Investing in the stock market for teachers

"The Hercules Fund was rated '5-stars' by the Midnight Sun Mutual Fund evaluating firm because Hercules exceeded the S&P500 for four out of the past six years."

The names in the above quote were changed to protect the guilty. Guilty? Yes! What they're saying is that the professional portfolio managers of Hercules could not beat us chimpanzees in our random guesses in two of the six years! And the prestigious Midnight Sun praised them as one of the best bunch of managers no less! What, we ask, are they so proud of? We chimps, to reiterate, have matched the S&P500 for all six of the past six years, and we would expect that humans could do better. That is why we asked one to help us put this into human language for us - sort of a missionary effort from us chimps to you humans! So we chose a human, who has the 89%/yr investing record shown here. He is educated in neither economics nor business, and the only thing possibly going for him are his Dutch genes - you know, like those of Vanderbilt, Rochefeller and Roosevelt!

A little bit of ethics. Take a long walk and discuss with yourself why you want to become rich and what you plan on doing with the money you may someday have.

This seems very harsh and lumps almost all brokers into the ranks of the unsuccessful. However, it is the one axiom that every single one of our colleagues adheres to. We might soften this axiom to read: "Never take the advice unless your broker is personally making a higher percentage than you are." But so far, we still haven't found a broker from whom we would take advice even under this softened axiom (Fig. 1).

Why are brokers and portfolio managers, if they may be lumped together, so notoriously unsuccessful? There are many possible reasons that do not include level of intelligence (remember us chimps?) or education (remember the fourth graders?).

One reason is that the broker's goals are different from yours. You want to make a single transaction to buy a stock that goes through the roof in a few short years. Your broker only makes money by the number of transactions you make - the more the better. Thus your broker never wants you to be so overly satisfied that you make that proverbial single transaction that sets you out on the golden road never to return. Your broker wants you only moderately pleased with your purchase so that you are likely to return to sell and - better yet - buy something else as a replacement - all for a total of three commissioned transactions!

And just in case you're wondering whether or not a broker's license indicates actual prowess in the market - No! It only indicates that the person knows the rules and regulations on transferring stocks from one person to another. The broker knows the mechanics of transactions. The license is not a indicator of wisdom in selecting stocks. Such wisdom, interestingly, is neither taught in most schools of finance, nor in most schools of business management.

More than nine times out of ten your friends will proudly tell you that they have put their money into mutual funds so that they don't need to worry about it - "Let the experts take care of it for me." Are those friends happy now? Not likely.

The main reason that mutual funds are not the way to go is that the main responsibility still resides with YOU! Mutual funds have a contract with you and the Security and Exchange Commission to keep a large portion of your money invested - usually as much as 95% invested. This means that during times of economic downturn, the fund cannot bail out of the market and "go to cash." They must stay "in" the market - they must hold the stocks or bonds that the fund specializes in.

As said: 'the main responsibility still resides with YOU!' It is YOU who must watch the overall economy, and it is YOU who must bail out at the beginnings of downturns. The fund cannot do it for you. YOU MUST DO IT!

The battle cry of us chimps tells almost the whole story. A gang of us chimps doesn't care which banana farm is most profitable, or which farmer has the more education, or which farmer has used the best grades of fertilizer. All we chimps are concerned about is whether the farm is producing lots and lots of bananas. Keep producing bananas, and we chimps will hang around. Stop producing bananas, off we go to the next farm. We coldly have no loyalty at all!

Also all that the fourth graders were interested in was whether the stock prices appreciated. It didn't matter how profitable the company has been because those profits might end up in the pockets of the employees or management.* Again, what really and only matters is that the stock price goes up. The market is filled with stocks of highly profitable companies but with falling or laggardly stock prices. Profitability is nice to have, but it doesn't help the investor unless the stock price goes up. PERIOD!!! And the faster the better.

Our chimp world is filled with gorilla jokes - such as "Where does a gorilla sit?" But they have another one that hasn't much made it yet into the human world. "Which is more likely to grow and evolve- a troop of mottley chimps or a troop of ponderous gorillas?" Putting it into human terms: "Which is more likely to double in size this year - the corner deli or Global Motors?"

