Every day I hear from the ?experts? on CNBC-TV and the radio gurus that the way to buy stocks is find value. One man?s Rembrandt is another man?s connect-the-dots and fill in the spaces. Valuation is like beauty. It is in the mind of the beholder.

If valuation is the key to buying stocks then there should be some kind of a formula to determine what is undervalued and over-valued. In every industry there are formulas for standards of performance. For cars we want to know the zero to 60 miles per hour in how many seconds. For soap we want it to be 99 and 44/100 percent pure. For alcoholic beverages it could be how long it has been aged. And on and on.

Yet in the stock market we have no hard and fast set of rules by which to judge a company performance. Ah, and there?s the rub! No matter how good a company performance might be it may have no bearing on the price performance of the stock. You can find good companies that are within a sector that is doing poorly and yet one company can be making huge profits and sales, but the stock price is going nowhere. There need not be any correlation.

When you are in a bull market almost every stock goes up ? even the dogs. When you are in a bear market almost every stock goes down ? even the best ones. We ended an 18 year bull market in 2000 and almost without exception every stock headed for the exit.

Bull and bear markets follow relatively standard patterns of about 16 to 18 years up and 16 to 18 years down and the valuations go right along with them. If you own stocks or especially index funds during the bear periods you will be lucky to have broken even at the end of the 16-year cycle. Cash in your mattress will outperform market returns while the bear is in charge.

During these bear times there will be periods when the market will have a nice advance such as the one we saw start in 2003. These intermediate rises can ultimately bring many investors back into the market only to lose it when the rally is over and true valuation returns.

One valuation measurement for the overall market is the Price/Earnings ratio of the S&P500 Index. The median number for the historic purposes has been around 14. Today it is running about 21 which is considered high. When bear markets end the P/E can be about 6 or 8. There are other factors to be considered when buying any stock or fund, but the one thing that is most important is to have an exit strategy. Without one you will give back your profits.

No one knows exactly where the top or bottom of a market move will be. Knowing conventional valuations is one tool to help your buying and selling decisions.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

On Monday, November 25, 2000 Investor’s Business Daily listed on page B1 the Top 25 Growth Mutual Funds for the last 36 months along with their performance for the year 2000 to date. Only four showed a profit this year of 21% and the other three had increases of 12%, 5%, and 5%. Fifteen had loss of from 10% to 28% and the other 6 were down slightly.

In the column next to them there is a list of Top 25 Growth Funds for the past 3 months for the year 2000 to date. Only 2 had increases in price for the year 2000, 4 were even and all the rest are showing losses for the year.

Now pay attention and think about this next sentence. Not one mutual fund appears in both lists.

What is the significance of this? It very simply tells you that buy and hold is NOT the way to make money with mutual funds.

I have been preaching for years to buy only no-load mutual funds and hold them only as long as they are going up. When they stop going up you sell them (paying no commission) and find another fund that is going up as the place to have your money. In this current bear market the latter is hard to find so what do you do? Put your money in a money market account and don’t worry about the market going down and dragging your investment with it. Protect your capital!

Don’t throw up your hands and say I can’t do that because my broker says to buy and hold – the market always comes back. It is not his money. It is yours. You must be the one to initiate the action to protect your capital. Brokers are not taught how to do this. I know – I used to own a brokerage company.

Brokers have been smart enough to learn, but taught all the wrong things when it comes to investing money. They claim you can’t time the market. WRONG again. They never encourage you to place stop-loss orders so you won’t lose all your money when you buy a new stock or fund and they never encourage you to use a trailing stop to protect the profits you have made.

I know there are people reading this column who have had stocks that have doubled, tripled, even more and now have that same stock that is now selling for less than they bought it.. Where was your broker when all this was happening? If he is so smart why didn’t he tell you to sell at the top? This also applies to mutual funds.

What I am trying to get across is the simple message that you cannot buy and hold. The secret every knowledgeable investor knows is to protect his capital first and then to protect his profits second.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

Ever have one of those sample boxes of candy? Each little piece is beautifully wrapped in colorful foil or decorated with an interesting design. Taste just one. So good! One more. And another. Before you know it the box is empty. Nothing left.

This upmove in the stock market is very tempting – and could leave you with a tummy ache.

All the market experts are telling you that the bull market is back and to get your buying clothes on. Open your wallet and get in before it is too late. Mr. Schwab says it is dangerous to be out of the market. There are great values out there. These stocks are so low they can’t go any lower. And there is a Santa Claus and an Easter Bunny.

There is one position I do advocate, but most broker and financial planners won’t like it. It is called CASH. No broker believes cash is a position. They say you must always be invested. It seems they have forgotten that investing means making money and another important part of investing means not losing money.

For the last month we have seen the market go up and some of you have seen some of your money come back. Not too much, but some. You want desperately to believe the bull market is back and your winnings will be restored. I sure hope so. Just suppose this is what is called a rally in a bear market and that it will not last. Then what? You don’t want to see your investments slip away again, do you? You don’t know if it is a good idea to sell now or wait. Your broker won’t be any help.

There is a solution. Stay with your stocks and mutual funds as long as they are going up, but sell them if they go down. How? Every Friday after the close you get the settlement prices of your various issues and you then call your broker Monday morning to put in a Good Til Cancelled Stop-Loss Order that is approximately 10% below that closing price. As long as the stock is going up you follow this procedure every week and eventually you will be stopped out. Never move your stop down. You no longer have to guess if this is the highest price that your stock will reach. The stock itself will tell you.

Now you have cash and, if you want to, you can buy a better stock or mutual fund that is going up..

When you pick out a new chocolate (stock) do it carefully and don’t try to eat the whole box at once. Sometimes it is best to put the box (your cash) away so you can come back to it another day.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870