Could you please check out the website www.tradersaccounting.com . What do you think about putting our money in an LLC? Establishing a legal entity or Corporation where we can deduct expenses? Is this LLC more beneficial to day trading (which I don’t want to do) or can we use it for longer term trading?

Trader tax reporting is done on Schedule C and Form 4797. But you can only do this if you pass the profit-making intent test and have sufficient trades throughout the year. If you can’t do so IRS hobby-loss rules apple and this sucks because you can only write off a small amount of your losses and none of your expenses.

If you can prove to the IRS that you are trading as a business then you can create an LLC or C corp and show your travel expenses such as going to the 2010 Investment U Conference as a business expense, create retirement plans, etc.

http://www.oxfonline.com/IU/IUConf0809.html

BUT most investors can’t pass the profit-making intent test and the best book out there on the subject is Bob Green’s The Trader Tax Guide:

http://www.amazon.com/Tax-Guide-Traders-Robert-Green/dp/0071441395/ref=sr_1_1?ie=UTF8&s=books&qid=1261069667&sr=8-1

GET this book and read it cover to cover to educate yourself in this area. Bob is a friend of mine and the most qualified out there teaching the public in this arena. He has great webinars as well for free to get you educated as to how to become a professional trader who trades for a living and reaps the IRS tax benefits. Bob’s the only guy out there you should learn from in this arena.

My second question is can you go a little bit more into how to choose LEAP puts to protect the Gone Fishin Portfolio before bear market down-turns. How to choose the strike price (deep in the money?) Or the expiration date. Wouldn’t it be adequate to buy puts on the S&P 500 index and that would be enough OR do you buy puts for each stock index fund? Europe, Emerging Markets, Pacific Index, Small Cap and Total Stock Market Index?

I Thank you for the opportunity to learn from you!

You could either buy puts on the S&P 500 index ETF or each individual stock index fund ETF. Remember puts ONLY trade on the ETF not an indexed mutual fund. The trick to doing this is to watch the weekly chart for technical weakness. This means you’re looking back many years. My favorite technical indicator is Gecko Software’s BnB indicator. But this will cost you a subscription to their high finance platform and the BnB plugin.

http://www.trackntrade.com/trials/stocks.htm

So if you’re a small

investor it probably isn’t worth the bother.

If you are going to do this don’t forget that I don’t want you risking more than 6% of your portfolio in options!

Make sure your always understand the risks of derivatives; options, futures, or forex…

http://www.tradementors.com/disclaimer.htm

This is an advanced strategy that should only be attempted if you really understand what you’re doing.

WARNING: Also, remember that the GFP is a SET IT AND FORGET IT PORTFOLIO designed to have thing coming up when others are going down so by actively hedging you may inadvertently defeat the purpose of the GFP.

I currently participate in my company’s General Employee Stock Purchase Plan. Every pay period 10% of my pay is used to purchase shares of company stock at a 15% discount. I also participate in a 401K plan and have reallocated the distributions to match the core passive portfolio as closely as I can. In your opinion, is the GESPP a wise investment?

My company is a DOW 100 company.

I am interested in purchasing ADR’s as mentioned in your Global Investing lesson of the course. I am unsure as to whether this investment falls under the set-it-and-forget-it strategy or whether we are to place trailing stops and treat this as a common stock transaction. If we are to constantly monitor these, what sell criteria should we employ?

I don’t give specific investing advice and can’t speak specifically on your GESPP. BUT I can tell you that we are in a rising stock market and anytime you can buy a great DOW 100 stock at a significant discount with tax shelter that the investor is getting a great deal!

As far as ADRs you definitely DO NOT set and forget them. You trail stops and can also use great technical analysis tools like the BnB indicator above.

http://www.trackntrade.com/trials/stocks.htm

Hands down the BEST source of ADR information is Alex Green’s New Frontier Trader which you can subscribe to at:

http://www.newfrontiertrader.com/

Alex not only recommends ADRs in that newsletter but also tells you where to set stops.

What pre-announce for the earning, merging/acquistion, stock split, & dividend will influence short, intermediate, and long term strategy to enter and exit for profit?

Where is the best source to get this information?

The best source for this kind of information is Louis Basanese’s Takeover Trader Newsletter:

http://www.oxfonline.com/TOT/TOT0909gen.html?pub=TOT&code=WTOTK906

Lou is awesome at finding takeover rumors to buy into. Just remember that I don’t recommend more than 30% into single stock strategies. The remaining 70% of your savings ear tagged for stocks should be in a core passive index fund strategy of which the GFP is the best example!

I would like to thank you again for answering my questions in the last conference call.

Also again, I was not able to attend it live due to the time difference between the US East Coast and my current location in the middle east, but I read the transcript and listened to the record several times.

btw… Your materials have still not arrived and I am starting to worry where they are. Maybe someone of the IU staff could look into this? Thanx.

Again, thank you for specifying your answers from the last Conference Call. It really was very interesting to listen to/read your take on my questions and it also was very helpful.

And since you offered it in the conference call I would really like to take you up on your offer to forward some informations about the possibilities in the european stock markets to me/us.

Especially recommendations about sources for informations in these markets would be very much appreciated, but I will definitely take whatever informations you can dig up.

I have an account with a very good discount-broker here in austria, but I am not sure how

much of the informations, I would according to your course need, I can acquire through their system ( …of course I would need to have your course first… ), but I will take a look at the idea to convert my account into USD. That might work…

Of course I also trade european stocks on occasion, so maybe I will just create a second account (in USD) for the trades in US. Thanks for this idea and the one about ADR’s.

Your tips are really a tremendous help.

Now… I really enjoyed your explanations about the situation with the USD (vs. EUR), but of course, I have a few follow-up questions if you don’t mind.

Your insight as a professional in this subject was very educational and interesting, especially your analysis about the actual forces behind currency movements and those forces are absolutely comprehensible as you laid them out for me/us.

Well, I do not want to turn this calls into discussions about currencies, but I was wondering if could clear some contradictions up for me/us. (These contradictions come from other advisors or specialists in comparison to your 3 major forces of currency movements and not from within your explanations…)

I am very interested in commodities (mostly Gold and such…) and listen therefore to some specialists in this field and I think that they have some very good arguments for their theories too. (I attached some files to this mail for clarification, so you would understand where I get my other informations from…)

Again, your explanations of the 3 major forces (and the Big Mac Index) are very clear and logical to me, but why don’t some other factors influence currencies?

I find it hard to believe that if a country has a terrible monetary policy it would not influence their currency…

Ok, I see why the unemployment rate might not have a very big impact, but what about

the low interest rates, the credit crisis and thus the bail-out policy, the national and consumer debt… which I think are all straining the USD and essentially devaluate it.

And most importantly of course the monetary policy of the fed!

Since one year ago the monetary base has about doubled and I don’t see how this could not have a tremendous influence on the value of the USD.

(see graphic: USD – monetary base.jpg)

Quotes from Jeff Clark – Casey Research:

“The U.S. government has printed so much money that the monetary base has swelled

from $800 billion to $1.7 trillion. This is the largest expansion in history and a staggering

devaluation of the dollar. It means that the U.S. government has created 2.1.dollars for

every 1 dollar there was in America one year ago.”

Jeff Clark

Quotes from the attached OI Report by Byron King:

“The problem is, money can’t escape the natural law of supply and demand. When there’s to much of it floating around, each dollar is worth that much less relative to the whole.”

Byron King

“There is no means of avoiding the final collapse of a boom brought about by credit expansion.

The alternative is only whether the crisis should come sooner as a result of the voluntary

abandonment of further credit expansion… or later as a final and total catastrophe of the

currency system involved.”

Ludwig von Mises

Now on the other hand you say:

“I see no valid argument for an ongoing collapsing dollar. This is especially so in my

contrarian view since all I hear is sensationalist garbage about the collapsing dollar

that “experts” say MUST continue collapsing because of fiscal deficits, and so on that

are not directly related to currency values!”

Scott Brown, PhD

So, who’s right? You may see how these contradictions are a bit problematic for me.

Are the facts right? Are they interpreted incorrectly? Are they just wrong as you stated

about the “sensationalist garbage”?

In this light your Prognosis/Speculation about the future of the EUR/USD is also very

interesting. You are convinced that the current (short term) trend of the EUR/USD will

soon turn around and start strengthening (contrarian view)…

Yes, the 6-7 year cycle would support this theory, but with the current monetary situation

in the US (doubled monetary base & Co.) are you sure this cycle will hold?

After all, the current situation seems to be very unique if you look back a few decades…

Sure, I am just an amateur and it is possible I missed something or don’t quite understand

something here yet, but that’s why I’m asking you. So, here I am again with a very big order, but I want to really understand this situation and not just skim the surface. Please, if you can, try to explain the situation one more time and

give me your opinion on those other arguments. Thank you very much.

Your help and informations are truly appreciated.

P.S.:

Your introduction into the VIX and the BNB was also VERY interesting

and therefore I have one question concerning the BNB Indicator:

Where can one find this indicator? Which services provide it?

Is it available only through TNT or also through anyone else?

P.P.S: – Administrative stuff…

If you need to, you can of course edit/rephrase my question for your blackboard,

since it is a bit long… again. But try to keep the core questions intact. Thanks.

…

And one more question:

The Oxford Club has a “Global Wealth Preservation Seminar” planned for

November 2010 in Europe/Austria… Do plan to / think about attending?