The lesson we are telling you is to invest in smaller companies, and to eschew the ponderously big companies.

We chimps really go for bananas, and a few other fruits and leaves. Sure we could live on hardshelled nuts, but they're rather scarce and those found are good at producing toothless chimps. We know that we should be concerned with only a few things in our diet. Afterall, we know that if the crop of our staple foods should fail, our troop can always move on to what humans call greener pastures.

The most diversified portfolios are those of the S&P 500 or the market composite. As our opening quote alludes, we find it interesting that a big majority of mutual fund portfolios do worse than the overall composites or index funds. That is why we chimps invest in composites - we chose randomly from the whole list and beat the portfolio managers almost every time. But since many of you readers are dyed-in-the-wool mutual fund investors, allow yourselves to be led out of those mutual fund snares and over into proper thinking.

But, just in case: how might my fellow chimps recommend that you humans prune our random chimp-lists free of low grade bananas? If the S&P 500 outperforms all but a handful of the thousands of mutual funds. Let's start by considering buying a fund indexed to the S&P 500. Next let's look at all the stocks in that list of 500. Do you see any that you think less promising and would like to exclude? You'll see many. As you cross them off the list, you eventually will obtain your Personal 250 or 100 or 20. That list should perform much better than the S&P 500 and, ipso facto, better than any of the mutual funds.

Don't over diversify. Don't spread yourself too thin. Diversification was a fine adage a century ago when it was a very time-consuming process to sell a stock that was heading southward. Today, with even a telephone, selling is only a matter of seconds.

Remember that most investors have their biggest investment in a most undiversified form: their one and only home.

The gorillas often have their downs, which drags the rest of the market down. Hang on! The market will recover. It always will except for that one last time if and when the nation falls - and then it'd matter little where you had your money except as, perhaps, in diamonds that you, as a refugee, could squirrel out of the area.

By counting that the market will always recover, you can similarly count on the fact that there will be downers along the way also. The wise investor with a sharp daily eye on the market, will start converting to cash during euphoric times when the prices start touching the clouds. Having 25% or more in cash at the time of a down-turn allows you to buy back into the market at the bottom. And especially to buy back into stocks that were unjustifiably hard hit, and went like sheep following the flock.

Most of the time, bear markets are preciptated by events far away from Wall Street. Usually they occur when some all-engrossing historic event happens somewhere in the world - a war breaks out, Princess Diana is killed, America is in the Olympic hockey finals against Russia, or earthlings first step foot on Mars. Strange, isn't it, that both good and bad global news causes the market to dive? Not really! Those people who suddenly find themselves in need of cash for some emergency or deadline, must sell stock. Meanwhile those people with money sit contentedly on the sidelines watching the momentous events. More sellers than buyers does only one thing: the market collapses. But once the invasion, or Olympics, or whatever is over - then the buyers turn off their TV's and return to the market.

In summary, gorillas make a lot of noise, attract crowds and cause stampedes. A smart chimp might see opportunities, while all our lesser cousins seem to have all turned into a flock of sheep and run in unwarranted fashion in the wrong direction.

Not only do our lesser cousins astound us with their unreasonableness, but our human cousins do also. One stock has a bad day, and the whole lot of them go down. Why is it that while America is built upon a spirit of optimistic can-do, those dealing with stocks are the most pessimistic creatures known on earth. Nobody on "wall Street" seems to see the good side of anything. Everyone is nay-saying. The market goes up, and crowds come out to remind us that "The End is At Hand" for the bull market. With self-fulfillment, the market drops just as we said earlier - the crowd of investors act like sheep - no, better - like a pack of scatter-brained monkeys, and frantically go into a selling rampage. There seems to be so little thought among humans also. Recently, there was an "Asian Crisis." Any company dealing in international trade plummeted. Citicorp, one of the nation's leading international banks, had a lot of exposure in Asia. Its stock therefore nosedived. A day or two later, some reporter noticed the long lines outside of one Citibank office in Singapore. without investigating, the word was broadcast that the shoving throngs were surely part of a panic. Only later was if found to the contrary that the people had removed their money for the Indonesian banks and were moving it into a "strong" bank connected with the United States. And, with that word, Citicorp stock rocketted to new highs. we chimps cannot say too little about human economic evaluators, who always seem to speak in hushed, sanctimonious hallowed voices.

