5 Traits of Great Stocks

A recent study revealed that three of four stocks on the U.S. markets lost value between 1980 and 2008, despite the S&P 500 returning 10.4% annualized. What this means is the winning stocks won big, thereby compensating for the overwhelming number of losing stocks. However, if you hope to be invested in the winners, you need to choose carefully.

More than two decades of investing experience has helped us at Motley Fool Pro zero in on what makes for a winning business. Here are five of the key traits we seek in each stock before we buy it.

1. Sustainable competitive advantage
Healthy profits in a business attract competition -- everyone wants a piece of the profit pie. The only way a company can maintain profit margins and grow is to have a sustainable competitive advantage that serves as a protective moat around the business. You hear this quality talked about often, from Warren Buffett on down, but many investors still fail to buy companies that sustainably meet the bill. That's because it's the rare company that truly has lasting advantages -- but they are out there.

They're usually midsized or larger, have a long history of steady growth, and own assets or market share that provide enduring advantages over all others. Think Cameco (NYSE: CCJ), the largest uranium owner on the planet (the world isn't producing more uranium anytime soon); or Intel (Nasdaq: INTC), which enjoys 80% market share in computer CPUs. eBay (Nasdaq: EBAY) has sustainable competitive advantages, but it hasn't evolved quickly enough to keep all of its customers happy. However, network effects and market share -- competitive advantages -- are buying it time to right the ship.

2. Diverse customer base
A competitive advantage isn't worth much if the business is dependent on only a few customers. We like our businesses to have widely diverse and growing customer bases. This way, when some customers are lost, the business is not in peril and will continue to grow. We shy away from buying companies where just one or two customers account for 10% -- or more -- of annual sales.

3. Pricing power
With a lasting competitive edge and a broad customer base, a company usually enjoys some degree of pricing power. When costs rise, the company can pass them on to customers rather than suffering them itself. The strongest companies can implement modest price increases every few years without losing or alienating customers. Pricing power gives a company one more important arrow in its quiver as it hunts for long-term annualized growth.

4. Significant recurring revenue
If a business enjoys our first three criteria and also has significant recurring revenue, we become even more interested. By recurring revenue, we mean sales that repeat all but automatically, often with the same customers again and again, and usually without the company needing to spend more on marketing or reinventing itself or its products.

Revenue at the largest electronic exchange in the world, Nasdaq OMX (Nasdaq: NDAQ), recurs whenever someone makes a stock or option trade on its exchanges. Elsewhere, insurance companies enjoy recurring revenue every time a policy is auto-renewed, which happens more than 80% of the time at the best providers. Software companies have also gotten wise and sell annual subscriptions to their wares.

As General Motors collapsed in the first major recession in years, we're reminded that automakers are an example of anything but easy recurring revenue. They need to advertise continually to drive each sale, making for an expensive business that's vulnerable when the economy stumbles.

Easily or "naturally" recurring revenue results in more predictable and more profitable results, and helps maintain a business even during recessions. Some of the stocks we buy in Pro won't have naturally recurring revenue, but when it drives at least 30% of annual sales, the company gets a close second look from us.

5. Expanding free cash flow
The qualities we've mentioned so far will usually lead to strong free cash flow, which is the lifeblood of any company. By definition, free cash flow is cash from operations minus capital expenditures and any other nonoperational cash income, such as tax benefits from stock options. Much more reliable than mere earnings per share numbers, we're looking for free cash flow that's growing at least 8% to 10% annualized over the long term.

No company grows in a straight line, but over time we want expanding free cash flow to drive the value of the businesses we own. Strong free cash flow growers over recent years include software provider Oracle (Nasdaq: ORCL) and credit card giant MasterCard (NYSE: MA). Meanwhile, a rebound in free cash flow can revitalize a company, as has happened with BMC Software (NYSE: BMC) since 2004, more than doubling its share price. All three companies, incidentally, also enjoy all of the four traits above.

If you'd like to know the other key traits we demand in Motley Fool Pro, and see what we're buying now, you have a chance to take a look for a few days in June. To keep membership manageable, Motley Fool Pro won't be reopening again until at least 2010. So, come on in while you can, and see what the fuss is all about.

BEST STOCKS:News Highlights

is looking at setting up new nodes in the Middle East to expand its global coverage. "We plan to put up new nodes in the Middle East, the key new growth in the telecom market. We are looking
at Oman and Saudi Arabia currently," said Rozaimy Rahman, executive vice-president of TM Global, the global sales arm of TM. TM currently has two nodes in the Middle East, located i n Bahrain and Egypt. TM and Telstra signed an agreement yesterday to interconnect the companies' Internet Protocol Virtual Private Networks.(Starbiz)
* * * * *
Telekom Malaysia Bhd's
(T MK, Buy, TP: RM4.90)partnership with global communications, IT and security solutions company Verizon in producing a new IP node will provide an impetus for he country to become a regional internet hub. TM Group chief said the IP node would be able to provide high-end network and IP-based services at competitive prices to local servi ce provi ders. The IP node would also support delivery of advanced data services to Malaysian-headquartered companies throughout the region.(Financial Daily)
* * * * *
Australia based and ASX-listed Mission NewEnergy Ltd, which inked a RM114.54m turnkey contract with KNM Group Bhd (KNMG MK, Hold, TP: RM0.67) to build a second biodiesel refinery in Pahang, has commenced the commissioning phase of the mechanically completed plant. Concurrently, KNM founding member and group managing director Lee Swee Eng is investing about RM43.54m in the Australian firm via the subscription of 85m ordinary shares and warrants under the same financial terms as Mission's April 2009 announced private placement. Lee's proposed investment is to help secure funds needed for the second biodiesel plant in Pahang. (Malaysian Reserve)
* * * * *
Resorts World (RNB MK, Buy, TP: RM3.00), told shareholders yesterday that the gaming firm does not see any obstacles in investing in the Chinese gambling enclave of Macau, but has made no decision on the move. The comments came in after intense speculation that Genting Group may be a potential buyer of MGM Mirage's stake in a JV in Macau. (Financi al Daily)
* * * * *
Time dotcom Bhd (TdC) will not be disposing anymore of its shares in DiGi.Com Bhd (DIGI MK, Hold, TP: RM22.60) in the near term as it is comfortable with the current level of borrowings. Its CEO Afzal Abdul Rahim said that though the company would continue to evaluate market conditions, it wi ll keep DIGI shares for now for dividends. In January, TdC sold 2.9% of its stake in DIGI for RM461m for debt repayment, which effectively brought its holding in the company to 7.1%. (Malaysian Reserve)
* * * * *
Petroliam Nasional Bhd (Petronas) production sharing contract (PSC) operator Murphy Oil Corp has made to 2 additional discoveries on its acreages offshore Sabah and Sarawak, on top of its existing development in the offshore Kikeh field, the country's deepwater discovery. The US based oil and gas exploration firm said the discovery wasmade at its Siakap North prospect located in Block K, offshore Sabah, Malaysia, located 6 miles from its Kikeh field development in about 4,300 ft of water.(Malaysian Reserve)
* * * * *
AirAsia X, has inked a contract to buy 10 Airbus A350s worth more than US$2.2bn (RM7.8bn), with option to purchase another five. Deliveries are scheduled between 2016 and 2018. The A350s will complement its current fleet of A330s. The airline has ordered 25 A330s, due to be delivered through 2015, of which two have been delivered since October last year. The A350-900 vari ant will be configured to seat 425 passengers in a two-class layout. (BT)
* * * * *
Mudajaya Group Bhd, which has an order book of RM5.6bn, is bidding for new projects worth a combined RM1.8bn. "We expect further improvement (in our revenue) from 2008 as we received progress payments from our jobs," managing director Ng Ying Loong told reporters after the group's annual general meeting in Kuala Lumpur yesterday. "Our orderbook is at a healthy level, which will keep us busy for another three years. But we continue to participate in bids. Locally, we have bidded for some RM800m jobs," he added.
(BT)
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Despite the current economic slowdown, Aeon Credit Services (M) Bhd continues to be upbeat that it will continue to register a double digit growth in revenue this year, backed by strong demand in consumer finance and its easy payment scheme. MD Naruhito Kuroda said that while the effect of the slowdown might be reflected in results in the coming quarters, they were still seeing growth in all business divisions. (Financial Daily)
* * * * *
Perwaja Holdings Bhd has filed its defense and counterclaim for up to RM105.26m from Petronas as excess payment for gas supply by Petronas. Perwaja on May 12 received a writ of summons and a statement if claim from Petronas for RM85.79m together with a claim for interest. (BT)
* * * * *
The government will look at cutting its operating costs next year to keep the national budget deficit low, but will maintai n its development expenditure. Government revenue is widely expected to fall next year, given the weak economic environment. The budget deficit is projected to rise to as high as 7.6% of the country's gross domestic product (GDP) i n 2010. "We are looking at our operating costs and what expendi tures we must reduce. But in terms of development expenditure, we will maintain that," Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah said. On the local economy, Ahmad Husni said second quarter growth is expected to be at the same level as in the first quarter, whi ch was a contraction of 6.2%. (BT)
* * * * *
Southeast Asia's bourses are working to develop electronic trading links but are unlikely to merge, as suggested by a top Malaysian banker, Bursa Malaysia said yesterday. "It's a good idea but, personally, I think it is going to be a challenge to become reali ty," Bursa Malaysia chief executi ve Datuk Yusli Mohamad Yusoff said at a media briefing here. "There are no plans at the moment." (BT)
* * * * *

