to Wealth Through Common Stocks." The book is somewhat dated but its overall message is still quite timely and well worth the trouble you may have to go through in order to read what the author has to say.


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A BIG thank you to member Erik Berg for his technical expertise in making a very valuable contribution/modification to this WeBlog!!!


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Do Those Five-Star Mutual Funds Really Shine?

A recent issue of Business Week points out the fact that Chicago based Morningstar has enjoyed popularity over the years thanks in part to its one-to-five star mutual fund ratings. Now, however, new research is questioning the value of those ratings.

Finance professor Matthew Morey at Pace University reviewed the performance of diversified U.S. equity funds in the three years before and after they first received the coveted five stars. Once the funds are adjusted for risk, they outperformed the Standard & Poor's 500-stock index on average by 0.36% a month in the three years before they earned top honors and then trailed by 0.41% a month afterward.

Why the falloff in performance? One reason, says Morey, is that money suddenly pouring into the five-star funds overwhelms the manager's ability to invest it. "People think these stars are like the ratings of a movie," he adds. "But a mutual fund isn't the same, and it doesn't maintain its quality."

Morningstar, which revised its ratings criteria two years ago, says its own study shows slightly better performance for five-star funds since the changes. It also warns investors not to invest in mutual funds solely by the stars.

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Something New Has Been Added!

You should really check our "Links" section periodically because I'm always on the lookout for interesting and worthwhile additions to that listing. And this time I have several new ones to tell you about.

Earnings.com is a directory of Webcasts, earnings announcements, stock splits, IPOs, dividends, and investor conferences. The home page offers highlights from each category, typically a listing of the most recent or upcoming events. Webcasts are listed in alphabetical order with the event title and time of broadcast. Some Webcasts also have transcripts available that can be downloaded in PDF format for a nominal fee. You will find this listed among our Links as "EARNINGS."

Informed Investors.com is a Website where you can hear directly from company executives, stock analysts, and fund managers through live, virtual and onsite Forums and special webcasts. This is a way for you to gain a thorough understanding of industries and companies before you invest. You will find this listed among our "Links" as "INFORMED INVESTORS."

Precision Alert.com is where you can sign-up to be notified of the latest investor information and announcements from the firms you follow. When financial events or information become available for those you chose, you'll receive an e-mail notification with a link to the event or information. This feature is part of Informed Investors, however, I have also given it a separate link and you can find it under "Precision Alert."

And finally, VCALL.com is where you can hear the breaking news on the companies you track -- as it happens. Here is where you can attend investor relations events such as quarterly earnings calls, annual shareholder meetings, press conferences, and analyst's reports live over the Internet as they happen. You can get your information straight from the companies in their own words. This feature is also a part of Informed Investors.com however, I have given it a separate Link and you will find it listed as "VCALL."

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The Ex-dividend Date

Where dividends are concerned, a few days can make a big difference.

There are four important dates to keep in mind:

1. The declaration date is the date that corporate directors declare a dividend and issue a press release to that effect.

2. The date of record is the date that an investor must be registered on the books of the corporation as a shareholder in order to receive the declared dividend.

3. The ex-dividend date is a date normally four business days prior to the date of record. It is the period allowed for bookkeeping entries associated with stock delivery and account settlement.

4. The payment date is the actual date that dividend checks will be received by shareholders of record or, if the dividends are being reinvested (as in a DRIP account), will be used to purchase additional shares.

The date to watch out for is the ex-dividend date. If stock is purchased before this date, the investor is entitled to the dividends as of the payment date. If stock is purchased after the ex-dividend date, it will be delivered without the dividend. In other words, if the stock is sold after the ex-dividend date, the previous owner will receive the dividend; and if it is sold before the ex-dividend date then the dividend goes to the new shareholder.

You can easily find the ex-dividend date listed in Barron's or the Wall Street Journal.

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Words To Live By

Simplify. The true measure of a man's wealth is in the things he can afford not to buy. When we simplify, we realize how we can make do on so much less!

- Ralph Waldo Emerson


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Do You Know The Difference Between Investing And Speculating?

As an investor, whenever you find a good company selling at very undervalued prices, you can make large gains fairly quickly. But in most cases, gains from sensible investments don't happen that fast. Even so, it's thrilling when that does happen although, it's not quite the same feeling as doubling your money in only a week or two. Finding those short, fast gainers is the art of speculation.

Most investors don't understand the difference between the two, and many wrongly think that speculation is a dirty word. However, investing and speculation are both honorable pursuits, but they have different game rules and different perspectives.

Speculation may be well worth giving some consideration, especially if you have always been cautious, because conservative investors tend to be especially canny at speculating without tripping over their own high hopes.

It may come as a surprise to you to learn that Warren Buffett is a talented speculator. That's what he was doing when a few years ago he suddenly amassed a huge position in silver.

So what is the difference between investing and speculation? The obvious difference is in time. Speculations tend to be special opportunity plays that unfold much faster, tho not always. Investments tend to pay off more slowly, but again, not always.

The principal difference between investing and speculating is in the purpose for holding the stock, or bond, or whatever. The goal of investing is an income stream and a growing net worth. And in the case of good companies that either don't pay dividends or pay very small ones, an investor will look at return on equity - which is the company's profits compared to what the shareholders put in (the shareholders' equity) - because that is a measure of just how well the managers are building value.

The purpose of a speculation is solely to buy an asset and then sell it to someone else for a profit, and to do it very soon. The basis of speculation is the other guy's wants, not the value of the asset.

Speculation is inherently more risky than investing, because you are trying to gauge how someone else will feel about your asset down the road. Very often, speculators don't even care about the existing value or condition of the speculative asset. That increases risk. But in the stock market, you can cut that risk down when you speculate by paying heed to the asset value and making your play at the right time.