Any chimp that observes humans knows that human investors pay unusual interest in "The Dow" or the DJIA or the futures, or the S&P 500. But what puzzles us chimps is why humans take such numbers so seriously in their investing. What are those numbers anyway? Do they point to where the bananas are growing? Are they indexes of investment wisdom?

Back in the olden days when Messrs. Dow and Jones put their heads together and came up with their concept of Dow Jones Average, what were they interested in? Word is that these two economists were interested in finding an expeditious way to get a handle on how well the overall national economy was doing. But with electricity in a neonatal state and computers only in the minds of Hollerith's weavers and immigration officials, it was impossible to come up with the total value of all America's assets each month, let alone each week or day. So what they did was make a few judicious samplings - choosing a group of companies they felt were fair representatives of the whole picture. It was thus easy to crunch the few numbers with pencil on a notepad and come up with a indication of how the nation was doing financially. But those chosen few representatives are by nature gorillas! They were just a few mega-corporations that employed hundreds of thousands of workers, who, in turn, also played a big part in the overall national economy. But we chimps don't like gorillas.

Ask a fourth grader what America is, and you will be told about inventiveness, the spirit of can-do. There is the American Dream, the American Spirit, Destiny. And on and on. But the days of "so goes General Motors, so goes the USA" are gone. Well, actually, never were! It is our Edisons, Westinghouses, and Fords; it is our Salks, Watsons, and neopatriot von Braun; it is our Bill Gates and Steve Jobs that were/are the real America. These were idea-people starting up in garages and little labs that grew America. Where the investment action is to be found is out there in todays garages and labs.

How often it has been that while the DJIA was down sharply for the day, the portfolio value of this pamphlet's writer' was just as sharply upward. This is all because the "DOW" is an index of giant companies, while our scribe's portfolio consists of what he hopes are up-and-coming companies.

I have mentioned that humans can be lumped with sheep, and monkeys in their mob psychologies. But humans are not quite so overt in their actions. They are usually so subtle in their behaviors that they themselves often don't recognize certain indicators of their overall moods. It seems that whenever a mass of humans - a whole nation's worth - goes into even a mild emotional slump, the market goes on the skids. It would be very handy for a human to be able to detect the very first indicators of such sliding "public confidence." as the University of Michigan reports it. With sliding confidence humans go into a more defensive posture and become conservative.

There are a couple of things we chimps have noticed in humans that might serve as good indicators of an impending downturn in the markets. It has been pointed out that since the late 1800's, women's hemlines preceeded the market by about six months. If they are mini-skirt high, there is putatively a lot of riskiness in the women's spirit. Since this trait must be seen in millions of women to be a valid market prophet, it must reflect the overall mood of not only the women, but also of the men who are parts of their lives. National mood. The time-honored indicator of men has become a bit rarer to see since men don't wear suits as frequently as they used to. But just in case they come back: it seems that the wider the lapel, the racier the mood, and the market will soon rise. Maybe wider ties make a man feel wilder!?

This mass psycho-mood stuff might not be international or national in scope. It might only be regional. Often the mood of the East Coast differs from that of the West Coast. Watching TV fashions might be a way to have eyes everywhere.

TIME REQUIRED. One of the complaints forever given about controlling one's own financial destiny in the stock market is: "I just don't have the time." We chimps have noticed that this pamphlet's scribe has been spending about 20 minutes per day and about two hours each weekend - approximately three hours per week - to make much more on the market than in salary on a 40-hr week job. You wouldn't convince any of us chimps were you to say you don't have the time to make more than your salary!

Of course, the beginnings of any activity takes added time and effort. This is no exception. Your first inputs into investing should take you several weekends of searching through literally several thousand companies and compiling a list of candidates in whom you might invest. Once you have that list put together, it takes much less time to shepherd it - a new name added this week and perhaps one dropped the week after that, and so on.

