The mutual fund industry has staked its claim to the confidence of investors by establishing a tradition of plain dealing, honest accounting and overall trustworthiness. If there were sharks on Wall Street, they didn?t swim in the mutual fund sea.

That image changed early September, 2003 when the attorney general of New York State announced a $40 million settlement on insider trading charges involving a hedge fund and several mutual funds. Further revelations brought the impact of Wall Street\’s recent reforms into question and cast the fund industry in a distinctly negative light.

The initial charges centered around the hedge fund Canary Capital Partners and Bank of America?s Nation Funds and Bank One?s Banc One Funds. Among the alleged improper activities is the charge of ?back-dating? the Net Asset Value, or NAV, of shares for select customers at the expense of others.

The pricing of NAV is supposed to take place at the close of every session. An investor who can back-date his shares can take advantage of a news event after the close that will impact the NAV the next day. Buying a technology mutual fund after a big announcement by Intel or Microsoft at 4:15 p.m. means that the customer will benefit from the likely upward move the next morning.

There were other shenanigans, all of which is letting air out of the balloon of trust in the fund companies. Right now the New York AG is still investigating Bank of America and Bank One along with Strong Capital Management and Janus Capital Group, the Vanguard Group and Invesco funds. Illinois regulators are looking into the practices of Samaritan Asset Management Services. The financial regulator in Massachusetts is probing Prudential Securities and associated fund companies. The SEC has sent out letters requesting information to Merrill Lynch, Goldman Sachs and Fidelity Investments.

That covers a big chunk of the mutual fund industry. If you have money in a fund from one of those companies, this is not necessarily the time to bail out. But you should invest with your eyes open.

For ages we?ve questioned the priorities of mutual fund managers, and the whole brokerage business for that matter. Our question: Are they in it for you, the investor, or for themselves and the string-pullers in the boardroom?

Last year we ran a piece on a fund manager who was eased out of his position because he failed to put all of his cash to work in stocks and warned of the pitfalls of the industry?s standard ?buy and hold? strategy during a bear market.

We drew three lessons from the story:

First, with a few exceptions mutual funds and the entire brokerage industry are devoted first and foremost to making money for the company. If the customer makes money, too, that?s fine. The buy and hold strategy is the prime reason why millions of investors have lost much of their retirement savings from 2000-2002.

Next, if you invest in mutual funds, you?re usually better off using index-tracking funds that simply follow the S

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When IPOs were a hot item, we were constantly asked, ?How do I get in on one?? To be sure, you should know about this type of play because the returns can be tremendous.

In an IPO, shares that can be publicly traded on open exchanges are made available to the buying public. Every corporation has shares, but until the registry and filings are complete they aren\’t publicly tradeable. Usually a major brokerage firm will \”underwrite\” or do the homework and background legwork involved with securing shares, i.e. verifying financial records, accounting and promotions, etc. Then the brokerage will set the pricing of the shares coming to market.

Often a hot IPO will price out at, say, 15 dollars per share, but because of the limited amount of shares available and the fervor over them, the stock never opens at the \”pricing\” price. More times than not that 15-dollar IPO opens at $20 and flies from there.

Let?s say you own 5,000 shares of this IPO. What would it take to get them out of your hands? A higher price right? Certainly! So the price goes up and you sell it to someone else who wants it badly. But again, what will it take to pry it out if his hands? A higher price, of course. So that cycle repeats, often many times in a short time frame, until it reaches a plateau. Then the issue becomes volatile, trading up and down in a tight range.

The stock will finally settle down a bit as the issuing company goes into its \”quiet period? when the underwriter is required to stay mum about this new stock for a period of time. After the quiet period is over the brokerage that brought out the IPO usually starts an upgrade campaign and the stock then starts getting more attention and action.

Naturally, everyone would like to have some shares before they are opened, but there are usually few to be had. The company has shares, the underwriters have shares, the market makers have shares, and select customers have shares. Most times the available shares are distributed long before you ever hear about the IPO. If you get lucky enough to get in it was just that, pure luck.

Day traders with the best execution systems can make money on the IPO by jumping in soon after it opens and riding the share price higher. You must be quick to take profits, though, because there can be many swift price swings during that first day.