Global
Stocks tumbled Tuesday, falli ng for a second session in a row on continued worries that the pace of the recession is not waning as much as has been hoped. Better-than-expected reports on housing and wholesale inflation gave stocks a boost early in the session. But the advance was tepid and soon lost momentum as concerns about the economy reared up again. The Dow Jones industrial average lost 1.3% (-107.5 pts, close 8,504.7). The Standard & Poor's 500 dropped 1.3% (-11.8 pts,close 911.9) and the Nasdaq composite dropped 1.1% (-20.2 pts, close 1,796.2). In currency trading, the dol lar tumbled versus the euro and yen. U.S. light crude oil for July delivery fell 15 cents to settle at US$70.47 a barrel on the New York Mercantil Exchange.(CNNmoney)
* * * * *
President Barack Obama said the U.S. unemployment rate will reach 10% this year, even as the economy begins to emerge from the recession. Obama acknowledged that unemployment lines may keep growing despite government efforts to boost economic growth, saying he's confident an expansion will begin "shortly." His outlook mirrors the forecasts of pri vate economists who predict a jobless rate of 10% - a level unseen since 1983 � by 4Q09. "What you've seen is that the pace of job loss has slowed," the president said. "The economy is going to turn around, but as you know, jobs are a lagging indicator and we've got to produce 150,000 jobs every month just to keep pace, just to flatten this out." (Bloomberg)
* * * * *
Housing starts jumped more than forecast in May while industrial production tumbled, offering a picture of an American economy stil l struggling to emerge from the deepest recession in half a century. Builders broke ground on 532,000 dwellings at an annual rate, with single-family starts posting a thi rd straight gain, Commerce Department figures showed yesterday i n Washington. Housing starts were projected to rise to a 485,000 annual pace, according to the median forecast of 71 economists surveyed by Bl oomberg News. Output at factories, mines and utilities dropped 1.1%, and the share of industrial capacity in use slid to a record l ow, the Federal Reserve said. Excluding automobil es, factory output dropped 0.6% for a second month. In addition to cars, other consumer goods retreating last month included home electronics, clothing and furniture and appliances.(Bloomberg)
* * * * *
European Central Bank Governing Council member Yves Mersch said the bank has done everything it can to fight the financial crisis, suggesting he sees no scope to expand emergency poli cy measures. The ECB on June 4 kept its benchmark interest rate at a record low of 1%. It has announced pl ans to lend banks as much money as they need for up to 12 months and said it wil l buy 60bn euros (US$83bn) of covered bonds to counter the worst recession since World War II. The Federal Reserve and Bank of England have gone further, cutting their key rates close to zero and buying government and corporate bonds to stimulate growth. Mersch indicated the ECB would only consider further action if the economy takes an unexpected turn for the worse. (Bloomberg)
* * * * *
German investor confidence rose more than economists forecast to a three-year high in June
after evidence emerged that the recession in Europe's largest economy i s bottoming out. The ZEW Center for European Economi c Research i n Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, increased to 44.8 from 31.1 in May. That's the highest reading since May 2006. Economists expected a gain to 35, according to the median of 35 forecasts in a Bloomberg News survey. A gauge measuring investors' assessment of the current economic situation rose to minus 89.7 from minus 92.8 i n May, ZEW said. (Bloomberg)
* * * * *
U.K. inflation slowed less than economists forecast in May after higher taxes and the weakness of the pound sustained price pressures in the economy. Consumer prices rose 2.2% y-o-y, compared with 2.3% in April, the Offi ce for National Statistics said yesterday in London. The median forecast in a Bloomberg News survey of 30 economists was 2%. Prices increased 0.6% m-o-m. Inflation has been "sticky" because of the U.K. currency's drop in the past year, Bank of England markets director Paul Fisher said last week. Policy makers still predict it will slow further and are spending 125bn pounds (US$204bn) of newly printed money in U.K. debt markets to prevent deflation from taking hold. Inflation has now stayed above the central bank's 2% target for 20 months. The monthly increase in prices was twice as much as the 0.3% median prediction of 25 economists. (Bloomberg)
* * * * *

Bank of Japan Governor Masaaki Shirakawa said there's no guarantee the economy's revival will be sustained, signalling it's too early for the central bank to end its unprecedented steps to channel cash to companies. "The Bank of Japan remains cautious about the strength of final demand once companies at home and overseas complete their inventory adjustments," Shirakawa said in Tokyo yesterday after his board left the overnight lending rate at 0.1%. While the Bank of Japan said earlier that the nation's worst postwar recession is easing, Shirakawa told reporters policy makers have yet to decide when to stop buying corporate debt and providing lenders with unlimited credit. Shirakawa said the economy is improving because of three temporary factors: replacement of stockpiles at home and abroad, global fiscal stimulus measures, and improving confidence. It's unclear whether a recovery in demand wi ll take hold, he said. (Bloomberg)
* * * * *

What Fund Objectives are Right for Me?

