.
You can also visit our main Web site at www.automaticinvestor.com.
Contents
1. Quotation of the Month
2. Main Article: Will Your Investments Thrive in the New Millennium?
3. The Battle of the Budget: How to Get Out of Debt
4. How to Make a Fortune in the Stock Market
5. The Automatic Investor 2.0 Watch
6. Interesting Links
7. Recommended Reading: The Intelligent Investor
8. Automatic Investor Question of the Month
9. Legal Notices: Keeps the Lawyers Happy
Quotation of the Month
“Money will come to you when you are doing the right thing.”
Michael Phillips
Have a favorite quote? Tell us about it by sending it to
eletter@automaticinvestor.com
Main Article: Will Your Investments Thrive in the New Millennium?
By Mark Hing
You’ve probably heard the news already. Millions of investors that once
couldn’t do anything wrong, during the 90’s Bull market, are now losing
money. Lots of money. And the trend continues to grow at an alarming rate.
Not only are the day traders going broke, but small investors are losing
money too, you just don’t hear about them.
So what about YOUR investments? Will you make money in these turbulent
times? Or are you too on the road to slowly eroding your investment
capital?
Most investors don’t know the answer to that last question. But YOU will
after reading this article. You’ll have the knowledge to ensure your
investments will always be profitable in the long run.
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“The best way to save money is not to lose it.”
Les Williams
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WHY MILLIONS OF INVESTORS ARE LOSING THEIR SHIRTS
Let’s get right to the point. Exactly why are so many investors seeing
below average returns (or staggering losses) in today’s market?
The answer can be summed up quite simply. They don’t know what they’re
doing. Back in the early 90s, investors could pretty well invest in
anything and make a profit. In the mid-to-late 90s that trend was
magnified. Stocks that shouldn’t have seen the light of day were gobbled
up by greedy investors. When a stock fell, investors jumped on it (in
droves) calling it a “buying opportunity.” Internet stocks ruled the day,
but some very steady companies were pulled along and rose to absurd
valuations. Of course we know what happened. The markets corrected and
millions of investors were taken to the cleaners. It’s these same
investors who are now faced with a market that doesn’t continually go up.
And they don’t know what to do.
Some decided that the stock market was too risky and retreated to the
safety of money market funds and treasury bills. Others gave up and went
with mutual funds. That’s fine if you want to make below average to
average returns. But if you’re looking for superior performance,
individual stocks are still the place to be, as long as you don’t make the
ultimate mistake…
SO WHAT’S THE ULTIMATE MISTAKE?
The ultimate mistake, that FAR too many investors are making, is trying to
time the market. They let their emotions decide when to buy and sell.
Emotions? What emotions? I’m glad you asked. That’s what I’d like to focus
on for a moment.
The twin emotions of greed and fear are the cause of many bad investment
decisions. When stocks are flying high, analysts tout everything as the
next “can’t miss” opportunity. That’s when greed rears its ugly head.
Greed leads investors to believe that they’re missing out on the next big
thing and if they don’t act right away, they’ll lose untold riches. And
backing up greed (as if greed needs any backing) is envy. Yes envy tells
investors that their friends are all making “big bucks” buying the latest
hot stocks. “Look what Jimmy Smith just bought with his investment
profits,” envy will chime in. What’s a poor investor to do? Buy more of
the hot stock at an absurdly high price of course.
Do I have your attention yet?
Good. Because when the markets decide enough is enough and they correct,
the other twin awakens. Fear rises from its slumber and takes over from
greed. All of a sudden bad news is everywhere. The economy is slowing down
at a dangerous pace, a recession is upon us and those same analysts who
were all smiles just weeks before, are suddenly running around in a panic
declaring that the sky is falling to anyone who will listen. And who do
you think listens? That’s right. Those same investors who just loaded up
on the absurdly high priced stock of the day. Now they’re in a pickle.