…

And another one:

Please let me know immediately once you secured that special offer for the

TNT-BNB service. I am definitely interested in that offer!

First of all if you have a discount brokerage in Europe use it for information on potential stocks using the IU course as a guide. They can give you better information than I can since they are in the European marketplace.

Second send an email to Joyce at Investment U to find out where the heck that course is and if it’s lost get another shipped out to you ASAP.

Third, don’t worry about currencies… I LOVE discussing currencies!

The main thing you want to remember is that currencies change value due to fluctuations in supply and demand. Some factors are direct like the Big Mac Index (Purchasing Power Parity) or changes in relative imports and exports between countries (trend on the current account). Other factors are indirect like unemployment and fiscal budgets. Indirect factors have not been shown to have a statiscally significant effect on changes in Forex rates.

However the people quoting all of the stuff in your questions have never studied currencies at the Ph.D. level as I have and have never done a serious review of the extant research literature in international monetary theory. Not only do they not know the research but they also know you don’t know. So they can blow smoke up your skirt and you wind up completely confused.

When a currency is truly engaged in a “free float” monetary policy is of no use and we see this empirically en top level economic studies in international monetary theory where very few things offer up statistical significance.

However, when hamburgers are EXTREMELY cheap or expensive on one side of a Forex trading pair the long term trend over many years shifts. Same goes with the trend on the current account.

The best way to see what is really going on is to look at a WEEKLY or MONTHLY chart and then drill down to the DAILY chart. For instance notice in this monthly chart how the long term uptrend from 2000 was harshly broken in 2008.

http://www.trackntrade.com/trials/forex.htm

http://www.trackntrade.com/trials/forex.htm

Then notice how we get firm buy and sell signals on the daily chart that are very useful because the EUR/USD forex pair trends very nicely. Right now I can firmly say that the EUR is weakening against the dollar since the daily chart is in a clear downtrend.

It doesn’t matter what the United States is doing in fiscal or monetary policy, nor does it matter what’s going on with unemployment or any other factor thought to have some tenuous connection to exchange rates.

The clear and present fact as you can see on the daily chart is that the EUR is weakening to the USD. That’s the hardest, clearest, and truest fact…so pay attention to the way the trend changes on the EUR/USD daily chart and you’ll be able to make at least one absolutely certain comment!

Is it because of unemployment…who knows?! Is it because of US monetary policy…who knows?! And perhaps the most important is that if you’re trying to profit on these changes to a very real extent … who cares?! It’s fun to sound smart at cocktail parties with deep intellectual discussions of how “money can’t escape the natural law of supply and demand. When there’s to much of it floating around, each dollar is worth that much less relative to the whole” or if “here is no means of avoiding the final collapse of a boom brought about by credit expansion” but in the end it is a bunch of nonsense adults use when they play the game of trying to look smart and make others look dumb.

The only thing I really know is that two weeks ago the trend on the EUR/USD when from up to down! So now the EUR is weakening to the USD and that is a fact!

Someday in the future the BnB will turn to an up arrow with a confirming upward shift in trend and then I will simple say, “wow, the EUR is now strengthening to the USD!” Because the only hard fact you have is in the how the price actuall moves not what other think it should do. Ironically the price of foreign exchange never cares about anybody’s opinion!

And, I wouldn’t care if Ludwig von Mises or Byron King were to call me “Doctor Dumbo” at their cocktail parties if I were to refuse to engage in their pseudo-intellectual rubbish.

Incidentally, since you seem very interested in Forex I have a free mini course you can subscribe to at:

http://www.futuresforexandoptions.com/

Let me know if I missed any parts of your question. I really enjoy your questions and your European perspective!

Ps. I don’t think I will be able to make it to the “Global Wealth Preservation Seminar” planned for

November 2010 in Europe/Austria.

I have a few questions relating to your “Share BuyBack Investing Strategy” from Lesson 2 – Value Investing. First of all I was able to find a site that had a list of companies that are either announcing a buyback plan, or they are in the process of “adds to prior plan” or over a 1 or 2 year period. Do suggest any guidelines we must stick to here? For example do they have to be recently announced, or is it still alright if they are in a process of buybacks? How far back in time can we go? You say to then determine management’s motivation as either “undervaluation” or “best use of money”. Where exactly do we find this information? Is it mentioned somewhere in their guidance report? Next you want us to get the book to market ratios. Could you please demonstrate an example of this on a stock so I can be sure of the procedure? And finally you mention to sort prospects by company size, the smaller the better, but no less than 300 million market cap. What would be your recommended ceiling, the highest market cap we could look at? This is a great course, thank you very much, it’s a bit of a challenge, so I hope you are able to clear up these areas of confusion for me. Many thanks, Kaaren. Corfu, Greece.

Hi Kaaren, the best place to get information on share buybacks once you find the share buyback programs and associated stock symbol is at

https://www.lexisnexis.com/start/signin?service=lexis&contractURL=https://w3.lexis.com/research2/authResource.do&key=_c2AE46BC8-EDCE-0EAB-3403-7BAAF6E8982F_k17760B97-CA3B-55F6-5909-71027E4C363D&event=form

Remember you want to identify newsreleases where the excetives feel:

1) the stock is undervalued and

2) the repurchase is the best use of the money.

Of course, you’ll often find the same information with a google.com search so always try their first.

Then you can find the rest of the financials at http://finance.yahoo.com/ and http://www.marketwatch.com/ by plugging in the stock symbol.

And, yes this is definitely detective work but if single stock investing were easy the fund managers would be beating the averages but the majority don’t! On the other hand if Warren Buffet himself says you can do it if you apply yourself…then you can!

I am pleased you like the course… I wrote it to help!

Scott: My question is: If the dollar begins to gain some strength and the Feds raise interest rates 1% or 1.5% in the first quarter of 2010, what should the best investments be in and what to get out of to have your money grow for the next five years …stocks, bonds, money market or funds or a combination of all and what percentage?

The general rule is that when interest rates move upward bonds yields drop and after severe stock market crashes it’s best to buy stocks and commodities move with a mind of their own. The Gone Fishing Portfolio is designed to counterbalance these three forces such that you can set up the portfolio and forget it. That’s why I recommend 70% in the Gone Fishing Portfolio.

After the crash of 1987 Warren Buffet bought extensively for three years up to 1990. He is buying extensively now. Stocks are a very wise approach in this current undervalued market looking out for five years I would expect stellar returns to both the GFP and individual stock investing strategies.

Dr. Brown, are any of these “investment” systems, or programs that are being promoted by the Oxford Club website worth their fees? There are so many that are being promoted that it could be confusing and frustrating. Their ad copy of course, are all tantalizing. Do we just ignore them?

I love this question…you’ve got me sitting here laughing out loud.

Believe me when I tell you, “I KNOW!” I can tell you that it can be overwhelming. However, this semester I performed an academic study with Prof. Eric Powers (Ph.D. finance, MIT) and Prof José Cao (Ph.D. economics, Cornell) to see if the newsletters really do pack a punch for the buck.

We looked at the Insider Alert by Alex Green. Honestly, my hypothesis was that Alex couldn’t beat the market. Boy was I WRONG…

We found average returns over 28% jaw dropping percentage points!

However, you have to use financial wisdom in deciding if you can afford these premium services. If you have a small portfolio under say $30,000 dollars you will find it hard to recoup the cost. If on the other hand you have a large portfolio over $100,000 then I recommend the VIP lifetime Oxford Club membership because you get all the newsletter in the Oxford Club for life for one single fee…as Kevin Long in membership services but it’s something like $5,000 or $6,000 which is actually a phenomenal deal if you have a large enough portfolio you are managing yourself.

Also, I STRONGLY RECOMMEND attending the 2010 Investment U conference because you WILL meet wealth investors in the Oxford Club who ARE extracting high returns with our newsletters. Through those friendships you can get a clear idea of how to proceed from other Oxford Club members.

Here’s the link for the conference:

http://www.investmentu.com/investment-research/CIU0310/IUconf1109.html?pub=CIU0310&promocode=F300L401

Have a VERY Merry Christmas and I will catch up with everybody in January of next year!

-Scott

Last month you said if the vix goes over 40 – get out of the market.

1) Does that apply to the positions in the gone fishing portfolio (GFP) as

well as single stocks?

2) For the single stocks, does that mean sell immediately at market –

or would it still be OK to watch your trailing stops and not sell if

the trailing stop limit for an individual stock is not passed?

The first sign of danger is always a break in the long term trend. This is because the VIX doesn’t always give you fair warning. You can use a simple technical tool like a moving average cross over.

Alternatively you can use a more advanced tool like Gecko Software’s Bulls n’ Bears (BNB).

The BNB indicator is AMAZINGLY accurate at tops and bottoms on the weekly chart over a number of years. The weekly chart widens your vision so that you can see the big picture more clearly.

Notice in the chart below how the BNB clearly signals a top where you would have covered but the VIX was still low in 2007 on the break?

So to REALLY use the VIX you need to incorporate a long term trend-line where…

1. If the VIX is over 40 and the market is still in a strong uptrend as both were in 1999 then you get out or protect with long puts. In this case you would leave your GFP portfolio intact but would protect with a corresponding number of puts all of your GFP equity funds or ETFS.
2. If the market has clearly broken into a downtrend and the VIX is high wait on the sidelines until the market breaks its strong down trend.
3. To add real predictive power incorporate the BNB technical indicator which you can get at http://www.trackntrade.com/futures/bnb/ paying very close attention to the S&P 500 contract.

