Let's first define insanity. It is doing the same thing over and over and expecting a different result. And that is what most investors do and they can't understand why they are not able to make money in the stock market. Do these investors need a psychiatrist, a psychologist, a talk with their minister or none of the above? I know, you think they should talk to their broker or their financial planner. Believe me, folks, these two are part of the problem and not the solution. If they knew the answers everyone would be rich....

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Sometime in the third quarter of 1997, someone told me that I should play the stock market. Knowing nothing about the stock market, I turned to some colleagues to seem to know a lot about it. Following their advice, I opened an account with a stock brokerage company. Well, up to that point it was simple enough. But what should do I do next? So I go to my knowledgeable colleague of mine again. But now he says nothing. Hmm... The very person who was interested in opening an account for me, is completely indifferent now....

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Everything you invest in has risk so you want to do your research before you put your money on the line. For example, when McDonald's opens a new restaurant (please, don't call it a hamburger joint) they will investigate as many of the relevant facts as possible. The demographics of the area - age and income of those within a certain driving distance. Who, where and how much is local competition? The number of cars driving by each day will be counted and will be tallied at one-hour increments. Local labor costs must be figured in....

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Humpty Dumpty had a great fall and all the King's horsemen could not put Humpty Dumpty back together again. The Stock Market has had a great fall and all the brokers, CEOs, analysts and politicians have not been able to get it back up again. Oh, it will go up again, but if history has a way of repeating it will be a long time before we see it at "even". From 1920 to the present there have been 3 major bull markets lasting close to 16 years. Unfortunately, each has been followed by a bear market of about the same length of time....

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Now where have I heard that before? I know. It was my broker. So I took his advice and bought some of the stocks he recommended. I am still waiting for the 'sell high' part of the equation. Everything he touted went up for a while and now it is lower than when I bought it. It is so low I can't bring myself to sell it. My capital has shrunk about 60% from where I started. That's a lot of money to me because it took a long time to save it. What happened? The brokerage company that your broker works for puts out recommendations almost very week for various companies listed on the major stock exchanges....

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In today's volatile and confusing stock markets everyone is searching for a guru who knows which way the market is going and when. Ask any economist and he will have an answer. Ask 2 economists and you will have 2 answers. Ask 3 economists - ad infinitum. At the Federal Reserve Board we have Mr. Greenspan and all his economist Governors talking at each other about how to best micromanage the U. S. economy. Notice I said talking at and not talking with. Each one of them thinks he has the Holy Grail and knows exactly what to do....

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Mutual funds were moderately successful in creating a presence in the stock market until the advent of the investment retirement account and in particular the 401(k). Corporate insiders persuaded the federal government to allow for the 401(k) in lieu of offering employees the traditional pension. When this happened the employees lost the protection of a specialized financial manager who could manage both the return and the risk of the retirement money of the worker. This forced employees who are supposed to specialize in their work area into the field financial management with no training whatsoever....

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Mutual funds were created with the idea that one person can specialize and manage the investments of a large pool of money from multiple investors. Before the great depression mutual funds were called investment pools and mutual fund managers were called pool operators. The bull market of the 1920's created a time of economic prosperity akin to the 1990s. The conceptualization of the pyramid scheme occurred at this time as well. Ironically, the pyramid scheme had been debunked in 1920 when Charles Ponzi was arrested for offering investors unsustainable returns on postal certificates....

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Where is the beef? Or maybe it should be where is the bull? Market, that is? The chief investment strategists and analysts of the major brokerage houses have been promising us a new bull market. So far the bull hasn't come in from the distant pasture. Some of the cows have been wandering back. I see stocks and mutual funds with names like Small Cap Value, Real Estate, Leisure Group and Gold, but all the rest of the herd are not coming to the barn. If you look at the herd, as scattered as they are, they don't seem to want to participate in any kind of a bull move....

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Picking a beaten-down stock requires a different kind of selection process. Normally, most companies beaten down this far have no earnings to speak of. Of course, if the company continues to earn money, one can apply normal valuation techniques. By that measure, many of these stocks appear outrageously undervalued: an indication of great buys. But this may also be a red flag that things are "too good to be true". Another criteria we look at focuses on the breakup value of the company and/or the ability of the company to keep operating in troubled times....

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It is commonly reported that the stock market averages about 10% per year return over the long term (decades). So the investor that buys and holds a diversified portfolio of stocks or mutual funds is led to believe that their portfolio will grow by 10% per year on average. You know the mantra, “Not to worry, I’m a long term investor. On average, I’m earning 10% per year.” There is only one problem here. The facts, as you will see in a moment, state otherwise. Let’s assume for a moment that an investor could match the stock market average return of 10% per year (not likely, by the way, as most professionals fall short of this goal)....

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