Mutual funds will invariably publish a set of objectives that they seek to achieve, and this being indicative, the investor is still able to select objectives that suit individual needs.

 

Given that any market caters for the basic premise of the resolution of varying opinions, requirements and levels of comfort, the objectives of various mutual funds are no exception.

Traditionally, the stock market, while having recently suffered significant retracements, over time demonstrates a steady growth across the indices of the developed nations of the world, which include that of the United Kingdom, to return a gain of between 10 % and 14% historically - less domestic inflation.

With such objective performance, an individual preeminently concerned with the growth of their investment could be said to find satisfaction in one of the many equity mutual funds available in the UK.

These types of funds generally use an index method of investment by diversifying their risk into a broad indices exposure, and also by investing in listed companies whose balance sheet reads that, as a matter of policy as opposed to returning dividends to share holders, the company actively moves to focus on capital growth through the reinvestment of profits into research and expansion of its operations. Over time, these types of companies, particularly those with intensely healthy balance sheets with low debt gearing, have proven to offer share holders tremendous gains.

Of course, another individual may require the security of an income stream to represent asset growth. This type of individual is generally better suited to mutual funds that invest specifically in bonds.

However, various types of bonds exist, with varying degrees of return which are balanced against security. Even against the stock market and its historical returns, the safest investment is in that of government bonds.

Government bonds are issued in order to finance public spending, but as the cash flow of a government by definition is sound, and the fact that the government actually is the guarantor of domestic currency, in the UK, one can't go past the security of Gilt Edged Bonds secured by the UK government.

These bonds characteristically offer premium security whilst also providing a bi-annual coupon to the holder. This coupon rate is fixed, and because they are sold at a discount from face value, is additional to the face value redeemable upon maturity. Still, the maturity of these bonds can span any number of years, within which an unbelievably active secondary market seeks to buy and sell them. Being that simple liquidation is another feature of the government bond, the investor has a great deal of flexibility in their investment.

In contrast, corporate bonds are able to offer a far higher coupon and discount rate upon their issue, therefore enabling the achievement of faster capital growth, however this is generally at the expense of investment security.

For the investor with tax relief as a vital issue in their objectives, it is important to consider the ever-changing dynamics of the UK tax schedule. Her Majesty's Revenue & Customs has designed numerous approved and unapproved schemes which are able to be legitimately taken advantage of in order to preserve ones earnings. Such specific knowledge should be subsequently followed up by thoughtful and carefully judged entry into a mutual fund that invests heavily in an array of municipal bonds, the holders of which are able to receive tax exemption on certain income or capital gains, the benefits of which are consequently passed on to members. Taking risks is an intrinsic element of investments; for information and advice on how a negative experience with investment can affect the health of your finances, please visit this website, or alternatively information can be found through lists of IVA companies.

Mutual funds will invariably publish a set of objectives that they seek to achieve, and this being indicative, the investor is still able to select objectives that suit individual needs.

 

Given that any market caters for the basic premise of the resolution of varying opinions, requirements and levels of comfort, the objectives of various mutual funds are no exception.

Traditionally, the stock market, while having recently suffered significant retracements, over time demonstrates a steady growth across the indices of the developed nations of the world, which include that of the United Kingdom, to return a gain of between 10 % and 14% historically - less domestic inflation.

With such objective performance, an individual preeminently concerned with the growth of their investment could be said to find satisfaction in one of the many equity mutual funds available in the UK.

These types of funds generally use an index method of investment by diversifying their risk into a broad indices exposure, and also by investing in listed companies whose balance sheet reads that, as a matter of policy as opposed to returning dividends to share holders, the company actively moves to focus on capital growth through the reinvestment of profits into research and expansion of its operations. Over time, these types of companies, particularly those with intensely healthy balance sheets with low debt gearing, have proven to offer share holders tremendous gains.

Of course, another individual may require the security of an income stream to represent asset growth. This type of individual is generally better suited to mutual funds that invest specifically in bonds.

However, various types of bonds exist, with varying degrees of return which are balanced against security. Even against the stock market and its historical returns, the safest investment is in that of government bonds.

Government bonds are issued in order to finance public spending, but as the cash flow of a government by definition is sound, and the fact that the government actually is the guarantor of domestic currency, in the UK, one can't go past the security of Gilt Edged Bonds secured by the UK government.

These bonds characteristically offer premium security whilst also providing a bi-annual coupon to the holder. This coupon rate is fixed, and because they are sold at a discount from face value, is additional to the face value redeemable upon maturity. Still, the maturity of these bonds can span any number of years, within which an unbelievably active secondary market seeks to buy and sell them. Being that simple liquidation is another feature of the government bond, the investor has a great deal of flexibility in their investment.

In contrast, corporate bonds are able to offer a far higher coupon and discount rate upon their issue, therefore enabling the achievement of faster capital growth, however this is generally at the expense of investment security.

For the investor with tax relief as a vital issue in their objectives, it is important to consider the ever-changing dynamics of the UK tax schedule. Her Majesty's Revenue & Customs has designed numerous approved and unapproved schemes which are able to be legitimately taken advantage of in order to preserve ones earnings. Such specific knowledge should be subsequently followed up by thoughtful and carefully judged entry into a mutual fund that invests heavily in an array of municipal bonds, the holders of which are able to receive tax exemption on certain income or capital gains, the benefits of which are consequently passed on to members. Taking risks is an intrinsic element of investments; for information and advice on how a negative experience with investment can affect the health of your finances, please visit this website, or alternatively information can be found through lists of IVA companies.

 

3 Stocks Ready to Roar

There are plenty of strategies for picking stock winners: low P/E stocks, companies selling at a discount to their future cash flows, and more. At the small-cap stock-picking service Motley Fool Hidden Gems, even in this market, the analysts are able to beat the Street by finding undervalued stocks most investors have ignored.

But what if we could find a way to whittle down our list of prospects beforehand, finding those whose engines are just getting warmed up?

Using the investor intelligence database of Motley Fool CAPS, I screened for stocks that were marked up by investors before their stocks began to move up over the past three months, in a market that has headed south in a dramatic fashion. My screen returned 152 stocks when I ran it, including these recent winners:

Stock	CAPS Rating , Dec. 16, 2008	CAPS Rating, March 16, 2009	Trailing 13-Week Performance
i2 Technologies (Nasdaq: ITWO)	**	***	47.8%
SunPower (Nasdaq: SPWRA)	**	***	30.8%
Symantec (Nasdaq: SYMC)	**	***	19.8%

Source: Motley Fool CAPS Screener; trailing performance from March 13 to June 12.

i2 Technologies, in fact, was previously picked featured here in January. So while this screen might tell us which stocks we should have looked at three months ago, we want the stocks we ought to be looking at today. I went back to the screener and looked for stocks that were just bumped up to three stars or better, sporting valuations lower than the market's average, and whose price hasn't moved up over the past month by more than 10%.