For single stocks you would trail stops tighten them up a fair bit if you see a break in the major trend on the long term weekly chart. Please let me know if the chart and this explanation helps more. The initial explanation I gave of the VIX is that it signals tops or signals bottoms when over 40. I didn’t expect so many questions concerning the VIX and didn’t give you the trick of incorporating a trend line on the weekly chart for a break in the major nor the BNB signal.

If you really want to understand the VIX you need to read Prof. Robert Whaley’s article. You can get it at www.TradeMentors.com

Again, please let me know if this helps,

-Scott

What is the most effective way (site) to locate high dividend stocks?

Just by chance, I located IRL, paying around 40%.

How can I determine if that is a safe stock to hold. Would a high dividend stock, such as this, be a good year in, year out stock to hold, and reinvest, as long as the dividends remain high?

There is a wide fluctuation in the IRL price; Should I apply a Trailing Stop if the dividends are that high?

Dividend stocks are no magic bullets. You also have to have underlying price increases. IRL looks great at first blush but when you pull up the chart you’ll see it’s in a strong downtrend. If you would have bought on the BNB up arrow and sold on the break of the trend or down arrow you would have done nicely…maybe.

I say maybe because the volume is very low in this thinly traded stock.

The best place in my opinion to search out dividend paying stocks is http://www.dogsofthedow.com/

Here you have high dividend paying stocks with companies trading on serious volume. Then you can look for stocks with the highest dividend yield. Same goes here. Look for a BNB up arrow as a buy signal. Sell when the stocks upward trend breaks down and look for another good dividend yielding stock about to enter a new up-cycle.

Again, to do this you will need the BNB indicator and the TNT High Finance platform at

http://www.trackntrade.com/hf/stocks/index.html

Take a look at GE. The stock is now entering a new uptrend as you can see in the BNB indicator. So you would buy this stock and wait for a BNB down arrow.

Now look at Bank of America. It is in a clear downtrend so you would NOT buy it. You would simply wait for a new up arrow to buy. You could make great returns doing nothing but trading the Dogs of the Dow this way! Notice how both of these stocks have VERY high volume.

Dear Investment U Staff / Dr. Brown,

…I would like to ask you to specify your answer regarding the possibilities to apply

your course for int. stock-markets. e.g.: Do you mention in your course specific sources for information for US stocks which one would have to adapt for int./European stocks? Or how about the probably different protocols for IPO’s and to identify the “Hot-IPO’s” from them? Different ways to identify the various stock types according to your classifications (momentum stocks, mispriced sec., takeover candidates, etc. ?)

In general how to find the proper information for these different markets and every other

difference that comes to your mind.

The problem with international stock markets is that there is not as much information on stocks on the web. You will have to very specifically focus in certain exchanges. For instance if your are earning money in EUR you will have to focus on the European exchanges I mentioned before, Frankfurt, Paris, etc…

Avoid stocks trading on any of the PIGS exchanges (Portugal, Spain, Italy, and Greece). Due to high corruption. If you make money is GBP then you would focus on stocks on the London Stock Exchange.

The good news is that the very large banks in Europe are universal. This means that they are also stock brokerages. You can open your account with one of the stronger European banks to get access to their information systems to find the factors I teach in the course.

Again, the problem is that other countries do not have as stringent reporting requirements in the US so you have to dig deeper if you’re overseas. The good new again is that the large universal banks should be able to help you get all the information you learn about in the course.

Furthermore I’m interested in your comments/analysis about the US Dollar.

Examining the chart of the EUR/USD exchange rate I agree that there seems to be a cycle of about 6 to 7 years underlying it. (1995-2001: falling=strengthening and 2002-2008: rising=weakening)

Also we might therefore be at the beginning of another strengthening cycle, but for an e.g. european investor that might be a problem in the long run if one buys an US stock now and holds on to it for a while. If you buy at a rate of e.g. 1.4 and want to sell later with a stronger US$ at e.g. 1.1 you might look at a (bigger) loss or at least at a reduced profit due to the fallen exchange rate.

But we will have to see if this trend really develops like this, since there are many issues that could keep the US$ from actually strengthening. (see below)

On the other hand, if the exchange rates between the US$ and the Euro keep climbing like they did for the past year, which would reflect a further weakening US$, as seen here:

http://www.bloomberg.com/apps/cbuilder?ticker1=DXY%3AIND , it would be in favor of european investors, but would change the mentioned 7-year cycle.

So, if the US$ actually manages to strengthen it will be good for the US but not so good for any int./european investor, but if the US$ keeps rising (=weakening) like for the past year it will be in favor of int./european investors but not so good for the US.

Which I actually believe is a real possibility, since I can not quite believe that the US$ will be able to gain real strength in the current economic situation.

My concerns with the possible gain of strength of the US$, which would actually be bad for me, are more fundamental and are linked with the overall state of the US economy, which in my opinion is really in a lot of trouble.

With an unemployment-rate far above the official numbers, the disastrous zero-interest policy of the Fed, the still looming credit-crisis, a national debt that would make every economist run for his live (http://www.usdebtclock.org ), the decline of the strength of the US$ for the last year, and some other worrying developments.

It will clearly take the current administration a long time to even begin to clean up this whole mess, which I think was for the most part created or at least knowingly ignored by the last administration, but that’s a discussion for another time and place and does not

help us with the discovery of some good solutions for the future.

With this situation in mind I believe every int. investor should be really careful about any investment in stocks which depend (direct or indirect) on the US$ and keep a keen eye on them and the whole situation, should he or she choose to invest in such a stock.

So, after this explanation of my point of view from across the big pond I would like to ask you again if you have some ideas or suggestions how an int. Investor could avoid/minimize the risks and problems of a falling (=strengthening) dollar if one should choose to invest in a stock linked to the US$? Or maybe you have some ideas on how to eliminate the risk of currency rates altogether? Other than not to invest in foreign currencies at all, of course. I know that’s a long letter with a lot of questions, but I would really appreciate it if you would find some time and try to clear some of all this up for me.

Thank you very much for your time and efforts.

The best way to deal with the problem of a strengthening dollar is to trade in a USD denominated account in a large European bank or brokerage or in a US account even though you’re in Europe.

You can also buy currency options such as those traded across the PHLX here:

http://www.nasdaq.com/asp/currency-options.asp

Just make sure you study the option contract carefully to know whether you need puts or calls. Alternatively, since it sounds like you’re a bit more advanced you could also trade forex in a mini account. The very best way to spot the long term trend in currency pair is using the BNB indicator on the TNT Live Forex platform you can get here:

http://www.trackntrade.com/forex/live/

Look at the chart below and you’ll see how the BNB indicator gives a clear signal of trend change on the weekly chart:

Most people get currencies wrong because they think they understand macro economics. I don’t know a single Ph.D. in macro economics who studies currencies who understands why exactly they move. So even though the economy in the US is REALLY BAD it doesn’t mean the USD will weaken…in fact quite the opposite could happen just as easily and as you noticed the USD is due for a new strengthening cycle.

All I can say is that the trend on the US current account is now up (rising exports), the Big Mac index is over inflated and the long term up trend is still broken.

Sooooo…I see no valid argument for an ongoing collapsing dollar. This is especially so in my contrarian view since all I hear is sensationalist garbage about the collapsing dollar that “experts” say MUST continue collapsing because of fiscal deficits, and so on that are not directly related to currency values!

Dr. Brown, I am studying your program & I have a question. I have an established portfolio I see that I exceed your recommended 3% of portfolio value max. What is the best procedure to reduce the share quantity to meet your recommended share balance.

Your instructions are easy to follow & absorb with the exception of some of your math. Thank you,

Do you mean 30%? I assume you mean no more than 30% of your portfolio in individual stocks. Just keep an eye on the excess and as you get stopped out (hopefully with a profit) roll it over to a core passive portfolio like the Gone Fishin Portfolio, etc.

If you did not mean 30% please clarify for the next Q&A and I will readdress your question.

Nonetheless, I don’t want students allocating more than 30% into single stocks because it’s too easy to make mistakes and lose in a big way with single stock trading. By keeping most of your money in a core passive portfolio you are protecting yourself from yourself.

Dear Dr. Brown,

I have attended many of the lectures that Karim Rahemtulla has given on Deep in the Money Covered Calls. He has always presented these as an income opportunity not for leverage. The first meetings he recommended $15,000 for the covered calls portion of the portfolio. In April of last year, the base was $70,000, in a time of much greater volatility. I would like clarification on this; his goal was income while you seem to classify DITM covered calls as leverage.

You asked about my feelings about the course. I read the two course books in the first week and a half. I had read many classics on value investing and investments in general, including The Intelligent Investor. I was an officer and member of a very successful NAIC Investment Club for about eight years. The club was headed by Dick Dwyer, the head of the DC Metropolitan Chapter. Dick was working with me individually on technical indicators. He died at age 58. The women I met at the NAIC Investment Conferences were the most wonderful and interesting women I have met–and the most knowledgeable about investing. The NAIC strategy ignored focus on non-correlated assets. It focused on foreign investments only through investments in major companies with a global exposure. Moving to the Oxford Club investment strategies was easy.