Their “can’t miss” stock has suddenly plummeted to depths they hadn’t
dreamed of. And why would they even think this could happen? After all,
everyone was painting such a rosy picture just weeks ago. Investors didn’t
even consider the downside. All of their thoughts were focussed on how
high their stock would rise.
So they panic and sell at a steep loss consoling themselves by thinking
they’ve “cut their losses.” In fact, they’ve just locked in their losses.
Now cutting your losses may be fine when it comes to a low-quality stock
you shouldn’t have purchased in the first place, but “cutting your losses”
on a high-quality stock with a long history of proven earnings is crazy.
Stocks will go up and they will come down. You don’t jump in when they’re
going up and bail when they’re coming down. That’s known as BUY HIGH and
SELL LOW. It’s no way to make money in the stock market.
However greed and fear cause investors to do just that: BUY HIGH and SELL
LOW. Sad, but true.
Again, what’re poor investors to do? Can they break this cycle? Well yes,
they can. But before I tell you exactly what investors need to do, I have
to tell you what they SHOULDN’T do…
Investors should not try to time the market.
They shouldn’t follow “hot tips” from friends or friends of friends.
Investors should not buy stocks they know nothing about.
They shouldn’t try to make short-term profits by using momentum or other
short-term tactics.
So the question still remains, what exactly should they do?
That’s a good question, and one we’ll answer in our next issue… so tune in
next month, same bat-time, same bat-station, when we look at THE CURE.
The Battle of the Budget: How to Get Out of Debt
By Alvin Apple
Debt is one of our most universally felt problems. Almost everyone has
been in debt at some point. Debt can feel oppressive, frustrating and
debilitating, but quite often it isn't as bad as it seems. The key to
getting out of debt is action. You can't bury your head in the sand. Take
control of your problem. If you let debt rule your life, you'll never get
anywhere. Here are a few tips that might help.
First, Budget. I can't stress how important this is. If you don't know how
much money you have and where it's going, you'll never see the light at
the end of the tunnel. Keep meticulous records, and eliminate wasteful
expenditures. This may sound difficult, but it is a must, and it gets
easier as you get used to doing it [Editor’s Note: Use a program like
Quicken or Microsoft Money to make the task less daunting].
Second, Aggressively pay off your credit cards. Credit cards can be a huge
drain on your income simply because of interest. Most card payment plans
are set up so that your minimum payment is only slightly larger than your
monthly finance charge. If you stick to the minimum you will end up paying
thousands in
interest, a few dollars at a time. You've got to pay as much per month as
you possibly can. Send double and triple payments whenever possible and
always give the most to the card with the highest interest rate.
Also, several credit card companies offer very low interest rates for the
first six months, or even a year, on new accounts. If your credit rating
is still decent, you may want to open a new credit account with one of
these companies. You can then transfer your high interest balance to the
new card and then pay it down as
quickly as possible.
Third, Go to a credit counselor or debt consolidator. Consumer Credit
Counseling or Debt Counselors of America are reputable agencies in this
line of work. The main benefit here is that if you sign an agreement with
a credit counselor, quite often your creditors will agree to lower your
interest rates and even forego your late fees, something they would never
do if you asked on your own. Also, 98% of your creditors will stop
reporting you as late or delinquent to the credit reporting agencies. This
type of agreement will typically freeze your accounts until they’re paid
in full, but if you're really trying to get out of debt then you shouldn't
be using your credit cards anyway, right?
Finally, Do NOT declare bankruptcy. Sometimes things can get so bad that
declaring bankruptcy may seem like the only answer. It isn't, and it will
only cause you more trouble. Bankruptcy can eliminate your debt, yes, but
it also completely ruins your credit rating for the next ten years. If you
are dreaming of
buying a home, forget it. No one will finance you for anything, not even a
gas card, with a bankruptcy on your record.
So remember. Keep a working budget, this is the basic key to getting out
of debt, and the other tips won't work without it. Pay off your credit
cards, and stop losing your money to interest. If necessary go to a debt
counselor, but never, I repeat never, declare bankruptcy.