Getting to this point will require a number of steps: (a) where to find the basic information on the performances of a host of stocks; (b) how to read that information; (c) how to discriminate "good" ones from the "not so good"; (d) the mechanics of how to start actually buying your portfolio; (e) and how to maintain your portfolio. Each of these steps will now be covered in sequence.

(a) SOURCES OF BASIC INFORMATION. Most public libraries have extensive collections of stock related information. These range from daily financial newspapers (Wall Street Journal (WSJ) and the Investors Business Daily (IBD)) to weeklies (Barron's and Fortune Magazine) to various extensive periodic publications such as the Standard and Poor Guide and ValueLine. It is imperative that you can get your hands on one of the daily financial papers and on one of the extensive publications.

(b) HOW TO READ THE INFORMATION. Once you have one of the financial dailies open in front of you, you will see those pages covered with fine print listing nearly all the stocks traded on the floor of any given exchange. You will see that each line gives a synopsis of a single company. While the items covered in your regular daily newspaper are generally unchanging day after day, a few of the items covered in some of the financial dailies rotate over the course of a week. Let's take a look at the lines of several of these sorts of publications. Fig. 1a depicts a line from the regular daily newspaper. In this order it usually shows: the highest and lowest it has been in the past 52 weeks, the often abbreviated name of the company; whether or not the stock split in the past 12 months (indicated by a lower case "s"); the amount of dividend paid ("yield"), if any; the closing price of that stock on that day; and the change from the previous day.

The financial dailies will offer other facets of the stock (Fig. 1b). These might be the percentile of the company's profitability versis that of all other companies at per dollar basis ("EPS"); the percentile the stock's price appreciation is relative to all other stocks on that exchange ("Relative Strength"), and the price of the stock divided by its earnings ("PE"). Often other facets are also given. Something new- Starting in February 2001, Investors Business Daily added a new "composite" rating to the front of each NYSE and NASDAQ (but not AMEX) stock's line of figures. They call it "SmartSelect®", which is also a percentile number. This makes finding great stocks much easier. Here are two stocks, one of which at the time of this amendment (24 Mar 01) is superlative, and the other is in the bottom half of the market:

SS® corp profits share apprec grp strength sales, profit marg accum
distrib yr hi name symbol last chg vol%chg vol P-E day hi day lo
99 95 97 A B B 19.55 RubyTues RI 18.90 +.65 -37 1540 24 18.90 18.49
43 95 6 E A C 86.00 Nortel Ntwk NT 17.40 -.79 -31 17m 24 18.75 17.22

Some interesting things to be aware of that contradict most professional portfolio managers are that the profitability of the company and stock price appreciation ("bananas") do not always go hand-in-hand. Return to Figure 1b. Note that while AHL Services (symbol: AHLS) has a rating of 99-95, ABR Services (symbol: ABRX) has a 98-29, meaning that while the company is among the very top in profitability, it is in the lowest third in its stock price appreciation activity. Conversely, ADAM Software (symbol: ADAM) has ratings of 45-83, meaning that while its corporate profitability is in the lower half of all companies, its stock price appreciation has been in the top fifth. On just the basis of these two indexes alone, which of these stocks is probably the least attractive to an investor? (Answer = ABRX because it has only a 29 for its banana rating.)

The more extensive publications such as the Standard and Poor Guide and ValueLine devote a half-page or more to each company explaining what the company does; the per share profits of the company over the years; a commentary; and - this is most important - a graph of the share-price over a period of several years. A steadily increasing share-price over the years are the "bananas" you are looking for. Let me say it again: this graph is the most important thing you will use. If it goes upwards only slightly, or remains level, or goes downwards, it is NOT the stock you want. If it goes up strongly, and over a long period of time, it should show momentum. It is a wave that you ought to consider catching and call it a 'candidate.'