Your course material is not new to me except in the area of options. I am interested in the options material but do not plan to trade options except DITM covered calls recommended by Karim Rahemtulla, or covered call options recommended by Agora Financial investment advisors.

The most important aspects of the Oxford Club membership for me has been:

• The discounted books, materials and training purchased as Chairman’s Circle member, including the book The Gone Fishing Portfolio
• The Communique portfolio and all the Alerts offered to a Chairman’s Circle member
• The strategy to invest in non-correlated assets
• The strategy to hold 70% of one’s portfolio in core passive investment vehicles
• (combined with multiple successful core passive investment vehicles) as you have presented. This saves a great deal of time for me while ensuring that my funds are invested with minimum risk for the long term.
• The weekly Oxford Insight which offers a top notch synopsis of the weeks news and Communique recommendations.
• Access in person and to writings of top-notch financial advisors including Louis Basenase, Keith Fitz-Gerald, Karim Rahemtulla, Lee Lowell, Martin Hutchinson and Rick Rule, and
• The new website.

Your course is excellent. I have travelled all around the world and have only two trips that I am still eager to take. My college major was International Relations with enough credits for a major in Russian Area Studies if one had been offered. My graduate area of specialization was Economics of Underdeveloped Countries. I travelled to China with Agora and loved the trip for the chance to understand the political and social economic issues and to see China through the eyes of a well-known Chinese Tour Guide. The Frontier Trader is and has been my favorite Alert Service. The chapter on foreign investing was my favorite but the content was not new to me. I had been investing in ADRs for years. Perhaps it was Eric Roseman or perhaps another Agora financial advisor such as Dan Ferris who recommended real estate investments in China and Hong Kong with returns that more than covered the expenses of my trip to China. Having invested in China and Hong Kong before the trip made the trip all the more interesting.

I do not identify with the Million Dollar goal for the portfolio. If I were recommending a goal for each son and his wife, I would recommend setting a long-term goal that is much higher, with a short term goal based on values and priorities. Young professionals will need much more for college education for children, health and retirement.

My goal while a member of NAIC and more recently was to have my investments professional managed. At the time I was working for IBM and travelling each week. In the early nineties, when working for IBM, I had a portfolio manager from Merrill Lynch analyze my investments for the short term and long term. IBM had committed to limit my work week to 38 hours when I was hired. From the first week I worked far more hours. If I continued to work at IBM, the broker said my insurance and benefits would reduce my investment needs. Since I had been told by a doctor to expect ovarian or endometrial cancer around that time, before my sons graduated from college, the Merril Lynch financial advisor recommended a goal of $1,000,000 if I left IBM.. My sons have graduated, and I have yet to be diagnosed with cancer. Thus the one million goal is simply not meaningful to me.

I think that it is awesome that you have taken a stab at producing an investment book. I find your monthly presentations wonderful. I use your comments and the Communique issues to evaluate my portfolio that is professionally managed. I then write a review of the manager’s strategy and performance for the boys in case anything happens to me.

Thanks again,

If you look hard at the portfolio math I gave you you’ll notice that I don’t’ recommend trading any more than 6% of your portfolio in these derivatives. Prof. Tim Crack (Ph.D. finance MIT 2000) was highly complementary of my recommendation to this fixed limit.

That means that in order to trade the lesser amount you would need $15,000 / 0.06 = $250,000 in portfolio size of which $175,000 (30%) should be in a solid core passive strategy like the GFP. If Karim raised the recommended buy-in to $70,000 you would need a portfolio of 1.167 Million to trade DITM covered calls safely.

I really enjoyed your comments and am very pleased you are enjoying the course!

-Scott

Hi Dr Brown,

In the InvestmentU’s newsletter #1127 Karim Rahemtulla had the following advice:

“When the VIX is high: Any time the VIX hits 50 points or higher, it usually signals that investors are fearful, or panicking. This is the best time to buy stocks.” and you arre recommending to that we get out of the market when the VIX hits 40 points.

Could you clarify the contradictions?

Second question is, what is the difference between the 401k and the ROTH. I have my contributions in a 401K but this are the savings from companies I worked with in the past.

To reiterate from above…

1. If the VIX is over 40 and the market is still in a strong uptrend as both were in 1999 then you get out or protect with long puts. In this case you would leave your GFP portfolio intact but would protect with a corresponding number of puts all of your GFP equity funds or ETFS.
2. If the market has clearly broken into a downtrend and the VIX is high wait on the sidelines until the market breaks its strong down trend.
3. To add real predictive power incorporate the BNB technical indicator which you can get athttp://www.trackntrade.com/futures/bnb/ paying very close attention to the S&P 500 contract.

A Roth is another kind of defined benefit retirement plan but it’s also available to you outside of your company. With the Roth you pay taxes on your income, contribute to the plan, and then don’t pay taxes when you withdraw in retirement.

The standard IRA is where you don’t pay taxes when you contribute but you do when you retire.

You should always roll your old 401(k) plans into a standard IRA. Just don’t let them send you check directly. In fact, the best thing to do is let the IRA department of a good online brokerage like TD Ameritrade do it for you.

Here’s some information…

http://www.tdameritrade.com/faq/transfer.html

Disclaimer…

http://www.tradementors.com/disclaimer.htm

Concept 1: Always Know the Direction of the Major Trend

In order to more quickly recover your losses you must understand the direction of the major trend.

Concept 2: Trade in the Direction of the Major Trend

If you trade counter to the major trend you will be crushed.

Concept 3: Add controlled leverage to enhance returns.

LEAPS can be traded on the SPDR if you know the direction of the major trend.

Concept 4: Watch the technical’s on the daily chart.

LEAPS can be sold when technical’s turn counter major trend. Traders can buy more on the recovery.

Here is the link for SPDR options: http://finance.yahoo.com/q/op?s=SPY

Do not trade more than 6% of your annual savings in LEAPs if you are starting out. If you are experienced with options you can trade more but only if you really know what you are doing!

Q. I have a questions about this package and it´s possibilities that I would like to ask Dr. Brown. I am a citizen of Austria and am therefore very interested in the problems that involve investments in US-Stocks due to the risk of a further declining US-Dollar, etc. etc. So, I would like to know if one could apply this course to every other stock market (which I, in general, presume), e.g. the various european stock markets, and which differences one should take into account? (E.g. different sources for information, I presume… do you, by any chance, have some ideas for this problem?)

Are there parts of this course that would only work at the US stock market and what other problems might arise?

Do you have some ideas or suggestions how an int. Investor could avoid/minimize the risks and problems of a declining dollar when investing in US-Stocks?

Thank you very much for your time and efforts.

A. Most European countries have their own stock exchanges. The biggest are the CAC 40 index, in Paris, and Frankfurt’s Dax 30. Some of the world’s biggest telecoms, utilities and financial services groups trade on European stock markets. In Austria Austrians can trade stocks through a full service bank. An Austrian has to do his or her own research and carefully select the most reputable brokerage or full service bank in Austria. An Austrian investor should not let them give any personal advice. This allows Austrians to buy shares of European companies in euros. As long as an Austrian buys shares in euros a weakening dollar will not hurt you. An Austrian can do his or her own analysis based on what he or she learns in this course.

Stock markets arre still very low so a European investor could simply identify 5 to 10 of the best stocks on the top exchanges above in the CAC or DAX and buy and hold.

The dollar is actually strengthening. People don’t understand this since they don’t look at a monthly chart. Wall Street wants you to keep your focus on the short term but look the big fact that they’re hiding from you…

Q. How long will it take to build a million dollar portfolio, and what is the basic investment required, I know that no one has a crystal ball to predict such results, just need your best estimate.

A. It all depends on how long the new bull market holds up. We’ve had a historic selloff. It also depends on how much you currently have in the market working and how much you can save and invest each year. This question is the same one little kids ask on long driving trips, “how much longer?” Meanwhile the adult driver simply tends to the task of driving paying attention to the details necessarily to successfully arrive.

The investors that will make the most money in this new bull market will simply “tend to their investment knitting” as Warren Buffet puts it. Follow the course.

1. Save 20% or even more if you can of all of your after tax income.
2. Use some to pay off your house.
3. Put no less than 70% into a core passive portfolio of which the Gone Fishin’ Portfolio is a good example.
4. Put no more than 30% into single stocks or options.
5. Get out of the market if the VIX goes over 40. See http://finance.yahoo.com/q?s=^vix
6. Sit back and let the market work for you.

As far as time estimates just remember that the Gone Fishin Portfolio returned about 19% from 2002-2007. Say your 40, earn $90,000, make a 20% contribution, and get annual raises of 4%. By age 65, assuming a 12% per year market increase you’d have a nest egg of $2,159,611.

If you save more, get higher returns, or already have a few hundred thousand you could get there in as few as 5 years. In fact one Oxford Club member (Harry J.) confided to me that he had $250,000 in his retirement plan in 2002 which he converted to the Gone Fishin’ Portfolio. His nest egg was still over a million last March despite the big drop! He turned his quarter million into over a million in just 5 years.

Question: What do you recommend for a brand new subscriber to the course? Is there an action that I should take immediately to take advantage of the current financial climate? Or should I just bide my time while I study the course materials once I receive them?