Here are three stocks out of the 38 the screen returned that are still attractively priced, but which investors think are ready to run today!

Stock	CAPS Rating, March 16, 2009	CAPS Rating, June 15, 2009	Trailing 4-Week Performance	P/E Ratio
Banco Latinoamericano de Exportaciones (NYSE: BLX)	**	****	(1.5%)	8.3
Penn Virginia (NYSE: PVA)	**	***	7.4%	7.5
Wet Seal (Nasdaq: WTSLA)	**	***	(4.0%)	13.1

Source: Motley Fool CAPS Screener; price return from May 15 to June 12.

Though the results you get may be different -- the data is dynamically updated in real time -- you can run your own version of this screen. For now, let's take a look at why investors might think these companies will go on to beat the market.

Banco Latinoamericano de Exportaciones
Latin American and Caribbean lending institution Bladex (as it is known) improved its Tier 1 capital ratio to 21.7% in the latest quarter. That move was based on the firm's belief that Latin America has yet to experience the full impact of the global slump. The added capital positions the bank to continue to profit from the long-term growth of the region. It also underscores the sentiments in this January pitch from CAPS All-Star Alex1453: "regional growth, full effects of CAFTA-DR soon to be felt, and don't forget the canal zone project."

Penn Virginia
In May, the oil and gas company Penn Virginia closed a follow-on offering of 3.5 million shares at $19 a pop. It's using the proceeds to pay down some of its line of credit, on which it had borrowed $390 million.  Some CAPS members liked the firm at much higher prices, including All-Star aracer, who wrote last September: "Long term bet on Haynesville/Appalachia pipeline and processing at a good entry point."

Wet Seal
Last month, CAPS member jerseytix believed that teen retailer Wet Seal was leveling off. Two weeks ago, Wet Seal reported that May same-store sales ultimately fell less than expected (actual 8.4% vs expectations of 12.4%). Strong same-store sales growth at its Arden B chain offset lackluster performance at its namesake brand. Arden B's 11% same-store sales gain was overshadowed by the 19% boost in comps at rival Aeropostale (NYSE: ARO). 

As Jerseytix wrote: "Seem to have stabilized, including growth at Arden B; guiding profitable for 1st quarter. Strong cash position, with a little improvement could see $8-$10 a share by 2010."

Three for free
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. Why not head over to the completely free CAPS service, and let us hear what you've got to say about these or any other stocks that you think are starting to rev their engines?

Is Buy and Hold Dead?

The Great Debate
Many of you are participating in the Buy and Hold debate on Fool.com.  It's inevitable in a period of sharp market decline that the anti-buy-and-hold crowd inspires a bacchanalia ritual to liberate the long-term investing crowd from their restrained indexing and buy-for-life market strategies.   But beyond the hype that accompanies a market crash, I think this is an important and enduring debate that persists throughout our investing lifetimes.  It's a debate, in my opinion, in which there's a lot of merit on both sides, and I'm sure you will become a better investor if you are willing to challenge the conventional wisdom of either investing approach.   As Buffett said about times like these, "profit from folly rather than participate in it."

With the idea that you can make market volatility your friend rather than your enemy, the Fool will be sponsoring a series of articles to look at both sides of this debate, and I thought it would be a good idea to cover the action here in my CAPS blog.  I hope we'll have a good discussion here in my blog as well as join the debate taking place on Fool.com. Extreme and nuanced points of view welcome.

For a primer on the arguments on both sides of this debate, see the second half of this blog post. And I'll continue to update this blog as new pro or con Buy and Hold articles are published.

Round 1

In Tom Gardner's initial article on the subject, Long-Term Investing Doesn't Work, (don't jump to conclusions about the title) he argues that LTBH investors must master the "four t's" or they should not practice buy-and-hold investing:

1. Temperament. Can you stomach a 50% loss in the value of your investment portfolio over a two- to three-year period?

2. Time frame. Can you handle 10 years of zero returns from your investments?

3. Training. Are you capable of investing in public companies, diversifying internationally, and understanding what you own?

4. Tacking on. Are you inclined to add new money along the way, particularly as prices fall?

For those with shorter time frames, or those who seek maximum gains without the roller coaster ride from market peak to trough, he argues  that volatility control, the diversity of trading ETFs, and options can provide a smoother ride as well as market beating returns―which is the strategy behind Motley Fool Pro.

This initial article in the series sparked lots of spirited discussion, and inspired zlog's excellent blog, entitled "It works!" a defense of buy-and-hold, particularly in our current market…

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Quotes from the Fool.com Debate on Tom's Article

BDF958 wrote:
Buy and hold is not dead, its as relevant as ever. Tthere are three types who say buy and hold is dead 1) Tthose who profit from increased transactions, 2) those who want your $ for their advice and 3) Those who are experts at day trading, because they welcome another fool into the arena who thinks they can be good devoting 6:30-7:30 PM nightly to try to do better than average.

Now that does not mean that the landscape does not change occasionally, and that you need to live with your picks forever, but we live in a time where "noise" AKA everyone has a voice and really wants us to hear it and this wonderfull thing called the internet enables me to talk to the world, that we must be incredibly selective about what you listnen to, and what you react to and recognize that others will react to dumb stuff, and that will cause short term volatility that will drive a buy and hold nuts

harry1n wrote:
In my opinion, the buy and hold days are over. That does not mean you should become a day trader, but modern technology is changing so fast that the probability that any one company is going to be the top dog forever is very low. I now set stop losses on every stock I buy and if it drops significantly it automatically sells. If it turns out I should have kept the stock, I can buy it back again for $7 on many on line sites. I will never again let my portfolio drop significantly based on predictions from so called stock experts, that on reality don't know any more than I do.

JustMee01 wrote:
People forget several aspects of buy and hold.

Buy and hold needs to be used in value situations. You can't buy a commodity stock on the run up and expect to hold it long term. You can't buy a cyclical and expect to hold it long term. By the same token, you can't buy a mid-cap growth stock at 50 times earnings and expect to buy and hold. If the market turns, you'll get trampled, and at high valuations spectacular performance is priced into the purchase.

On the other hand if you buy a company with little debt, good cash flows, and a historically strong dividend record at a reasonable price, you can expect to hold long term until those fundamentals change. Buy and hold doesn't apply to speculative purchases.

People also tend to look at their patience with their funds and ignore the behavior of their fund manager. They may be "buy and hold forever patient" but their fund manager may not be. He's buying. He's selling. It's his strategy that you're using. So, buy and hold just doesn't necessarilly fit with mutual funds either.

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Buy-and-Hold vs. Market Timing Primer
As I mentioned in the opening to this blog, there's a lot of hype around the Buy-and-Hold vs. Market Timing debate.  But forget the hype, you need to constantly evaluate the opportunity to hold vs. sell, and to understand the margin of safety associated with each of your portfolio positions and portfolio as a whole.

Here are the 3 of the most important issues to keep in mind as you evaluate risk and return in any market.

1. You will win with LTBH over a 20-Year investing period.

Source: Schwab Center for Investment Research Figure 1: Range of S&P 500 returns, 1926-2005.