(c) CANDIDATES. Developing a list of good candidates from your extensive publications is the name of the game. But first let's consider by what is meant by "good." You want candidates that show a performance rate at least as good as that of the Standard and Poor 500 Index (the "OEX"). Therefore you must discard any stocks that are in a habit of appreciating at a rate of 15% or less per year. For starters, let's shoot for three times this rate - 45%! Anything doing more laggardly will not be part of your list.

So you have finished the tedious work of going page by page through one of these extensive notebook publications (quicker way: see the "IBD-100" on weekends). Amazingly, you often find stocks that have steady upwards stock-price graphs. Of the few hundred that you identify in this way, you will then determine the rate of their individual appreciations. This is done by laying a ruler parallel to the stock-price graph and drawing a line. Such a line is drawn on Figure 2, and the calculations are along the right border of the page on Keane Inc. (KEA) from ValueLine�. How long does it take for this stock's price to double. Start at some low value on the line, and then note where it crosses a value twice as high. How long did it take in years to do this doubling? If one year, then the stock has been rising at a rate of 100%. If two years, then something around 40%. Keane actually doubled three times (i.e.: grew 8-fold) in about 2.2 years. Interestingly, as noted on the top left margin, Investors Business Daily rated this company a 97-97-A, a very good candidate with lots of bananas!

However, it is likely that you will come across data that is not presented "semi-logarithmically" (Log of prices versus linear time). If the prices are also given linearly, you can either make some crude guesses as to the exponentiality of the stock's price growth rate - something we chimps have little proficiency for, or you can replot the data semi-logarithmically as shown in Figure 3. (Reminder: these are shown only for illustrative purposes as they are very outdated! Just use the mathematical procedures on your NEWLY selected candidates. If you use a free computer service such as www.BigCharts.com, all the graphing and percentages are done for you!)

Moving on, Figure 4 shows the semi-log graphs of six stocks that have had long histories of yields huge crops of bananas.

To further facilitate your proficiency in reading these graphs, six others are included with additional comments (Fig. 5).

Of particular interest are those pertaining to Ericsson Telephone (ERICY), which is one of the world's major cell phone manufacturers. It went through a very severe setback, which, without some level of primate judgment, would have been excluded. Judgment suggested that we ignor most of its history before the beginning of 1998, which would mathematically result in a value of 37%/year and so diluted the company's more recent prowess that lasted about six months, that it would have been excluded from the list of candidates. But considering only the most recent surge that has lasted about six months, the 160% rate ranks it firmly as a candidate. Essentially, you will discard any stock that doesn't double in two years. Your list of candidates should now contain about 70 different companies. Don't ask me why investment advisors have such a hard time picking stocks that will exceed the S&P 500. By this time you should be seeing that good candidates virtually leap off the page at you!

Now you arrive at the point where a lot of your human judgment comes into play. You are going to choose five to ten from this list that make you feel both confident and comfortable. Some qualities that you will consider will be the steadiness or reliability of the stock price appreciation, whether or not the company contradicts your ethics, what you think the distant future holds for this company's products or services on the global scene, and the status of the market at this time. This last point offers outstanding potentials - especially if the overall market is depressed. Generally, individuals are more patient than is the "market". On Wall Street, obsessed traders, who live minute-by-minute, are in a panic whenever the market is down. They feel they must always be actively moving money around. You, on the other hand, are not so easily caught up in the frenzy because of your distance from computer terminals. You are better prepared psychologically to buy a promising candidate stock near the bottom of its price trough, and then wait for days or weeks to reap profits.

(d) How to start ACTUALLY PICKING real bananas (finding a brokerage). Getting a brokerage account established. How to start buying. These questions pose the second biggest hurdle after that of finding the "right" stocks in which to invest. First, remember that you are the one picking the stocks. Since you know that most broker/advisors do not have a stellar record (or else they would not have to work!), you do not want their advice anyway. Thus all you want is someone who is plugged in via their special computers to the exchanges to buy and sell shares for you. What you are looking for is the deepest discount broker you can find. These people are not going to be any more hurried or less polite that those of much higher priced regular brokerage houses. It is just that the pricey ones would take the time to chat about relative evaluations of various stocks. The discounters are only interested in electronically facilitating the transaction YOU want to perform. Shift through the financial newspapers and you will arrive at a list deep discounters such as Ameritrade�, Scottrade�, and e*trade�, as well as others with clever phone numbers such as 1-800-4-1-PRICE. And as if the person-to-person transaction fee is not low enough for you, they also usually offer touch-tone and web-site transactions at extremely low prices.