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Alvin Apple helps everyday people start businesses they will enjoy. Then
he teaches them how to succeed. Read all his helpful strategies at
AlvinApple.com. Reach Alvin at 801-328-9006 or alvin@drnunley.com.
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How To Make a Fortune in the Stock Market
By Mark Hing
It's true. ANYONE can make a fortune in the stock market. Really. And it’s
not the same way, “Anyone can grow up to be President of the United
States” either.
To be President you have to have the right connections, have some sort of
leadership skills, have the right connections, know how to play the
political game and have the right connections. How many people do you know
that meet these criteria? Probably nobody.
On the other hand, making a fortune in the stock market is so much easier.
You simply have to learn a few basic rules, implement them and give it
time – about 20 to 30 years worth of time. Hey, I said anyone could make a
fortune, I didn’t say you could do it overnight.
So if you’re 20 years old and you start investing properly right now, you
should be able to retire by the time you’re in your forties. If you’re
older, well, people are living much longer nowadays so it’s never too late
to start (by the way, if you’re older and know someone who is 20 years
old, give them a copy of this article).
Here’s what you have to do.
1. Convince yourself that you can do it. For example if you invest $100 a
week at an average annual percentage rate of 12%, after 30 years you’ll
have $1,540,810.93. Accounting for an average inflation rate of 4% per
year, that means you’ll have $651,005.43 in today’s dollars before taxes.
2. Find a comfortable chair and write down your major financial goal. You
might write, “I want to retire in 30 years with a million dollars in the
bank and no outstanding debts.” Be specific. If you have more than one
major goal, write them all down.
3. Write a plan, for each goal, that will take you to that specific
objective. For example, “I will stop spending wildly, pay off my consumer
debt, and then invest 15% of my income every month in a vehicle that will
achieve an average annual return of 12% over 30 years. Whenever I receive
a bonus or unexpected cash windfall, I will invest 50% of it. I will
invest only in high-quality companies and I will not, under any
circumstances, lose my head chasing the hot stock du jour. I will stick to
my plan day in and day out.” Again, be very specific.
4. Find the right investment vehicle. This is where you will have to do
the lion’s share of the work. This is the 20% of the effort that will
produce 80% of the results, so ensure you do a good job here. You should
research a variety of investment methods. Use the Internet to gather the
information you’ll need and don’t be afraid to post questions on the
various investment discussion boards.
5. Implement your plan. Once you have your plan, don’t wait. Implement it
right away. The longer you leave it, the more money you’ll lose in lost
opportunity.
6. Monitor your plan to ensure it’s operating smoothly. You’ll probably
have to make minor course corrections along the way, but if you did a good
job in step four, you shouldn’t have to spend too much time on monitoring.
What you have going for you: Time. Albert Einstein said that the magic of
compounding was the eighth wonder of the world. But it takes time.
What you have going against you: Thousands of advertisements telling you
why you absolutely must spend your hard-earned money on the latest widget.
What you need: Knowledge (see the 6 steps above) and discipline.
Now simply sit back and live your life to the fullest (on 85% of your
income and 50% of your bonuses). In 20 or 30 years you’ll look back and
wonder how something so simple managed to escape 95% of the investing
public.
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WHY NOT TELL your friends about this great, FREE, newsletter? Forward this
newsletter, or send them to http://www.automaticinvestor.com/eletter.html
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The Automatic Investor 2.0 Watch
Automatic Investor 2.0 is coming soon! And we’re excited! The entire
system has been overhauled and now contains more features, more reports,
more charts and more functionality.
There’s a powerful new parameter
optimization module that allows you to fine tune Automatic Investor’s
parameters for your specific stock. But that’s not the really big news.
No, the really big enhancement is the brand new formula that incorporates
a stock’s volume into the engine that produces Automatic Investor’s
recommendations.
To see how well it works, let’s look at an example.