Maybe the next 20 years will be different, but historically, including leading up to and coming out of the Great Depression, investors can't lose over a 20-year investing time frame―and you are almost certain to beat the risk free rate of return. 18% annualized returns over your investing lifetime ain't too shabby.

2. If you're not in the game, you won't win big.
 

Source: Schwab Center for Investment Research, S&P 500, 1996-2005

A small number days drive much of the return―strengthening the argument that market timing can be risky. 

3. But it's also true that market timing can work.

Pu Shen Federal Reserve Bank of Kansas City has written one of the more interesting articles on Market Timing (http://www.kc.frb.org/Publicat/reswkpap/pdf/rwp02-01.pdf).  A typical "common sense" approach to the Buy and Hold  vs. Market Timing debate is to argue that we should "Buy to Hold," paying close attention to our valuation analysis and exit positions that no longer offer a compelling value opportunity.  Shen basically takes this approach by switching between an investment in the S&P 500 vs. 3 month treasuries based on a comparison of earnings yield.  In short, a trading strategy based on a perception of whether the market is overvalued or not.  The results were a clear victory for the timing strategies, which produced higher returns with lower volatility.  Perhaps geeks bearing formulas can make the difference between retiring in Maui or in a rundown apartment complex with a roommate named Maury…

My Bottom Line
My thoughts?  We're all momentum investors, and the standard deviations in the shorter term holding periods in the Schwab study make this case very clearly.  With an 20 year+ time frame, you are near certain to generate positive returns―just be prepared for a bumpy ride.  If you're temperament can't take a 20% loss or more in your portfolio over a 3-5 year period, then you should look for risk mitigation―via asset allocation, timing, or hedging strategies.  And of course, if you're near retirement you should reduce your market exposure.  Bogle's rule of thumb that 1% of your assets should be invested in fixed income for every year old you are is a decent and conservative starting point.   Just never forget that much of the market gain comes in short bursts, and if you're overhedged in those periods, or sitting on the sidelines, then you may have put forth a maximum effort with minimal rewards (or no reward at all).

So, go for it, and join in the conversation.  And keep checking in on this blog as I provide ongoing coverage on the Fool.com debate.

Buy and Hold Isn't Dead. It's Just Wounded

Back in October, in the midst of the market panic, I wrote a series of articles that encouraged readers to stop and think, to take a moment to acquire a little perspective before frantically dumping their stock portfolios. The key point of all of those articles could be summed up as: Don't panic. Panic is expensive.

It's amazing how panic leads people to make exactly the wrong decisions.

Do you really want to buy high and sell low?
Panicked people buy good stocks high because they're afraid of missing the boat, and sell them low to cut their losses. Panic-prone people jump on trends too late and buy "hot tips" from some guy their Uncle Charlie met in a bar, all without doing any research.

And when they do do something that's arguably right, like buying big-name stocks like Amazon.com (Nasdaq: AMZN) at $40 in the middle of a market meltdown, they screw it up by selling -- yep, in a panic -- when it hits $35 a few days later.

Panicked investors, in other words, are those who react to events -- specifically, to their emotions about events -- instead of following a plan. They're the essence of the stereotypical "retail investors" that Wall Street brokers claim can't manage their own money.

What they do, in other words, is fail to buy low and sell high -- or put another way, to buy well and hold for the long term.

So, about that "buy and hold" thing …
For years (and years and years), the best advice for long-term investing success was "buy and hold," maybe even "buy and hold forever." Fool co-founder Tom Gardner recently cited the example of Shelby Davis, who turned $50,000 into $900 million over 50 years by buying good companies he knew well -- mostly insurance companies like American International Group (NYSE: AIG) -- and holding them for decades.

Davis is relatively famous, but any wealth manager who deals with "old money" families can cite dozens of other smaller-scale examples. I know of a few myself -- folks whose great-grandads made a bit of money and bought stocks like General Electric (NYSE: GE), Bank of New York (NYSE: BK), or Consolidated Edison, solid dividend-paying companies, and built fortunes by holding (and reinvesting those dividends) for many years.

Tom Gardner has argued that if you can't refrain from making any trades while watching your portfolio take huge dips, or hang on through several years of no gains, or discipline yourself to do serious fundamental research and keep investing through good and bad markets, a long-term buy-and-hold approach isn't for you.

There's a lot to be said for Tom's argument. But I'm going to go out on a limb and quibble with one of the Founding Fools: I say that buy-and-hold alone isn't for you.

Buy and hold, but better
If there's one thing we humans do well, it's adapt to circumstances. Here we are in a time of great volatility and uncertainty. How do we adapt "buy and hold" to a time of uncertainty and volatility? How do we work around our own inclination to panic?

Here's what I'm thinking (and what I've been doing). We could start with a core of solid long-haul stocks -- great (big) companies like Procter & Gamble (NYSE: PG), BP (NYSE: BP), or Johnson & Johnson (NYSE: JNJ). We could add some smaller growth stocks -- again, with the intention of holding them as long as that makes sense, but with the understanding that these won't necessarily be decade-plus holdings like a blue chip might be. Of course, we'll reserve the right to sell any of our holdings if and when that seems warranted.

But what if we also sold some stocks short, or used options to take short positions (for instance, in an IRA where shorting is prohibited)? What if we used ETFs to take long or short positions on sectors or regions of the world? What if we used options or ETFs to hedge our risks when we went out on a limb, or to protect against a sudden market swing?

In other words, what if we put the volatility to work for us? I can't think of a better way to keep from making panicky blunders than by having a plan to profit from (or at least mitigate the damage from) big market swings.

And what if we put together a community of like-minded folks, together with some experts in these alternative strategies, so that we could learn how to do all this (and profit) together?

Such a community exists -- Motley Fool Pro. You may not have heard of this Fool service because it has been closed to new members for several months. Pro was started right in the middle of last fall's market collapse to find a way to navigate these new market waters, using all of the strategies I mentioned above.

How is it working? So far it's beating the market by over 5% -- with a $1 million real-money portfolio. And it has provided one heck of an education for its members, even for guys like me who've been around the block a time or two.

A new role as 'risk regulator' could reshape Fed

WASHINGTON -The Obama administration's plan to revamp regulation and prevent any more crashes like those that felled AIG  and Lehman Brothers  includes a bold new idea: Empower the Federal Reserve to oversee the biggest financial players whose failure could threaten other institutions and the economy.

But some lawmakers and economists say making the Fed a "systemic risk regulator" would itself be a high-stakes risk that would distract from its core mission: reviving the economy.

They say the Fed shares blame for the financial crisis that erupted last fall. Along with other regulators, it failed to crack down on risky mortgages and lax lending standards that ignited the crisis.

Unless the Fed improved its oversight abilities, "giving the Fed more responsibility at this point is like a parent giving his son a bigger and faster car right after he crashed the family station wagon," said Mark Williams, professor of finance and economics at Boston University and a former Fed bank examiner.

Treasury Secretary Timothy Geithner and Lawrence Summers, head of the White House's National Economic Council, said in an opinion piece published Monday in the Washington Post that the Fed would become a "systemic risk regulator" for "large, interconnected firms whose failure could threaten the stability of the system."