Answer:

It all depends on your level of experience and temperament. Investors who want faster returns have to become traders (active investors). But, success will depend on temperament. Investors who are obsessed with money — or the idea that it makes life secure — are less likely to succeed as traders. When the money obsessed investor is wrong, they have a hard time cutting their losses which is why most investors should stick with a set and forget it strategy like the Gone Fishin’ Portfolio. However those who realize that investing is a game have an edge. They know they can’t be right all of the time; the future is by definition, unpredictable. This makes it easier to ride if you look at it like a wild bull. Active investors who treat all of this as a game know from time to time, they’ll get beaten around, but get out quick when the market turns on them, and get back in quick when the time is right. Its part of the game and it takes years to learn to be a good trader but anybody with the right attitude can do it. In fact anybody who is a good poker player in Las Vegas is more likely to be a good active investor.

An investor that is trying to take advantage of the new bull market would look to LEAP and straight call strategies. I gave a SPDR LEAP strategy at the beginning of this teleconference. Straight call strategies can work well on momentum stocks if you have good timing. Regardless traders starting out do not trade more than 30% of your savings on single stocks and not more than 20% of that in options. That will restrict the option strategy to 6% of your total annual after tax income.

Again, think twice about your commitment. Warren Buffet says that indexed mutual funds are best for most people (that’s the Gone Fishin Portfolio folks).

Are any of the investment ideas that we learn during this call can by applied to our 401k and IRA? What is the minimum amount of money would we need to get started in building a million-dollar portfolio from scratch?

The Gone Fishin Portfolio is great for a retirement account and can be employed into a Roth or Standard IRA directly. It can be tweaked into a 401(K) as follows:\

Step 1: Get a full list of your investment options from your company plan administrator.

Step 2: Go to http://www.morningstar.com/ and print off the description for each index fund available.

Step 3: Match the Gone Fishin Portfolio funds with the selections in your 401(K).

There is no minimum required for starting a million dollar portfolio from scratch. Obviously the more you earn and the more you save of what you earn the faster you’ll get there. This has been the most severe drop since the great depression. Those that got into the market in the early 1930s made large fortunes into the 1940s. Same goes for those who got in the early eighties and nineties. This is likely the case now. Here’s a great video about the crash by the founder of Vanguard:

Here’s what Warren Buffet has to say about strategies like the Gone Fishin Portfolio…

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“I have recently signed up for your service. I missed out on the bull run we have had because of fear. I subscribed to several newsletter firms and because they all had different takes on the market I was paralyzed and did nothing and for awhile played it to the downside which was a big mistake.”

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Dr. Brown’s Discussion of FEAR

The best investor of our day is Warren Buffet. He makes the interesting statement that you should “…be fearful when others are greedy, and greedy when others are fearful.”

Now most people take this as advice to buy at the bottom of the market.

However it is very hard to buy at the exact bottom of the market. You can see in the chart from Gecko Software below that the S&P hit bottom on March 9^th.

Chart 1

There’s a special index called the VIX that measures fear and tells you a lot ONLY when it’s above 40.

Chart 2

Chart 3

Notice how it dropped below 40 at the very beginning of April.

Chart 4

Here’s the point. The stock market crashed in 1987 a lot less than it did last year.

Chart 5

Warren Buffet went on a buying spree from 1987 through 1990… a full three years.

Chart 6

The major down-trend on the S&P only just broke in late July. So we’re only about 2 months off the bottom in reality.

Chart 7

SO WHO SAYS YOU MISSED THE MARKET?!!!!

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Dr. Brown, At 55 and on disability I am tempted to cash out of my IRA so that I can do more with my money without our GOVT> restrictions What are your thoughts on this.

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This is a very personal matter that you should discuss with a professional accountant or financial planner. Let me emphasize that I intentional do not give personal financial advice. You have to study the problem, think through it, and come to the best solution for your self.

Generally on the matter of taking early withdrawals from an IRA people usually find that the cost is not worth it. Also, when people chase high returns they often lose because of the psychological state of someone who desires to chase high returns.

Great investors make their money by making decisions unemotionally and waiting after they invest.

This is why I wrote the Seven Golden Steps and recommend Alex Green’s gone Fishin Portfolio. BTW the GFP can often be closely mimicked in most 401(K)s.

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I have an annuity and would like to transfer it to professional money management because I’m not doing so well with my own money. Do you have an idea that that would not trigger the tax consequences.

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Again, I give no personal financial advice. You’ll have to discuss this with a tax professional in your area.

But, on the general discussion of annuities I’d like to explain why I can’t stand them. The first reason is that the fees are ridiculously high and just plain ridiculous ranging from Mortality and Expense Charges, Surrender Charges, through Management Fees destroying the value of annuities as investments. People are generally much better off in the Gone Fishin Portfolio where the fixed income component offers superior returns at a lower cost.

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Could you tell us “how to start”, that is how to get enough diversification as soon as possible with say $50K ?

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First of all congratulations on having enough money to have a GREAT start!

Again, I give no personal financial advice. But, in general I teach in the course that investors have to first protect themselves from themselves. This is done by allocating 70% to a core passive strategy. In my opinion the best core passive strategy is the Gone Fishing Portfolio (GFP). Then the 30% leftover can be invested in single stocks.

However, somebody completely starting out may be best off with simulated trading for the first year. During that year the entire allocation would be 100% core passive portfolio such as the GFP. Here’s a link to the best stock investing simulator on the market:

http://www.trackntrade.com/hf/stocks/

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In my first call much of the discussion revolved around how you
‘begin’ the process of saving and then investing. What if you are not
working and want to grow your nest egg? How, or do, the formula’s
change?

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The 50:30:20 formula doesn’t change unless your at poverty level. Those at poverty level are forced by circumstances to use 100% of their income on needs.

I don’t understand. You say you’re not working. Does that mean you have no income? Or is your income passive?

It’s all base on income. Many people don’t have conventional jobs yet have income… sometimes substantial.

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I have finally decided to buy NOK, NEU, EWH, PLA, SWHC, ESI, EFR, TLM, SU

Have $10,000.00 to start and would like help on what weight I should put on each stock. Please help. Should I buy NEU and ESI because of their high price with the amount I have? Decided on SU instead of PBR because am not certain about Brazil’s political structure and feel SU safer bet in the oil stakes.

Already have TKLC, VE, GILD, ICGE

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I do not give allocation advice. You have to attack this a stock at a time. Apply what I taught you in the course. First of all a list of stocks should be organized according to the anomaly it best fits: momentum, IPO, insider, value, ADR, or takeover.

Then the list should be analyzed accordingly. Most factors such as financials and so forth can be found at http://www.marketwatch.com/ and http://finance.yahoo.com/

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Can you please give us a plan of attack for all this research? I am focusing on the momentum and value sections but it’s hard to know which squeak to start with. Do you have a specific order to go about this in?

Historical EPS is not easy to find!

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For momentum you want to look at Earnings Growth and RSI first. Don’t just check EPS growth. You also want to see if EBIDT growth is high as well. I have found a stock screener that is ideal for all of this send lots of emails to Investment U to get them moving to get it to you!

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Dr. Brown: I am 63 years of age. How do I accomplish the 7 figure investment goal in 10 years? Is that realistic? I have some capital to start with: $50k. Is it still realistic?

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There’s no switch you can flip to turn on the profits. You have to create your portfolio based on your study of the course and then wait for ten years. I can tell you that once you get started it gets easier over time and that $50k is a great start. You may also want to try to make the Investment U conference next year in San Diego. There you’ll meat people who have actually pulled off what you are trying to do!

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Dr. Brown: I believe I understand how to set up “The Gone Fishin’ Portfolio” by allocating the % strategy to each of the Vanguard fund indexes to total 100% of your total $ investment. However, I don’t understand how the Oxford Asset Allocation Model works. I see that there are 5 Portfolios (The Oxford Trading Portfolio; The Oxford All-Star Portfolio; The Seven Deadly Sins Portfolio; The Gone Fishin Portfolio; The Perpetual Income Portfolio) with allocations of 30% US Stocks; 30% Foreign Stocks; 5% Precious Metals; 5% REITs; 10% High-Grade Bonds; 10% High-Yield Bonds; and 10% Inflation Adjusted Treasuries. I will have 6 stocks that are worth about $100,00 if liquidated that I will be receiving within a couple of weeks and I’m trying to figure out how to use the Oxford Asset Allocation Model. Could you give me an example using the $100,000. Thank you, Gary

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Hi Gary, again it all comes down to the percentages and I do not give specific investment advice. 70% into a core passive portfolio. Valid candidates are any of the 5 Portfolios (The Oxford Trading Portfolio; The Oxford All-Star Portfolio; The Seven Deadly Sins Portfolio; The Gone Fishin Portfolio; The Perpetual Income Portfolio). Then 30% can go into individual stocks. Alternatively an investor could put 70% and 30% into any two of the core passive portfolios above.

Would you recommend a stock screen that best fits the application of the stock financial feature’s criteria for the class material?? I know some criteria requires to just go look at the characteristics, but the Momentum stocks seem to have a better defined criteria, that might fit a screener…

We are working on creating an online screener for the Investment U website.

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After 2 months, I finally got my reading package (How to Build A Million Dollar Portfolio… From Scratch: A Comprehensive Money Mastery Course ) by mail, and I started quickly to read them.