There is one other great difference between investing and speculating. Value investing takes a lot of courage. You tend to be going against the crowd if you want to buy a company when it's cheap, or sell it when it's popular and the price is up. But scary as it may be, if you've done your assessment of the company's worth well enough at the outset, it is the safest form of investing. The price of a well-chosen value stock may bounce around for a while, but you have a very, very high probability of being right within a year's time.

Because investing is safer over the longer run, you can put serious money on your investment choices, be that your retirement funds or even your entire nest egg - because given time and caution in making sound choices, the risk that you will lose money is quite low.

In speculation, the risk of being wrong in the long run is usually somewhat higher, since you are looking for the immediate trend to pay off. The risk on each choice is higher than with investments, because you are not waiting around for the asset's inner worth to prevail. You won't be collecting dividends or growing shareholder equity, even though the asset may be capable of both. But whenever you speculate, you are buying in order to sell, and thus, you count on other people's perceptions and moods. You are trying to guess what people will want and how they will react. Thus whenever you speculate, you need to be prepared to have some trades go wrong, and it is your strategy that keeps you healthy. You need to be sure not to place too much of your money on any one trade.

With investments, each trade's quality is most important. With speculation, the strategy is most important. So if you crave a bit of excitement or merely want to try your hand at speculating, it can be rather interesting and profitable as well, just as long as you are cautious and do not get greedy and try to break the bank!

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The First Commandment For Managing Your Money Like A Pro

Have you ever heard the term, "Investment Policy Statement?" .. Well if you haven't then don't feel bad because neither have most other investors!

What is an Investment Policy Statement (IPS)? It is a document that puts in writing your personal approach to investing, from your lifetime goals to the parameters of your asset allocations. And this modest document can be crucial because it helps with what may be the most difficult task in investing: sticking with a disciplined agenda. In other words, it protects you from yourself!

If you don't believe you need that type of guardrail from time to time, then you're probably kidding yourself, or else, you really have blocked the past few years of market performance from your mind. Certainly no professional would ever dream of managing money without an IPS!

There are two ways to establish an IPS: one way is to have a consultant assist you in preparing your policy statement, which can cost as much as $400. And a good source for locating such professional help is through the National Association of Personal Financial Advisors (NAPFA) which you can find at www.napfa.org.

A second way to establish your very own IPS is to create one yourself by following these steps.

1) Assess Your Tolerance For Risk. Are you a gambler or more like a widow-from-Dubuque type? Beyond your natural tendency to take risks, consider factors like the dependability of your income and your age. Be very honest on this point because you can't make smart decisions about your money until you solve the risk piece of the puzzle.

2) Identify Your Specific Goals. Investors frequently obsess over successes that don't matter such as, "Did I beat the S&P 500?" Instead, every investment decision you make should bring you closer to goals that really mean something. Beating a benchmark won't help you to live the kind of life that you seek. Instead, make your objectives tangible by assigning them dollar amounts. For example, write down that you'll need $300,000 by the year 2020 in order to put your 3-year old twins through college. Such targets will help you decide whether to aim for a high but somewhat risky return, or a safer and somewhat more average return.

3) Allocate Investments. Decide exactly which asset classes you'll own - large-cap growth, small-cap value, etc., and how much money you'll allocate to each. Jotting down allocations makes it easier to maintain your plan in good markets as well as in bad ones. Even more importantly, it removes the "I gotta do something" temptation.

4) Rebalance Intelligently. Investors regularly buy and sell at exactly the wrong times. While the market may be unpredictable, investors are all too easy to figure out. They consistently get caught up in the events of the moment and let their emotions drive their investment decisions. But you can prevent this from ever happening to you by mandating in your IPS that every quarter or six-months, you'll rebalance your portfolio and put each sector back to its original allocation.

Such an agenda forces you, without even having to think about it, to buy low and sell high. And after all, isn't that investing's first commandment?... Or as Bob Brinker would say, "It's a No Brainer!"

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NEXT MEETING: Thursday, June 16, 2005

The Summer months of June, July, and August are when we take a respite from having outside/guest speakers and so we return to a more studious format.

This time our topic of discussion will be, "Risk And Investment Strategy" - and we'll talk about Risk Tolerance; Managing Risk; Types of Investment Risk; The Risk-Return Relationship; also The Effects of Inflation on Your Investments.

Then we'll talk about a "Stock To Watch" - and this time I will tell you about a stock which, in my opinion, has the potential to skyrocket in much the same manner as NETFLIX did when I talked about that stock two years ago and afterwards, it rose by more than 267%!... However, a note of caution: When we speak about a "Stock To Watch" - we mean exactly that!... This is NOT a recommendation that you run out and buy the stock merely because we talked about it. But rather, the stock looks very interesting, and as with any potential stock purchase, you do so ONLY AFTER you have done your homework and diligently checked out the stock to be certain that it meets your investing objectives!

And finally, we'll round out the evening with our usual "Shoot-The-Bull-And-Bear" Session, where you can ask any question or make any comment just as long as it pertains to the subject of investing.

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As always, our meetings are open to anyone who shares our interest in learning more about investing. The meeting starts at 7:00 P.M. and ends at 9:00 P.M.. Our location is DePaul University's Naperville Campus, located at 150 West Warrenville Road in Naperville, Illinois. The room number for this meeting will be posted on the easel which stands near the reception desk in the main lobby.

We do have a yearly membership fee of $15.00 for twelve (12) meetings throughout the year. However, non-members are welcome for a donation of $5.00 per meeting.

If you require further information then please send an e-mail to: rwm123@hotmail.com

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