They also would create a council of regulators, Geithner and Summers wrote. These regulators ― which weren't identified ― would serve as extra eyes and ears to help the Fed oversee financial products.

President Barack Obama plans to unveil the regulatory plan Wednesday, with congressional hearings the next day.

Even inside the Fed, there's recognition that its examiners would need to improve their ability to detect risks if it was to be made a new financial supercop. Under Alan Greenspan , who led it for 18 years, the Fed and other agencies overlooked the risks of allowing exotic mortgages to go to financially shaky borrowers. And they resisted efforts to regulate risky and complex instruments such as derivatives.

"We must ensure that we continue to increase our expertise so it is properly matched with the problems and challenges we will face in both our bank supervisory role and in meeting our traditional financial stability mandate," Chairman Ben Bernanke  acknowledged in a recent speech.

Some lawmakers and Wall Street analysts worry, too.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., and Sen. Richard Shelby of Alabama, the committee's senior Republican, say they're concerned about overloading the Fed while it's managing the financial crisis and fighting the recession. They say it needs to focus on monetary policy ― the decisions about key interest rates that affect the economy.

Expanding the powers of the Fed, whose members aren't elected, would also raise concerns about accountability. Though the Fed has sought to be more open, it remains one of Washington's most secretive institutions.

"I just think we're heaping too much on the Federal Reserve," said Rep. Paul Kanjorski, D-Pa., a member of the House Financial Services Committee. Kanjorski said it would be a mistake to further empower an agency not accountable to Congress or the president.

"You can't fire the chairman of the Federal Reserve," said Kanjorski, who thinks the role of risk regulator should be given to the Treasury Department.

Michael Feroli, an economist at JPMorgan  Economics, agreed: "The more the Fed leadership has to deal with, the less time it has to focus on any single issue."

The Fed had no official comment on the administration's proposals as laid out Monday by Geithner and Summers.

Many analysts agree that a potent regulator is needed to make sure institutions don't take the kinds of risks that last year ended up imperiling the banking system. When American International Group  stood on the brink of collapse last year, for example, the Fed had to rescue it for fear AIG's failure would devastate the economy.

AIG's undoing was an unregulated unit that made disastrous bets on mortgage-backed securities and mismanaged credit default swaps ― a form of insurance against bond defaults. With a systemwide risk regulator, the idea is that such problems could be spotted beforehand. Safety nets ― like stiff capital requirements to protect against future losses ― would be imposed.

It's unclear whether the Fed would have to hire additional banking examiners or other specialists to carry out its supercop duties. And it's not known how much other agencies would share information about companies or products.

Partly out of fear of concentrating too much policing power in the Fed, a council of regulators would work with the Fed to supervise "too-big-to-fail companies." Sheila Bair, head of the Federal Deposit Insurance Corp., and Mary Schapiro, chair of the Securities and Exchange Commission, favor this idea.

Even if the Fed's powers were expanded, history suggests it might be impossible to spot the next financial bubble ― whether in housing, the stock market or elsewhere ― before it forms.

"A strong systemic risk regulator is important," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco. "But you probably won't catch everything."

Shifting from Stocks to Bonds May Be Risky

When the stock market is too risky (as it was in 2008), investors often flee to safer shores.

In many cases, U.S. Treasury Bonds are those safer shores. And why not, the U.S. government guarantees it will redeem the bonds at their face value if held to maturity.

In other words, if you buy $10,000 worth of U.S. Treasury Bonds you will receive that $10,000 back when the bonds mature. In the interim, you will receive interest payments twice per year.

If your goal is to buy and hold the bonds until maturity, this is all you really need to know.

Stocks and Bonds

However, many investors hold the bonds during difficult times in the stock market and then sell them on the open market when the investor wants cash to get back into the stock market.

This is a common strategy and one that works because there is a secondary market for buying and selling U.S. Treasury Bonds.

There is a risk however in this strategy. The U.S. Government guarantees to redeem the bonds at face value when held to maturity.

It does not guarantee that you will receive face value if you want to sell (as many do) before the bond's maturity.

There are three numbers that you need to know when assessing a bond:

• Coupon or stated interest rate � This is the interest rate that is used to compute interest payments to bond holders. In most cases, it does not change during the life of the bond.
• Face value � This is the value of the bond and what you will pay if you buy a newly issued bond from the U.S. Government. It is the amount you will receive when the bond matures. Yield � This is a computed interest rate for bonds sold on the secondary market. It changes based on the price of the bond in the secondary market. There are more complicated numbers (yield to maturity for example), but for purposes of this article, I'll keep it simple.

When you buy or sell a bond in the secondary market you are not dealing with the bond issuer, but another investor.

Price of Bond

This is important to know because the price of the bond may not be its face value.

Here's how it works. If a bond is issued with a stated interest rate of 6 percent it will pay the holder that interest rate for the life of the bond.

However, suppose the bondholder decides to sell the bond before the maturity date.

What the bondholder will receive for the bond is based on current interest rates and how they differ from the stated interest rate on the bond.

For example, a U.S. Treasury Bond is issued for $10,000 with a stated interest rate of 6 percent and a maturity in 10 years.

The bondholder wants to sell after just three years. In the three years that have passed, interest rates have climbed to 8 percent.

Who would want a bond paying 6 percent when they could buy a bond paying 8 percent?

Bond Rule

A rule about bonds: when interest rates rise, the price of existing bonds falls.

To entice a buyer, the bondholder must lower the price of the bond so that the interest rate (remember it is fixed at 6 percent) of the bond equals what an investor could receive from a new bond.

The math makes sense. If you are paying the same interest rate on a smaller principal the effective interest rate or yield is more than the original bond.

You can't change the interest rate on the bond. That's fixed at 6 percent. You can, however change the price you will take for the bond.

The annual payment of $600 ($10,000 x 6%) must equal an 8 percent payment. Doing the math, you discover that the face value of the bond must be discounted to $7,500 ($600/8% = 7,500) so that the $600 fixed payment equals an 8% yield on the buyer's investment ($7,500 x 8% = $600).

If interest rates went down instead of up, you could then sell your bond at a premium over face value because the fixed interest rate would be higher than the market rate.

Illustration

PLEASE NOTE: This is just an example to illustrate the relationship between interest rates and bond prices. It does not represent an actual computation. To do this calculation correctly would require a more complicated process and the answer would be different. However, the seller would still have to discount the face value of the bond to compensate for the interest rate difference.

This illustrates the risk investors face when holding bonds. If interest rates rise and they want to sell before maturity, the investor will have to take a discounted price for the bond.

Should pot be legalized?

June 15, 2009

10 p.m. ET   AC360� 'America's High' Can the U.S. afford to make pot legal? Can we afford not to? AC360 is keeping them honest on both sides of the argument. A special series, all this week -- 10 p.m. ET Related: • Cancun drug cartel suspect arrested       6:00 a.m. ET   American Morning Get the most news in the morning with John Roberts and Kiran Chetry. Tune in weekdays at 6 a.m. ET.