Another time to trade an IPO is at the end of the ?lockup period.?

The lockup rule affects primarily company insiders who control tens of thousands of shares at the low IPO price. They cannot sell their shares for 6-9 months. Until then, their shares are ?locked up.?

As the end of the lockup period approaches, the stock often begins a gradual advance as institutions and insiders hype the company in order to maximize their gains. But when shares are no longer locked up, the volume of selling is bound to increase as managers and underwriters bank some cash. Depending on the severity of the selling, a stock can be a short candidate as the lockup period ends.

Any investor looking to buy an IPO after it has started trading should be aware of the lockout date. If the stock has been trading almost six months, it usually means that more stock is coming to market at the end of the lockout period and that could put a damper on the price.

Of course, if the stock is a huge gainer and the company is poised for strong growth, the end of the lockout period may have little or no impact on share price. Investors want those stocks and don\’t worry about a few more shares coming to market. And there won\’t be as many shares by sold by insiders if the stock has performed exceptionally well. Like everyone else, many insiders will hang onto the real winners.

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Writen By : Larry Potter

Tags: cash, invest, markets, money, PROFITS, quotes, stock, stocks, trade, trading

Here is a question we got:

I wouldn\’t mind hearing again the strategy on
when to enter a stock. For example, say you put out \”IBM long over 90\” and
the futures are up the next morning and we open up and IBM moves over 90 in
the first 10 min of trading – do you enter then or typically wait for the
open to settle out more? Also, let\’s say you get into IBM, it shoots up to
91.50, then falls back to 90.25 and seems to be using 90 as support – would
you ever recommend selling at 91.50 then re-entering at 90.25 since it\’s
still above the \”get in\” price? Or is it generally not worth it?

Thanks, J

Well, here is the deal. The first ten minutes of trading is a nightmare to get involved with. That?s not to say we don?t do it some times, but more times than not a stock like that will power up, and then dip after the first several minutes of trading. What I like to do is see just where it got to on the initial bang. Let\’s say IBM opens at 90.10 and rockets up to 91.00 in the first several minutes of trading. Then as we approach 10 am, it starts fading off and by 10:15 it?s at 90.25. We might have jumped on it in the first several moments, but more times than not we?d have sold once it started dumping. On days like that it?s often better to employ the ten am rule, or ?gap out? rule.

That simply means we note that high of 91 and then watch the stock for the rest of the day. The minute it exceeds 91, chances are it?s going much higher and it?s safe to enter. Under 91 and it?s trapped in something of a no mans land. It might fade back down, it might break out, but it?s dangerous.

As far as buying that dip if indeed it does fade back to 90, and seems to use it as support, we do that sometimes, but it too is pretty risky. If we put the ?consider buy? at over 90, and it?s at 90.15 after being up to 91, we might very well try it, but we would also be quick to bail if it fell much below 90. That would be a failed breakout and they can hurt you.

One thing that I must make clear here is this, We sometimes buy a stock, get shook out and rebuy it two or even three times when it?s hanging around a breakout level. If a stock is on our list as a consider buy over 90, and it opens at 89.80 we wait. Then it pokes over 90 and we jump on it at 90.05. It may go to 90.25 and then fade off. It might then lose 90. If it does we have our finger near the button. We can live with a small drop, say to 89.90, but if it fails the opening price, we are ?gone?.

Now let\’s say later the same day it gets back to 90, will we buy it? Yup. The breakout is still alive, and we will take another shot. I?ve seen days where we had to do it three times, taking a dime loss each time before the true breakout really took hold and up it went. I?ve also seen the breakout fail and we ended up losing 50 cents on the day plus the commissions. Unfortunately that?s the way this game goes sometimes.

There are no absolutes unfortunately. We have seen breakouts fail, we?ve seen reversals reverse again and press higher. We?ve seen it all. The key is always the same, take small hits when something is going against you, and attempt to let it ride when it?s going with you. If you buy something because it crossed a breakout line and 20 minutes later you?re underwater, don?t be afraid to sell it out. Let\’s use some simple math here. Suppose you buy XYZ at 90.05 because it?s breaking out. It runs to 90.25 and starts to fade. If you dump out at 90.05, flat on the trade, what did you lose? A 20 dollar commission? Big deal.