If you had invested $10,000 in Oracle Corp. (ticker symbol ORCL) on
January 2nd, 1996 and held those shares until December 29, 2000, your
return would have been an amazing 807%. Your $10,000 portfolio would now
be worth a little more than $90,000. Not a bad return for holding a solid
stock for five years. However if you had invested that same $10,000 in
Oracle and used Automatic Investor 2.0 to manage your investment, your
return for that same period would have been 969%. Your $10,000 portfolio
would be worth almost $107,000. That’s a difference of nearly $17,000, or
over $3000 per year.
Furthermore, without Automatic Investor 2.0, 100% of your capital was 100%
at risk during the five years you held the Oracle stock. With Automatic
Investor, far less of your capital was at risk because Automatic Investor
2.0 kept a significant portion of your portfolio in cash (and we didn’t
even include the interest this cash would have earned in our example
above).
Automatic Investor 2.0 would have made four strategic purchases and five
strategic sales, over the five-year period, in order to significantly
increase your returns and minimize your risk. What’s more, this isn’t an
isolated example, Automatic Investor 2.0 does this with many other large
and small cap stocks.
Next month we’ll tell you a bit more about Automatic Investor 2.0. We’ll
also have a special offer for eGazette subscribers only. So be sure to
check back.
Interesting Links
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These links are brought to you by the Market News Network, visit our site
for:
Stock Quotes, Market News, Stock Message Boards, and other Investing
Services.
Check us out today at www.marketnewsnetwork.com
*Webmasters* Get an edition of our newsletter for your own site. To find
out more, visit www.marketnewsnetwork.com/b2bsample.html
*Advertisers* Put your Ad here to reach thousands of investors. For more
information visit www.marketnewsnetwork.com/advertisehere.htm
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Title: How Companies Evolve
Source: Fool
“As investors, we're interested in companies that can sustain growth over
a long period of time.”
(this link is not available from the archived version of the eGazette.)
Title: Getting Out of Debt
Source: Fool
“Lenders use a bafflingly complex system of pulleys, ball bearings,
mirrors and Boolean algebra to calculate your finance charge. In the end,
most come up with a figure somewhere between 0% to 32%.”
(this link is not available from the archived version of the eGazette.)
Title: Don’t Believe Everything You Hear on TV
Source: Worldlyinvestor
“Nationally recognized fee-only financial advisor Gary Schatsky answers
readers' questions about personal finance.”
(this link is not available from the archived version of the eGazette.)
Title: Speech Recognition Stocks Are Something to Shout About
Source: TheStreet
“The problem with today's machines is that they're so damn dumb.”
(this link is not available from the archived version of the eGazette.)
Title: Stock Focus: Ten Stocks That Could Change The World
Source: Forbes
“Inktomi is one of the stocks featured in Larry Waschka's new book, Ten
Stocks That Could Change the World.”
(this link is not available from the archived version of the eGazette.)
Title: Oracle: Slow economy won't stop e-biz spending
Source: Upside
“Software giant Oracle Corp. (ORCL) does not expect a slower U.S. economy
to curb spending on "e-business" because use of the Internet helps firms
reduce costs, Oracle Chief Financial Officer Jeff Henley said on Tuesday.”
(this link is not available from the archived version of the eGazette.)
Recommended Reading
"The Intelligent Investor," by Benjamin Graham.
This is the one book that all investors should read at least once. It’s
fairly long and you’ll have to really think about the information in it –
it’s definitely not a quick read. However if you want a complete
understanding of value investing, this is the granddaddy of all books.
Investment Gurus, from Andrew Tobias to Warren Buffett, have read and used
the information in this book to make money. In fact, Warren Buffett said
it was “by far the best book on investing ever written.” High praise
indeed.
If you’re an investor and you buy only one book this year, make it this
one. Highly recommended.
You can purchase this book at Amazon.com.
Automatic Investor Question of the Month
For more answers to your Automatic Investor questions, visit our
User's Group.
QUESTION:
How can I manage multiple stocks with Automatic Investor?