8:00 p.m. ET   Campbell Brown Are you hungry for change? The director of the highly acclaimed documentary Food Inc., sits down with Campbell. What he says could change how you look at your next meal. 9:00 p.m. ET   Larry King Live American Idol David Cook talks about his music career and life after his brother's death. Plus, Jeff Foxworthy's back with his latest advice that's sure to burn up the bestseller list: How to Really Stink at Work! 10:00 p.m. ET   Anderson Cooper 360� Can the U.S. afford to make pot legal? Can we afford not to? Anderson Cooper is keeping them honest on both sides of the argument. All this week.

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Petrobras Brazil PBR Gains Importance in Energy Sector

Petrobras Brazil is an interesting play in the energy sector. The current global recession fear has helped to beat the stock down from the $70's last year to a current price of about $35.00. From the extreme low of $17.78 made on November 19, 2008 the stock has already nearly doubled.

While serving a rapidly growing domestic market in 2008, Petrobras exported a record volume of 673,000 barrels per day of oil and derivatives, 9.4% more than in 2007 and topping-out with a volumetric surplus of 103,000 barrels per day. Total exports amounted to $21.245 billion, 42.7% above a year earlier.

The vision for Petrobras Vision by 2020 is to be one of the five largest integrated energy companies in the world and the preferred choice among their share holders. Petrobras is one of the leading companies in the world in having technology for deep water recovery of oil assets.

The Company has several competitive advantages compared with its current and future competitors, the principal being:

1.) Dominant market position in the production, refining and transportation of oil and oil products in Brazil. Brazil is a rapidly developing nation;
2.) Significant and growing oil reserve base with ongoing exploration in promising areas;
3.) Advanced technological know-how for deep water exploration;
4.) Reduced costs due to its operations being executed on a large scale and to the integrated nature of its operating segments;
5.) Solid position in the growing Brazilian natural gas markets;
6.) Proven success in attracting international partners to all areas of the Company's activities. And
7.) Strong backing by the Brazilian government.

As of December 31st, 2008, the proven reserves of crude oil, condensate and natural gas in the fields under concession of Petrobras amounted to 14,093 billion barrels of oil equivalent (boe), representing an increase of 1.2% in relation to 2007. In revealing its business plans and reserve figures. Petrobras Brazil is one of the world's most transparent oil companies.

Last November, Petrobras, the state-controlled oil giant of Brazil, announced that it had found between 5 billion and 8 billion barrels of light, sweet crude in a field called "Tupi". This field is wedged under a layer of salt deep beneath the floor of the Atlantic Ocean off the cost of Rio. Some geologists believe there is even more oil in the "pre-salt" fields.

Extracting oil from Tupi is a gigantic expensive technical challenge. The salt has acted as a "perfect seal" to preserve the oil, according the director of Petrobras' projects in the pre-salt fields. With the drop in the price of oil over the past few months Petrobras is probably not in a hurry to develop this field. However, the Tupi discovery is one of the most significant oil finds in recent years and the field will be developed as oil prices escalate in coming years.

I do not expect crude oil to remain at current levels for very long. In my opinion peak oil has already arrived as maximum world production seems to be limited to about 85 million barrels a day. Major oil fields, like Mexico's Cantarell field, are in a serious stage of depletion. Demand for oil has not declined by very much, even in the face of the world recession. The world is hooked on oil and alternative energy supplies will not make a dent in the total demand for oil, at least not in the foreseeable future.

At current price levels Petrobras is still a compelling play. Current low prices for crude oil are due more than anything to the financial meltdown and the forced liquidation of hedge fund and investor positions in crude rather than supply and demand considerations. The world, even in recession, has a huge appetite for oil and oil products. Low prices are now setting the stage for another huge price spike. Due to low prices oil exploration and drilling projects are being cut back and the degree of oil that will be needed as the world economy rebounds will not be there.

Petrobras shares at current price levels gives the patient investor a wonderful opportunity to own shares in a well managed company, in a high growth rate economy, in an industry that is indispensable in an energy hungry world. As Mexico's oil production continues to fall Brazil and Petrobras will likely become an ever more important exporter of oil to the US market.

In 2007 and in the first half of 2008 the prices of Petrobras' shares and American Depositary Receipts (ADRs) as you might expect tended to follow the oil price increase, (then the oil price decrease in 2008 ) yielding a higher return than the Brazilian U.S. stock market indices. In 2007 at the São Paulo exchange (Bovespa), the Company's common (PETR3) and preferred stock (PETR4) rose by 92.7% and 77.5%, respectively, whereas the Ibovespa recorded a nominal increase of 43.6%. At the New York stock exchange (NYSE), the Dow Jones index rose by 6.4% in the year, while the Company's ADRs appreciated by more than 100%.

Even with oil back to the $50 a barrel level Petrobras has been an impressive stock market performer. On the next spike in oil prices Petrobras will likely double in price yet again. From current levels I would expect at least a 100% to 200% gain in Petrobras stock should crude oil prices once again reach the $150 a barrel level.

5 Stocks You Should Avoid Right Now

A few weeks back, we profiled five unbelievably solid stocks -- companies that have been paying uninterrupted dividends to shareholders for more than 45 years. That consistency is incredible.

Today, we thought we'd take the flip side of that coin and examine five stocks that are anything but incredible.

Why they are so dangerous
What first caught our eye about these five dogs is that they are among the most heavily traded stocks on our major exchanges:

Company	Average Daily Trading Volume, Past Three Months	Recent Share Price
Citigroup	489 million	$3.48
Bank of America	507 million	$12.98
Ford	100 million	$5.98
Freddie Mac (NYSE: FRE)	15 million	$0.71
AIG	139 million	$1.61

Source: Yahoo! Finance.

Millions upon millions of these shares have traded hands -- on a daily basis -- over the past three months. That might make sense; after all, every one of these stocks has headlined the nightly news at least once during that time period.

Now, we have to acknowledge that many of these transactions were from the big-money institutions or the short-term day-trading crowd. But somewhere in there is the little guy.

And you should stay away
We believe long-term investors should avoid these stocks. Why? Because these five stocks have three troubling commonalities:

1. Convoluted relationship with the government.
According to the Center for Responsive Politics, the "Finance, Insurance, and Real Estate" industry spent more than $3.4 billion on lobbyists between 1998 and 2008 -- more than any other industry. Over that same time span, Ford and other automakers "donated" nearly $200 million to Washington.

What did those five companies get for all of those political contributions? All but Ford have received well-publicized bailout funds. And while the taxpayer money will be used to save these companies from a far worse fate (we hope), Uncle Sam's money comes with strings attached.

Under normal circumstances, businesses are accountable to three constituencies: their customers, shareholders, and employees. Businesses will do well when they do right by all of them. These five companies, however, are now accountable to a supra-constituency: the federal government. That frightens us, because it's unclear how customers, shareholders, and employees will fare when these companies try to do right by the feds.

2. Gordian knot-like financials.
Take a look at Citigroup's balance sheet. For all of the information, for all of the numbers, it's among the most confusing documents we've ever examined. Call us when you figure out what it owns and what it owes. Heck, call Citi CEO Vikram Pandit first. He may benefit from the knowledge.