I read the second chapter and surprisingly found that you mentioned professor Theo Vermaelen, who was my Finance professor at INSEAD while studying an MBA. I clearly remember his teaching about buy-backs, but at the time, late Winter of 1999-early Spring of 2000, everybody at class was crazy about the Internet Bubble and hot IPO´s rather than buy-backs. But now I realize the value of this strategy in times of crisis and undervalued stocks. Below is the link and a snapshot of an INSEAD page where professor Theo Vermaelen published his most recent article about the buy back and he states that somehow the current financial crisis has diminished the number of companies going through a buy back program; nevertheless, he expects a higher return on investment over the market indices.

http://knowledge.insead.edu/BuybackInvesting090430.cfm

Professor Vermaelen has shown a portfolio of stocks where he put his money in order to prove that this strategy works.

I would like to ask you Dr. Brown if you know how to find companies that will go through a buy-back program near soon, so that we can also create portfolios like that of professor Vermaelen.

Professors Pyers and Vermaelen used http://www.lexisnexus.com/ to analyze the share buy backs. In terms of spotting new programs you could:

1. Google search starting with terms such as “share buy back [current year, current month]” Then look in Lexus Nexus or Google for information that indicates that the buyback is (1) the best use of funds (2) because shares are perceived by management as undervalued. BTW most community colleges and college libraries have subscriptions to Lexus Nexus. This alone could be worth the enrollment in an adult education “basket weaving” class!
2. Lou Basanese, Robert Williams, and Alex Green all look at share buy backs in their newsletters. That’s why the Oxford Club Chairman Circle membership is such a good deal. For a few grand you get the newsletters for life! Plus, the Oxford Club pampers the Chairman Circle Members…everybody else is a second class citizen!

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Dr. Brown:

Welcome Home.

1. I wanted to know how to calculate the time value of money when I have fixed return that I am trying to calculate for a set number of years. I know there is a way short cut the exponent of the formula for N (number of units of time), but I can’t remember how. The example I am thinking of is if you were looking to buy a business and you wanted to determine the true NPV.

I know you said this wasn’t necessary, but I am curious.

2. How do you recommend getting started with $500.00?

First Question: There are three ways commercial appraisers determine business value.

1. First is the “Sales Comparison Approach” which considers recent sales of highly comparable businesses in the area. This is sometimes called the market approach.
2. Second is the “Income Capitalization Approach” based on the principle that the value of the property is related to its net cash flow. Businesses rarely have constant net cash flow so the great difficulty here is in analyzing existing cash flow and correctly projecting future cash-flow. The three approaches to nailing down the net cash flow are: (a) Cross Income Multipliers [GIM] where the GIM = Sales Price ÷ Gross Income in terms of similar commercial properties, (b) Direct Capitalization when a discrepancy between operating expenses of the appraised property and comparables is suspected, (c) Discounted Net Present Value [NPV] where you pay no more for the property than the present value of all future cash flows [also known as Net Operating Income or NOI].
3. Third is the “Cost Approach” where you don’t pay more for the business than it would cost you to buy the land and build the structure.

I went through this to underscore how tricky business valuation really is. My best recommendation is to get a commercial appraiser to help you. Here’s a website that may help: http://www.appraisers.org/ASAHome.aspx

Second Question: Read the IU course booklet “The Seven Golden Steps” again. Sit down with your significant other – after he or she has read it too and come up with a plan going forward. EVERY self-starter starts with a very small amount. But, most people are not self-starters and never start. Which is why so few middle class people retire rich despite a lifetime of opportunities!

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How can I calculate the fair value to purchase a lease hold property for 15% annual return; for example: remaining land lease is 10 years and the annual net operating rental income is about $700K?

Here again a good commercial appraiser will help you do the very complicated Net Present Value calculations. Another important point is to ask around your area for the best commercial appraiser at (a) real estate brokerages and (b) title insurance companies in your area. NOTE: Commercial appraisers are ten cuts above the normal residential appraiser in brains, financial education, and experience… make sure you find a commercial appraiser NOT a residential appraiser.

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I hope this is not a dumb question: We hear that we should NOT invest more than 3 or 4% of our equity portfolio in a single company. Is our equity portfolio include Bonds and Money Market funds?

Or does it include only shares of companies and/or stock funds in our portfolio?

Thank you for your knowledge and insight!

First of all THERE ARE NO DUMB QUESTIONS EXCEPT THOSE NOT ASKED in the IU course community.

The reason I love the Gone Fishing Portfolio is that it spreads your cash out among classes; stocks, bonds, commodities, and real estate. That’s why I teach that its prudent to put no less than 70% invested annual savings into a core passive portfolio like the Gone Fishing Portfolio. Once done it’s easy to keep the percentage invested in single stock under control since it’s limited to 30%!

Thank you for your diligent study!

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My question is about using margin to buy stocks or to buy puts and calls. I see you advise to use NO margin. But how are we to invest in an opportunity that comes up, and we have no cash in the particular account? Is it better to raise cash and sell the losers first or sell some winners to be able to invest in a new opportunity?

I would think to use margin sparingly for buying puts and calls and using margin for shorter term trading rather than long term. I am also interested in selling covered puts which requires margin.

Don’t sell your winners…always hold your winners using the TradeStops.com program.

There will simply be times when you are fully allocated and will have to pass on an opportunity. Don’t chase opportunities with leverage because you will end up with very large unexpected losses at some point.

If you are going to use leverage you must have an extensive education in risk management, trading strategy, and money management. Those who are highly skilled with leverage respect it as greatly as they respect a stick of dynamite!

If you’re starting out with very little capital and minimal investing education and experience it’s particularly important that you avoid margin. Margin accelerates profits AND losses just like NO2 in a race car.

If you don’t know how to drive a super-charged race car you’ll wipe out.

Same goes with using leverage without really knowing what you are doing. If you are using the covered put strategy under Karim Rahemtulla’s guidance you should be OK as long as you really do correctly what comes out in his newsletter. But if you’re just starting out you should paper trade Karim’s Newsletter Instant Money Trader recommendations for 6 months or so to get practice. Here’s a good article on the subject:

http://www.investmentu.com/IUEL/2009/June/put-selling-strategy.html

Again, the a core passive strategy like the Gone Fishing Portfolio gives you a place to park your savings until you have the experience to move on to more advanced operations like single stocks, covered puts, covered calls, and LEAPS.

Be very patient at the start of your career. Overconfidence kills!

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You said to “challenge you on anything” so here is one.

Your March 27, 2009 report on the Investment U Conference you made reference to a group called the PIGS. You state that “this group could threaten to pull down one of the European Unions stronger members…” On April 1, I emailed you asking you to educate me about the PIGS. But you sent no response. I do count myself in the group that you said, “haven’t heard of another group, the PIGS.” I still don’t know what you are talking about.

So I challenge you to educate me on what or who the PIGS are. Are the PIGS going to fly or will they die? Or are they the cause of the current H1N1 swine flu and should we stay away from them. What group are they in the stock market?

Being a former university educator myself I hope you will do me the courtesy of answering this challenge.

I had a good laugh with your question! Also, I somehow lost your question when I did the call from Barcelona. I was coordinating everything through my BlackBerry Bold and it was a heroic feat just to pull off the call!

Here’s your answer:

The PIGS are Portugal, Italy, Greece, and Spain. The northern countries are harshly critical concerning ongoing EU PIGS membership due to low levels of the PIGS’ economic indicators such as GNP and GDP combined with a dramatic drop in PIGS’ Foreign Direct Investment (FDI) in recent years.

There’s a lot of finger pointing going on. And, it doesn’t help that economists pointed out that Italy should never have joined the EU in the first place!

But, let me introduce you to another way of looking at these countries in terms of social efficiency. There is no “social efficiency” indicator per se indicator in terms of how a society organizes its factors of production.

But we can look at perceived levels of corruption.

This is through Transparency International’s Corruption Perception Index at http://www.transparency.org/news_room/in_focus/2008/cpi2008/cpi_2008_table where 1 is the lowest level of corruption (Denmark), 180 is the highest level of corruption (Somalia).

Let’s take 4 countries known for high economic productivity in northern EU to compare levels of corruption with the PIGS:

Country	Corruption Ranking
Denmark	1
Netherlands	7
Austria	12
Germany	14
Average	8.5

Now let’s look at the PIGS:

Country	Corruption Ranking
Portugal	32
Italy	55
Greece	57
Spain	28
Average	43

So, clearly the PIGS suffer from social disorganization of which corruption is a symptom.

But this doesn’t mean that you should disregard stock investing opportunities in the PIGS. BRIC (Brazil, Russia, India, and China) are the focus hot attention right now for stock investors; in particular Brazil, India, and China where returns on some ADR stocks in the region have been stellar.

Let see how they stack up in terms of corruption and social disarray:

Country	Corruption Ranking
Brazil	80
Russia	147
India	85
China	72
Average	96

So, clearly you want to be aware of the fact that certain countries are prone to social disarray that affects economic productivity. But that doesn’t mean you can’t find good ADR stocks in these areas to invest in.

By the way, let’s analyze Puerto Rico in light of the United States. My wife being a native Puerto Rican nationalist loves to say that “The U.S. government has just as much corruption as the Puerto Rican Free Associated State!“

Country	Corruption Ranking
United States	18
Puerto Rico	36

I just don’t have the nerve to tell her how very wrong she is!

************************************************

Keep those good questions flowing,

-Doc Brown Over and Out!