So you have decided to contact one of them to establish an account. Call them on their 800-number or through their web-site and ask the firm's New Accounts administrator for an application package for a "cash account". If you are interested in setting it up as an IRA or Roth-IRA, tell them to do so, AND to send you the forms for a self-directed IRA.

You will probably get a packet containing more forms than you need so don't be overwhelmed. You will not need to file for a "margin account", because, at this early date (and probably never), you are not interested in borrowing money from the brokerage so that you may buy stocks. You are not interested in dealing with "short [selling] accounts", through which you sell stocks before you buy them (a tricky way to make money on a falling market). You want a "long, cash account." Then you must decide whether or not you want the stock certificates to be mailed to you, or whether you'd prefer them to be held "on the street" (i.e.: held by the broker). If delivered to you, you have the opportunity admire them and frame them. However, if you eventually wish to sell them, you must deliver them to the selling broker within three days - a federal law! And that, you might deem, is an unnecessary bother and expense for express mail.

One of the many small items that you must check on the application will instruct the firm what they are to do with residual monies in your account. Such monies result from incoming dividends if the stocks are held on the street, and from sales of stocks in the future. Although the stocks might be held on the street, the cash does not. It can either be sent by check to you, or you might check the box stating that the cash is to be placed in an interest-bearing money-market account. Again, this money-market account is much to your benefit because if you bail out of one stock and then need a few days to think about which new stock to buy, the money is already there at the brokerage. Had the cash proceeds of the sale been mailed to you, you'd just have to turn around and send them a check by express mail again. More unnecessary future expense.

Most firms will require that, along with your application, you send them some money to fund your new account. Often the minimum "starter" is of the order of $2,000 or so. This amount usually doesn't need to be maintained once the account has become activated by a stock purchase. It is suggested that you send them a little more than the amount you intend to use to buy the stock you have your eye on.

After a few days, a call to the accounts division of your broker will reveal that your application and funds have been received, and that it is ready for transactions.

YOUR FIRST BUY ORDER. Perhaps your first order ought to be made at the slightly more expensive person-to-person rate, because you can ask for guidance if and when the new vocabulary gets you stuck. You dial the number, follow all the touch-tone directives, and tell the receptionist that you wish to place a trade. Usually a very hurried broker answers. Usually by telling this frantic and jargon-prone person that you are new at this - your first time even! - will bring out the more friendly and helpful person in the broker. After identifying him or herself, and the usual opening questions to establish your identity - SSN, mother's maiden name, etc., here follows a typical conversation if the broker insists on using opaque jargon.

Broker:

What is it that you want?

You:

I'd like to buy 50 shares of Ecstasy Corp.

Broker (reiterating):

You wish to buy 50 Ecstasy - symbol XTCY, correct?

You:

Yes."

Broker:

Long or margin?

You:

I'm paying cash.

Broker:

Okay, yes, it is available in your money-market account...
"Do you wish to place a limit order?"

You:

No, I'll take it at the market."

Broker [reiterates the whole transaction for your endorsement]:

The last transaction was 34.15, and the bid at this moment is 34.22. Okay?"

You:

Yes, let's do it.

Broker:

Let me see if I can help you with a better price."
[You hear clicking in the background as the order is keyed into the computer.]
"Here it goes.
[A few seconds elapse.]
Okay -, you just bought 50 XTCY at 34.07. The commission is $9

You:

Thank you very much. Good bye!

Let's translate a few of the terms in the above phone conversation.

The broker will always check the identity of the stock you wish to trade by its ticker symbols. Many companies have similar sounding names, but none have identical symbols. For example, there is Loews and there is Lowes. The first deals with tobacco and the latter with home improvement products. Their very different symbols are LTR and LOW, respectively. It is thus a very good idea for you to know the symbols before you make contact with the broker. While the symbols are not often included in the fine print of ordinary newspapers, they are in daily business newspapers.