ANSWER:
Automatic Investor allows you to put multiple stocks into one Automatic
Investor portfolio, in effect creating a mutual fund. There are advantages
to doing this, however this requires an entire explanation by itself and
will be discussed at another time.
The most common way investors manage multiple stocks is to use Automatic
Investor to manage each of their stocks individually, but they keep all of
these stocks in one brokerage account.
You can track several stocks contained in one brokerage account by setting
up an Automatic Investor account for each stock with its own individual
cash reserve. In reality, all the stocks will be in one brokerage account
and all the cash will be lumped together. However in Automatic Investor's
eyes, each account has a separate underlying brokerage account (each with
a separate cash reserve).
For example, assume you want to set up Automatic Investor accounts for
YHOO and AMZN. You can create an account for YHOO with, say, $10,000.
Let's further assume YHOO is trading for $100 a share (yes, it’s quite far
off YHOO’s actual price today, but we’ll make this assumption for
simplicity) and Automatic Investor has recommended you purchase 67 shares.
You would then have 67 shares of YHOO and $3300 in your YHOO cash reserve
(I've excluded commissions in this example).
You'd then create an account for AMZN with, say, $15,000. Assuming AMZN
trades at $50 a share and Automatic Investor has recommended you purchase
200 shares, you'd then have 200 shares of AMZN and $5000 in your AMZN cash
reserve. You could then use different configuration settings for YHOO and
AMZN and Automatic Investor would provide recommendations for each account
separately. However the underlying brokerage account would contain 67 YHOO
shares, 200 AMZN shares and $8300 in cash (i.e. $3300 for the YHOO account
and $5,000 for the AMZN account).
If your cash reserve for YHOO eventually was exhausted, Automatic Investor
would not let you purchase any more YHOO shares until you sold some to
replenish the cash (even though there was a positive cash balance in the
underlying brokerage account -- which belonged to AMZN). What you are
doing is managing each stock separately (complete with its own individual
parameter settings and cash reserve) within Automatic Investor, but
keeping all your stocks and cash in one brokerage account.
Legal Notices
The Automatic Investor eGazette does not rent out its subscription list.
This newsletter is Copyright (c) 2001 by Aptus Communications Inc., Maple
Ridge, British Columbia. All rights are reserved, except that it may be
freely redistributed provided that it is redistributed in its entirety,
and that absolutely no changes are made in any way, including the removal
of these legal notices.
Automatic Investor is a trademark (tm) of Aptus Communications Inc., Maple
Ridge, British Columbia. All other trademarks are owned by their
respective companies.
THE MATERIALS CONTAINED IN THIS NEWSLETTER ARE PROVIDED "AS IS," AND APTUS
COMMUNICATIONS INC. EXPRESSLY DISCLAIMS ANY IMPLIED OR EXPRESS WARRANTIES
OR CONDITIONS OF ANY KIND, INCLUDING WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF INTELLECTUAL
PROPERTY RELATING TO SUCH MATERIAL. IN NO EVENT SHALL APTUS BE LIABLE FOR
ANY DAMAGES WHATSOEVER, INCLUDING (WITHOUT LIMITATION) SPECIAL, INDIRECT,
CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION,
DAMAGES RESULTING FROM USE OF OR RELIANCE ON THE INFORMATION OR SOFTWARE
PRESENTED, LOSS OF PROFITS OR REVENUES OR COSTS OF REPLACEMENT GOODS OR
LOSS OF GOODWILL.
All statements and expressions are the sole opinions of the authors and
are subject to change without notice. This information is neither an offer
nor solicitation to buy or sell any securities mentioned. While we believe
all sources of information to be factual and reliable, in no way do we
represent or guarantee the accuracy thereof, nor the statements made
herein. The authors, members of their families, and/or entities with which
they are affiliated, may own stock in and have other financial dealings
with the companies who appear in this newsletter. To that degree, this
newsletter should not be regarded to be an independent publication.
YOU SHOULD VERIFY ALL CLAIMS AND DO YOUR OWN DUE DILIGENCE BEFORE
INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS
SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK.
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