1. Opening Discussion on Macro Money Management (Macro Position Sizing).
   1. MMM protects your family from a…

i. Family member who has too high a risk propensity.

ii. Family member who is too cautious.

1. 1. MMM allows you to calculate how fast it will take you to safely save enough to speculate in options, futures, or Forex. Forex is hot right now but people are not being given risk capital guidelines.

1. Discussion of Technical Analysis
   1. This month I want to talk about how useful the moving average cross over is. Convention has it according to market efficiency that, “the news makes the price.” But people who have watched the market for years have noticed that announcers 99% of the time give a story after a big move. So the justification behind technical analysis is that “the price makes the news.“
   2. No technical indicator is foolproof. The more complex people get with technical indicators, or the more precise they try to be, the less effective the technical analysis.

i. So keep it simple with 1, 2, or 3 technical indicators that look at different aspects of the market.

ii. Don’t forget the most powerful technical indicator of all…the major trend (seen on a weekly or monthly chart).

1. 1. It’s particularly useful to analyze the major trend of the general market. Lets look at the SPDR S&P 500 ETF (NYSE:SPY).

BTW: I made this analysis using FREE software at http://www.trackntrade.com/hf/stocks/

Download their Track and Trade High Finance program!

i. Notice how a simple crossover between a fast and slow moving average identified the top and bottom of the market as per the S&P 500.

1. 1. But it’s also useful when looking for entry into stocks. Let’s look at Ford.

Notice how powerful the moving average cross-over is on a monthly chart when considered in light of the major trend!

1. Trade-Stops:

First Benefit: Your Stop Is Invisible to the Market!Second Benefit: It’s a Reminder to Tell You to Reavaluate The Position!Third Benefit: Alerts Don’t Expire…Can Be Indefinate!Fourth Benefit: Alerts Are Adjusted For Dividends!Fifth Benefit: Easy to Use!Sixth Benefit: Important To Remember That Investors Have A Risk Seeking Bias With Losses; Risk Averse to Gains… its as hard if not harder to stay in a winning trade; the big players make their money on just a few grand slams they can stay onboard thoughout the year!
https://www.tradestops.com

Forex trading is hot, hot, hot right now. And one of the biggest reasons why is that traders are using leverage to amplify returns by 200 times – where $1 controls $200 worth of foreign currency. The returns can be staggering.

For example, on the British “Black Wednesday” of September 16, 1992, George Soros made a single day’s forex profit of $1 billion by short selling the Great Britain Pound Sterling.

At the time, these kinds of profits were only available to large players.

But recently, a major change in the way forex trading is done has opened the trading desks to the little guy. The Internet has opened the door to the small investor into this $3.98 trillion daily market.

But forex, or foreign exchange trading, has a reputation as “one of those” financial derivatives. And while much of its reputation is deserved, that doesn’t mean you shouldn’t be aware of forex and its uses…

Forex Market Expert Thomas Fischer

Unfortunately, forex isn’t only intimidating to the average investor – it can be downright confusing for even the shrewdest money managers. So I sat down with an expert on forex, Mr. Thomas Fischer, to clear the fog around this hot topic.

Thomas Fischer, of Jyske Global Asset Management in Denmark, is a veteran of the interbank foreign exchange market with a 22-year profitable history under his belt. I was lucky enough to talk with him at the Investment U 2009 Conference in St. Petersburg, Florida last March.

I sat down with him last week to get his thoughts on forex for Investment U readers – because of his relationship to The Oxford Club and Investment U and because Mr. Fischer trades in transaction sizes that are nearly unimaginable to us mere mortal investors.

He considers a “light” day one where he’s traded only $100 million in foreign exchange. And, he’s been so kind as to sit down for an interview

Over the next three articles, I’ll get his thoughts on how he got started forex trading, what traders need to be aware of and some of the best ways to limit your risk if you decide to jump into this market.

What I’ve found most interesting, above all, is that much of the advice he gives about forex trading can be applied to stock trading just as easily. A good investor is a good investor regardless of the security…

Here’s part one of my three-part Q&A interview…

Dr. Brown: So, Thomas how did you get started trading forex?

Thomas Fischer: Well Scott, after finishing my bank education in 1978 in Denmark, I was “invited” to begin a trading career in the bank’s newly established foreign exchange room. When I walked through the door and saw and heard (in those days trading was done with voice brokers) the noise I knew I had found my vocation. I remained a trader/broker for 22 years!

Dr. Brown: You mentioned to me that small traders have to trade infrequently so that they don’t get addicted to the “screen” – they have to try to get in on a trend where the profits of winning trades far exceed losing trades. Could you elaborate?

Thomas Fischer: Sure, most novices in trading get pulled into the world of virtual trading. The [exchange] rates flash before your eyes and the trade is just one mouse click away. The worst-case scenario is that the first trade you make is a winner – you get hooked and start trading all over the place regardless of currency pairs.

You have to get accustomed with the trading pattern before jumping in.

Concentrate your efforts with a few currency pairs. The EUR/USD pair is a good starting point, since almost one in three trades takes place in this currency pair. It is thus a very liquid and transparent rate. Get a feel for the movements and use tight stop losses.

When you have a winning trade, take profits and try to ride the movement/wave for as long as possible, locking in profits as it moves in your direction. It does not matter whether you have eight losing trades and two winning trades as long as the winners pay for the losers and some more.

Dr. Brown: You mentioned to me in St. Petersburg, Florida last March that it’s easy to get addicted to the screen and overtrade. What do you mean by that?

Thomas Fischer: In the currency market, rates are moving constantly. There’s always an opportunity to make, or a trap to lose, money. You can have instant results because sometimes it only takes a minute to make a winning/losing trade. It becomes addictive – like being in a casino.

Dr. Brown: There are a lot of things taught in international financial management MBA courses about forex, ranging from interest rate parity to Big Mac indexes. And economics professors love to say the markets can’t be forecasted in the short term. Do you agree? And what do you feel are the most important things forex traders should pay attention to?

Thomas Fischer: Fundamental trading is a completely different animal. Here you make long-term predictions (Big Mac Index), and all things being equal, you can make a good prediction five to 10 years out in the future.

However, most investors cannot wait five to 10 years and in between, the rates, could have been all over the place. I have heard speakers [Thomas is referring to Harvard University Economics professor Dr. Kenneth Rogoff, Ph.D.] say that making a currency prediction for less than two years is like flipping a coin!

I don’t fully agree – but there is some truth to that statement.

However, with experience and patience, you can learn to read the market and make a profit. But it’s paramount that you have a strict discipline and follow the strategy. You can never just log on to the computer and make a profit for a new suit or an expensive dinner with your wife – the market doesn’t work that way.

- End of Part 1

I’ll be going into more detail in the next part of this interview with Thomas Fischer, currency trader of Jyske Global Asset Management, in my next column. Next time we’re going to talk about setting trailing stops, forex money management and analysis.

It all starts with education,

Dr. Scott Brown

P.S. You can learn more about ADRs and profiting from the global markets in my course “How To Build A Million Dollar Portfolio From Scratch.”.

Editor’s Note: The risk of loss in trading forex can be substantial. Leverage can be used both ways – it magnifies gains, but it also magnifies losses. This leverage increases risk in forex to levels where many investors should not be. Trading in forex is not for your novice investor and should be used only in conjunction with a broadly diversified portfolio like our Asset Allocation model.

With every disclosure I receive on executive compensation coming out of failing and defunct firms it makes me sick – as an investor and citizen alike. And I’m not the only one…

Many Americans have been outraged as the CEOs and other executives responsible for the financial crisis have pocketed millions of dollars in bonuses and golden parachutes.

And rightfully so.

The recent bailouts of banks, automakers and insurance companies has brought excessive executive compensation into the public eye. And the numbers are staggering.

• According to The Corporate Library, in 2008 the CEO of an S&P 500 company received an average compensation of $10.4 million. During that time the S&P 500 lost almost 40% of its value.
• Yet despite these declines, CEO perks grew in 2008 to an average of $336,248 – a full nine times the median salary of a full-time worker. And that’s just perks!

By monitoring executive compensation, you can be the first to know if the companies that you’ve invested your hard earned money in are legally stealing from you. Here’s how you can tell how much “your” executives are being paid and whether it’s in line or not.

Executive Compensation Rates: Directly Transfered From Poor to Rich

Even as CEOs walked away from the carnage they were morally responsible for – despite financial protection from congressionally issued “Stay Out Of Jail” passes – the economy tanked for working people as 1,200,000 rank-and-file workers lost their jobs in 2008 alone.

And where did the money come from to fund executive compensation packages driving even more cash to the top 1% of American wealth?

It was a direct transfer of $700 billion in taxpayer money from the poor to the rich!

• These executives ran their corporations into the ground with mistakes that would have either fired a rank-and-file employee or rendered a lesser employee behind bars.
• Instead of being punished, many of these executives are house hunting in over the top markets like Beverly Hills and the Hamptons.
• Many of these executives offered excuses and clever lies for what they had done – dodging what they were responsible for.

Often just before they jumped ship – with loot in hand of course… Take this excuse for example:

• “My compensation is never going to be an embarrassment to GE!” – Jeffrey Immelt, CEO of GE, February 2009 just before being grilled for insane compensation packages in some of the worst performing years of GE history.

The fact of the matter is that individuals with more responsibility who are producing more than typical value for their bosses and shareholders do deserve to make more money than the average worker.