When asked whether you want to buy it "long" or "short", you said 'cash' because cash equals 'long,' and you answered the question. Mysteriously at first, were you to say that you wanted to by 'short,' you would be saying that you already sold it (sold it before buying it - a clever way to make money in a falling market!). At another point the broker asks you whether you want to buy "at the market" or place a "limit order." "At the market" means at the next transaction no matter what the price. While this might sound dangerously like a signed blank check, it is not because of the way stocks are traded under the rules of the Federal Security and Exchange Commission, SEC. It just means that you want it "right now" at the best price. This 'best price' is usually assured since you have a small order for that stock, while some other trader such as an insurance company might be trying to buy thousands of shares. You can bet that the insurance company is watching it's transaction closely, and your little order's price will de facto usually be closely dictated by theirs.

On the other hand, perhaps you wish to take tighter control, and place a 'limit order.' With this you will place price limits on your order. One type of limit goes like this: "I won't buy higher than …" or "I won't sell lower than …" While these might usually be intelligent, let's look at a case of when a stock is rapidly rising. It might be $25 at the last sale, and $24 just before that. You decide to place a limit of $26 or less for your buy. Suddenly, this soaring stock is no longer being traded for anything less than $28, and an hour later it is $35. Sorry, you missed out, while those placing market orders might have gotten it at $28.50.

Another type of limit order is that you instruct the broker to sell a soaring stock when it gets to a certain price above that which it is now. Similarly, you can place a sell order at a price lower than the current price. The latter might be thought of as a sort of insurance in case a soaring stock begins slipping. The limit price can be rachetted upwards below the current price as the day or weeks go on. But that also can be dangerous for stocks that are highly volatile - those that make big jumps up and down between trades. It just might happen that a trade is made that is much below your sell limit, and your stock is triggered for sale. It's gone. The next trade is $3 above that limit, and the stock continues upwards. You've unintentionally bailed out at the bottom of a canyon! It's usually better for a human - you - to watch the market rather than relay on a computer that, while quick, has no wisdom and judgment for taking in extenuating circumstances.

(e) How to maintain your portfolio and list of candidates.

The more volatility your portfolio's stocks are, the more closely you should keep track of them. You might, for example, keep track of them at the end of each business day. Furthermore, you should track some of their competitors, because if your stocks go down sharply, and the competitors have not dropped, then there is something for you to worry seriously about since your company must have run into a problem peculiar to itself and not to the industry as a whole. On the other hand, if your stock fell along with those of its competitors, there is much less to worry about since stocks are notorious sheep - following any leader, until more rational heads take charge. Or maybe the gorillas have caused a commotion. Then all but the leader will usually rise back to previous values. As for the degree of volatility to be expected, many of the high-tech stocks lurch up and down by more than 5% a day. To a novice, this can raise the blood pressure a lot. But as time goes on and one becomes inured, one gains a sense that in a good industry what goes down must also come up. You might also set for yourself some sort of bail-out limit such as if the stock drops 8% from its high, you sell because that is an indication that either it or its industry has gone out of vogue. Vogue?! Yes! Remember that neither stocks nor borkers are rational. Maintaining the list of candidates. There are a number of sources that might give you leads as to "good" candidates. However, remember that those sources are little more than market managers of dubious credibility (remember: otherwise they'd be extremely rich people!). Nevertheless, those sources do have computers far more sophisticated than what you have. These sources track the market continuously, and can provide the abovementioned percentiles of profits and appreciation. Along with those sources, you should also subscribe to one or two news magazines, because it is to the world and its future that your candidates must play. It is important for you to keep abreast of world sentiments, new ways of doing things, and the statements of world leaders who are trying to guide their nations into the coming years. It is from the news that one directly sees the expanding economies of previously backward parts of the world. And it is into these that many prosaic companies are expanding, reaping significant profits.