Now suppose it fails 90 and goes to 89.90. So, you chicken out and sell. You lost 15 cents and your commissions. Still no big disaster. But what if you just held it, not wanting to get shaken out and two hours later you?re down a buck and a half? Ouch. Now you could be talking serious buck depending on how many shares you bought. Don?t be afraid to take the little hits, yeah they add up, but rarely as much as a trade gone completely sour. I?d rather take two 15 or 20 cent hits and move on, than ?hope? something back up and find myself down 2 bucks.

I hope that helps even though there is no easy answer. Those moments when a stock is hanging around a breakout can be tense, so you have to give it a little leeway, but don?t let it get away from you. We push it once in a while and we get spanked when it goes wrong. The key is keeping the little hits little so when something breaks and runs for 3 bucks, you get it all back and then some. That?s how you win at this.

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Writen By : Larry Potter

Tags: cash, invest, markets, money, PROFITS, quotes, stock, stocks, trade, trading

The other day, there was a guy on CNBC hyping his style of investing. He seems like a nice guy, but his theory was a bit hard to swallow. He said that if you have money, you should just buy the market and average down. Hold it for ten years. Doing that he says will beat the market.

We agree. It will beat the market. But that\’s not the same as making money. Depending on when you start your ten year hold period, there are many times when your total returns will be negative. Yes, you might beat the market, but is that anything to write home about? Say the DOW is off 25% and you\’re down just 15. Is this great? No!

Buy and hold for the long term only truly works if you are smart enough to have bought at a major low and the market rose from there. If on the other hand you\’ve bought at the highs, it can be a painful lesson. Look at the those that bought in January of 2000. It\’s now 2005 and if you were in the NASDAQ, you are still down over 30% even if you\’ve averaged down.

Don\’t buy the standard fare. It\’s just not good. You might beat the averages, but you still could be red.

Now, as you read this part, please take into consideration that any type of financial planning is a \”one on one\” situation.

First things first, whether you were looking for an estate planner or a plumber, we would ask friends, relatives, or neighbors who they would recommend. If they have had great success with someone in the past, the chances of you having the same luck are pretty good. Networking is a lot better than picking names out of the phone book. It might save you a bunch of time and maybe even regret later on. Once you have made contact with someone in the financial field find out if there are any fees in having a consultation with them. Some people may have a small fee that they charge but will return it to you if you do business with them in the near future. If everything seems reasonable to you set an appointment up with them. Your first appointment should be to get introduced and have your goals evaluated and a needs analysis completed.

What are your present needs and future needs, along with your dreams and desires? You should be having this type of discussion. Not what is the hottest product on the market talk. If they there trying to sell you something upfront on the first meeting, there probably not worth your time nor money.

Many readers are at different stages in their lives so here is a little time line that we would go by.

Young families, make sure you have a proper life insurance plan in place, disability insurance to protect your income and at least 10% going towards a retirement fund. Yes, we know you may not be able to due everything at once, but make sure you are going over your plans every year or 2 to make sure you are growing closer to your goals. Above and beyond that we love stocks and real estate investments for more of a short term to pre retirement pick. We figure that those investments could either make you or break you, but you\’ll still have your retirement funds when you need them and by providing proper insurances your family is taken care of in the event something bad happens.

Once the wealth is accumulated it\’s time for the big guns. Estate planning provides the means to clearly define how you want your assets to endure after your have and to whom they should go to. To accomplish this we would gather a team of individuals such as an attorney for legality issues, an accountant for the tax implications, an insurance advisor to handle the insurances and an investment advisor, if the insurance agent does not handle
all your investments. Out of all the categories of finances estate planning can be the most difficult because of the in depth planning that is required. It seems that with each new president, the tax codes get rewritten all over again making long range planning terrible. But remember, once you\’ve accumulated your fortune, it could take just as long to preserve it so having people you can trust and build a relationship with is vital.

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Writen By : Larry Potter

Tags: cash, invest, markets, money, PROFITS, quotes, stock, stocks, trade, trading