But how much more?

Dr. Peter Drucker On The Executive Compensation Ratio

Well to answer the question about executive compensation ratios, I turned to a man whom many would argue to be the most cogent management professor of the last century: Dr. Peter Drucker.

• He was one of the first to talk about responsibilities and accountability, not just of managers, but of employees as well.
• Drucker’s idea was that everyone is responsible in one way or another for the success of an enterprise. Everyone concerned has to be held accountable for their own actions; he used executive salaries as just one example.
• Peter said executive salaries were clearly out of line with the responsibilities of those holding to positions.
• Ratios of the compensation of American top managers to rank-and-file workers are the highest in the world – too high by his standards.

Drucker recommended that the ratio needs to be less than 20-to-1. So how do executive salaries stack up? Take a look.

In 2007 rank-and-file pay averaged $37,360.89. And based on his 20-1 ratio, Drucker showed that CEOs shouldn’t be earning more than $747,217.78 on average in annual compensation.

Unfortunately, at 344 times typical salaries, executives are hosing America for $12,852,145 a year on average. Even more disturbing, half of all executive pirates make more than that… some much more.

The money to pay these ruffians comes from the bottom-line of stocks you own.

Is there a way to get back? Yes, Warren Buffett doesn’t allow the heads of companies to get away with this when he sits on the board. He talks quietly and carries a big stick.

If he sells out the company stock tanks. And, even though most CEOs shiver at the thought of “Buffett on the board,” shareholders bid the stock up in support of the “Oracle of Omaha.” His careful stewardship of companies, and the discipline he requires of his investments make them better than most.

It also makes his stock, Berkshire Hathaway (NYSE: BRKB), a good addition to your portfolio.

How To Track The Executive Compensation Of Your Stocks

But we all can’t wield the power of a multi-billionaire. So here’s what I recommend. Track the amount of salaries of the top executives of the stocks you own. While many sites disclose this public information, the one I like is Reuters.

By going to their section on stocks – officers & directors, you can see how much each of the officers is making and how much of their compensation is done through salary, stock options or other compensation – perks like free rent, chauffeurs, or jets.

While pay can fluctuate between industries and companies, I suggest you compare your company to its direct competitors to see if their pay is out of line or within industry norms.

We also discuss how to find out whether the top employee is a good steward or a pirate at the helm in the Investment U course if you’re looking to find out more.

It all starts with education,

Dr. Scott Brown

Editor’s Note: As part of our new Investment U course, Scott Brown reveals the five worst lies CEOs give. And how shockingly unprofitable they are for investors. Over the next few weeks, Scott will be showing readers what these lies are and why you should stay clear of companies that relay them. So stay tuned.

In 1933 and 1934, President Franklin D. Roosevelt was doing the same thing Obama is working to do today – reduce the corruption in our capital markets by increasing transparency and regulation.

Most investors know that the SEC and our key securities laws were enacted in those years…

Few know that in 1934, at the request of the U.S. Department of the Treasury, the Bureau of Labor Statistics began the computation of a daily commodity price index, using quotations for sensitive commodities.

The Commodities Research Bureau Index (the CRB Index) let’s you see what the commodity markets are doing, just like the S&P 500 does for stocks.

For many investors who focus on stocks, the thought of following a commodities index doesn’t intrigue. And it’s unfortunate…

The CRB Index – Very Different From the S&P 500

The CRB Index is very different from the S&P 500 Index. It gives us more than just the current market prices for a few commodities. It tells us about profitability. And for investors, that couldn’t be more important to keep an eye on it right now.

The S&P 500 measures the mood swings of the investors, whose daily opinion affects the price of the paper asset that is a share of stock.

Commodity markets and futures are very different:

• They represent raw goods purchased by thousands of intermediate manufacturers who convert these resources directly into consumer products, or indirectly as intermediate industrial products.
• This creates a very real relationship between the profitability of producers that consume commodities and the price that mines, wells and growers can charge intermediate manufacturers.
• As commodity prices rise, the production costs to manufacturers increase as well.

The CRB Index vs. The PPI Index

The CRB Index is very different from the Producer Price Index (PPI), which measures average changes in prices received by domestic producers for their output. The CRB gives a view of the cost side of the theory of the firm equation and the PPI gives the price side.

If the CRB Index goes up really fast but the PPI goes up slower, you know that corporate profits are being squeezed. And the opposite when the PPI is climbing and the CRB is dropping.

We aren’t there yet, but looking at the CRB chart in the crib sheet below you can see we’re headed in the right direction.

Reduced manufacturing profitability will cause large layoffs followed by the collapse of weaker competitors. Sound familiar? It’s why we’ve been seeing an explosion in unemployment.

In the past few years, skyrocketing – and volatile – commodity prices have collided with reduced consumer demand on a global scale. It’s created what’s become the harshest recession since the depression. And few economies around the globe have been left unscathed.

But this reduced demand has also been filtering down to the producers of source materials. It could be creating a perfect storm for a serious bear market in commodities.

While this may hurt producers, manufacturers may look at this as an opportunity to increase their profit margins, as they benefit from the strong side of the CRB/PPI equation. And for investors, keeping an eye on profits is never a bad thing.

It all starts with education,

Scott Brown

Today’s Investment U Crib Sheet – Understanding the CRB Index

by Dr. Scott Brown, Advisory Panelist

The CRB Index tracks 22 raw industrials commodities: burlap, copper scrap, cotton, hides, lead scrap, print cloth, rosin, rubber, steel scrap, tallow, tin, wool tops and zinc. There’s also foodstuffs, including butter, cocoa beans, corn, cottonseed oil, hogs, lard, steers, sugar and wheat.

For three decades – from 1979 to 2006 – the index channeled between 200 and 300, before shooting up to an all-time high of about 475 in a single year. The index dropped off its all-time high in 2007 as a number of markets broke – the energy complex being the most notable.

The CRB Index is almost back to the top of the 30-year channel indicating that an end of the global recession is within sight.

An interesting aspect of the CRB Index in the 30 years that it channeled is that it had perfect support at about 205 – making that an interesting level to watch for entries into new commodity bull markets – as is the mid-point of the channel at 250.

These factors make for interesting times in the commodity markets.

As a professor, I am always amazed when I ask “core concept” finance questions to MBA students, only to find out they have no knowledge of it. If my intelligent and attentive finance students don’t get these fundamental principles, how do we expect an average investor to?

But that just scratches the surface…

My students didn’t understand how to extract stellar returns from insider buying, hot IPOs, risk arbitrage, value and international stocks. Again, if finance students need help to master the basics, then we have a lot of work to do.

It’s one of the reasons we created the Investment U course. And you’ll hear more about it in the coming weeks and months. It builds on the core moneymaking concepts behind The Oxford Club‘s most successful services.

Investing is about calculated risk and increasing the likelihood of your financial success. By following proven strategies and using rules, not emotion, to decide when to invest and sell, anyone can learn how to achieve long-lasting wealth.

It’s the genesis behind what we do here.

With today’s supercharged pace, it can be difficult to learn everything there is to know about what’s going on in the market and how it affects your positions. And that’s where we come in.

The Oxford Club’s Strategies: 3 Easy Ways to Build Wealth

The Oxford Club uses several different strategies to focus our investment approach. Through IPOs, tracking insider trading, using momentum, takeovers and small caps, our strategies are tailored to give us the edge over 90% of investors out there.

• Stick to a Strategy

Not every strategy is right for every investor. Some like trading more, some like trading less – some investors are more aggressive, some are more conservative. Regardless of your preferences, we have just the trading strategy for your needs.

• Buy and Sell Right

One of the easier decisions you have to make can be buying at the right time, but it becomes harder to know when to sell. It’s the true art to investing. Nobody can time the market – and be right – on a consistent basis. That’s why we don’t bother. We do, however, use as strategy called trailing stops to lock in our gains and limit our losses. It shows us exactly when to sell.

• Research, Research, Research

You can never have enough information when making investment decisions. But you can run out of time in a day. By reading our newsletter as it hits your e-mail, and visiting our homepage, you can review a number of opportunities in a short period of time

This will radically narrow your field to a handful of companies on which you can focus your research efforts. You’re able to make your own asset allocation decisions for yourself at a fraction of what your research costs would otherwise be.

In addition to our e-letters and daily updated website information, the Investment U course explains step-by-step exactly how to obtain superior returns through the broad market.

Investment U – Empowering Investors Since 2001

Why go through the hassle of a top-level MBA in finance when you can cut to the quick and get it all here with us at Investment U? We work to empower investors so they make their own investment decisions instead of just blindly trading analyst recommendations.

The key is that you decide what recommendations are right for you, and ultimately you make all of the decisions. Regardless of your situation, everyone should be an investing student, it’s knowledge that will never be put to waste.

We’ve just scratched the surface of the numerous ways you can start building your foundation for financial stability and security. In the coming weeks I’ll give you more information that revolves around our mission above.

Getting the most out of Investment U and The Oxford Club is something that can be done at your discretion. You can devote as much, or as little, time as you want. For active traders and investors using aggressive strategies, we offer daily insight and ideas. But we’re just as appropriate for investors who don’t have a lot of time.

Investing isn’t a one-and-done process, but rather something that’s done over a lifetime. And regardless of where you are in that journey or what kind of investor you are, we aim to give you the answers you need.

Good investing,

Dr. Scott Brown