When to BUY and when to SELL. Andrew Carnegie is once supposed to have said something to this effect although it sounded more like transmutation of species: "Buy sheep and sell deer." Yet this hoped for truism is not very helpful. So what might one do to bring this about? There are a number of guidelines which you might follow. Any self-respecting chimpanzee will only move to a new forest of banana trees if, and only if, bananas are growing there. No reasoning chimp would move to a newly planted grove to await the crop no matter how abundance all indicators are. No bananas right now, move on and find a grove that is producing.

Perhaps the chimps ought to take up surfing: when your wave is dying, jump to the next rising wave and ride that until it begins to falter. The same with any particular stock: jump on one that is rising fast, and hold it until it begins to falter. Don't swim around in the sea waiting for the "big one." Waiting for the crop to begin to grow, or the "big one" to come along is non-productive. Perhaps the dormant stock will wake up in the coming year or so, but in the meantime keep your money active and invested in another stock that is on the way up. If and when the dormant one awakes, perhaps then you will deem it worthy of buying and holding for awhile.

All companies will eventually falter due to growing archaicness of their technology. It is true what most investment counsellors tell you: once a stock has dropped 8 to 10% below its high, it should be sold - quickly!

What if the stock you have just purchased was bought close to its high and then falters? You will lose some money. But sell before it goes lower, and switch to another stock. That one also might falter, and force you to move to a third stock. Soon you ought to land on one that will not falter, and will double or triple in the next year or so. The gain you will make on this one will more than offset the losses obtained by the previous duds. Once you get a feel for the market, you will likely pick a really good one perhaps 30% of the time. So you lose 10% and another 10% and then gain 100%. Not too many people will think an 80% gain shabby! And, if that stock again doubles in the next year, you will have made 280% on top of your initial investment in two years. Your initial losses are now becoming insignificant.

To IRA or not to IRA. IRA's were invented for private shopkeepers who had no other retirement plan opportunities. You, on the other hand, might be an employee who has a corporate retirement plan. Perhaps that plan will eventually result in your getting monthly pension checks, in addition to Social Security payments. If this is the case, then you must think through your situation with great care, because if you pension plus Social Security add up to approximately your pre-retirement pay, any cashouts of IRA funds will only move you into a higher tax bracket. If that is the case, then it might have been better for you to have carried an ordinary cash account, and paid taxes on your capital gains as the profits came in, and you had a lower tax bracket in your younger days.

HOWEVER, the Roth IRA is different because whatever you earn after keeping money in it for 5 or more years is exempt from taxes. That is a really sweet grove of bananas!

THE END

You have now most of what you need to know to make at least 50% per year on the stock market. A few years of experience should see you looking at even bigger bunches of bananas. Good luck as you�

GO FOR THE BANANAS!

RETURN TO BEGINNING

52-week
High	Low	Stock	Yield	Last	Chg
32	21	AAR s	1.30	27	+1
37	19	ABM	1.70	28	0

E			%Annl	Qtr	Qtr	Ann.													Mgmt
P	Rel	Acc	Ern.	EPS	Sales	Ern.				Closing		Vol.%	Vol.	Float	52-wk		Day's Price		%
S	Str	Dis.	Gro.	% Chg	% Chg	Est.	PE	Stock & Symbol		Price	Chg	Chg.	100's	(mil)	High	Low	High	Low	Own
96	29	B	+57	+45	+39	0.55	40	ABR Info Svc	ABRX	23	+1	+148	6514	25	33	20	23	23	10
45	83	D	...	...	+40	0.14	28	ADAM Sftwr	ADAM	3	0	-92	44	2.5	6	1	3	3	25
99	95	A	+137	+62	+40	0.80	55	AHL Services	AHLS	33	0	-72	87	14	38	13	34	34	63

SS®	corp profits	share apprec	grp strength	sales, profit marg	accum distrib	yr hi	name	symbol	last	chg	vol%chg	vol	P-E	day hi	day lo
99	95	97	A	B	B	19.55	RubyTues	RI	18.90	+.65	-37	1540	24	18.90	18.49
43	95	6	E	A	C	86.00	Nortel Ntwk	NT	17.40	-.79	-31	17m	24	18.75	17.22