See, it's seemed to us that as the credit crisis persists, insiders haven't been totally clear about what's on their books. Though some have a vague sense that mark-to-market accounting has forced them to write down asset values too far, only time will tell ... and time may not be on these firms' sides right now.

The auto companies have some of these same issues -- they have consumer finance/lending divisions -- but their pension obligations present an entirely different yet similarly complicated set of problems.

3. No near-term catalysts.
The financial companies will survive in some form -- our government has committed to that. But their future will be unlike their past. Regulation will be stricter. The massive 30-plus-times leverage that drove outperformance earlier this decade will be a dark relic of a bygone era. And now, skeptical investors may never ascribe the same market multiple to profits.

We just can't see a world in which these companies post the same kind of profits that we saw for the past 10 to 15 years.

What you shouldn't avoid right now
Contrast the future of Citigroup or AIG with, say, the future of these efficiently run blue chips, each of which is trading at a discount to its five-year average:

Company	Current P/E	Five-Year Average P/E	Motley Fool CAPS Rating
Abbott Laboratories (NYSE: ABT)	13.3	25.4	****
Diageo (NYSE: DEO)	12.2	16.4	*****
H.J. Heinz (NYSE: HNZ)	12.2	19.0	****
ABB (NYSE: ABB)	12.3	21.1	*****
Walgreen (NYSE: WAG)	14.9	22.4	****

Source: Morningstar and Motley Fool CAPS. CAPS rating out of a possible five stars.

This isn't a formal recommendation of these five companies -- and it's not to say that they each don't face challenges. But at least they're not encumbered by convoluted relationships with the government and convoluted financials. And they can continue with business as usual while the stocks in the previous chart are figuring out ways just to maintain.

Buy one-foot bars
Heck, there may be value in one or all five of the stocks we've advised you to avoid -- in some cases, they've more than doubled in recent weeks. But given their complexity, they're the proverbial "seven-foot bars" that Warren Buffett says he avoids in investing.

Instead, Buffett looks for "one-foot bars that I can step over." In other words, lay-ups, short putts, or fastballs down the middle (to diversify our sports analogy). These are easy investments where the reward profile far outweighs the risk profile.

Stocks set to drift without economic growth signs

 

NEW YORK -The summer slowdown is setting in on Wall Street.

The stock market has been drifting, stalling a three-month rally, and analysts say investors need to see more concrete signs of economic growth before they'll take stocks higher.

At the same time, concerns are growing over climbing interest rates, a falling dollar and rising commodity prices ― all factors that could inhibit recoveries for the market and the economy.

But with trading entering a traditionally slow period, stocks' moves will likely be more sedate this week, especially in the absence of any economic reports. Analysts say that isn't necessarily a bad thing.

"A sideways move in the market is actually a corrective move," said Keith Springer, president of Capital Financial Advisory Services in Sacramento, Calif. "You get rid of the overbought condition when you move sideways."

Analysts have warned that the market may have rallied more than economic fundamentals warranted this spring, and that a significant pullback is in order given how far and how fast stocks rose. A gain of 40 percent ― like the one in the Standard & Poor's 500 index since early March ― usually takes years, not months.

But while stocks are no longer barreling higher as they did in the early spring, they have yet to retreat meaningfully, and that's a sign of strength in the market.

The major stock indexes moved little last week, rising less than 1 percent after big gains the week before. The S&P 500 index ended the week up 6 points, while the Dow Jones industrial average added 36 points and the Nasdaq composite index rose 9 points. The Dow, however, managed to show a gain for the year by the close of trading on Friday.

"I'm inclined to take the market action the last two weeks as reasonably positive," said Uri Landesman, head of global growth strategies at ING Investment Management.

Still, a pruning of 10 percent in the market is not out of the question, analysts said.

"Unless we get some kind of clear picture of what the future has to bring and where growth is going to come from in the short term, I don't know that there are any acute drivers out there," said Kim Caughey, vice president and investment analyst at Fort Pitt Capital Group in Pittsburgh.

Among the biggest threats to the market's rally right now are concerns over rising interest rates and inflation ― worries that have grown as the dollar weakens against other currencies.

The dollar has fallen steadily over the past three months partly because of the signs of economic improvement that sent investors in search of bigger returns in riskier assets like stocks and commodities.

But concerns over the government's mounting debt load have further shakened the greenback and sent yields on Treasurys climbing. Investors are concerned about the huge inflow of government debt into the market, part of the Treasury's efforts to fund the country's stimulus programs. They're worried that an oversupply of U.S. debt will scare away buyers, who then won't need to buy dollars in order to purchase Treasurys.

The big debt sales are also multiplying investors' concerns about inflation. There's a growing belief in the market that the Federal Reserve will make inflation fighting a priority and start raising interest rates again. That in turn, could stifle an economic recovery: Long-term bond yields are tied to mortgages and other consumer loans, which means borrowing costs are rising at a time when Americans are still under considerable financial stress. And a prolonged decline in the dollar would further erode the buying power of consumers.

As a result, investors will stay focused on how much demand Treasury auctions garner in the coming weeks. This week, the Treasury will auction off 1, 3, and 6-month bills.

Other important reports this week include the National Association of Home Builders housing market index for June, to be released Monday. The following day, the Commerce Department will issue a report on housing starts for May.

The Conference Board releases its May index of leading indicators on Thursday.

In addition to those reports, the Labor Department will release its producer price and consumer price indexes for May, while the Federal Reserve will release a report on industrial production.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Stock Trading Software Reviews

The stock market has been a hub for daring traders and investors who wish to earn a lot of returns from their small share of investment. The stock market is a worldwide phenomenon of buying and selling trade stocks, currency derivatives, and bonds, which make up a corporation's or a government's capital. Modern investors are now taking a slow yet sure pace of monitoring the changes of the values of stocks of their own portfolio keeping in watch the overall movement of corporations in a given market. Observations regarding price movements and expected downfall or poor performances of companies over their history has now been made easy and convenient for stock investors through the use if the different stock market software. The time-consuming and draining task of constantly staring at price charts and stability charts has now been minimized to allow you to have a life of your own aside from the required hours to study the market.

The essence of stock trading is fairly and simply to buy and sell a given stock. But the complexities of knowing the appropriate price that your own stock could go as far as simulated stock market software could give you and the right timing to buy and sell trade stocks or derivatives could all get messy and confusing without the aid of modern technology's useful financial market software.

There are lots of free stock market software applications that you can choose from which are available and downloadable from the Internet. The worldwide web has more than enough resources to give you the latest or the historical figures from among the various financial statements of the company of your choice. Material information about a company can be accessed through the Securities and Exchange Commission through the Regulation of Fair Disclosure. For beginners in the stock trading business, this is very important because these items are necessary in feeding your own software of the important data from which it will analyze, monitor and evaluate.

When choosing the right software to use it is important to determine your own needs like your own interest of which stocks you are willing and capable to trade. It is wise to say that the best stock market software is the one which you can easily understand and manipulate. What for is an advanced and somewhat complicated software if you cannot maximize and move forward with your own stock investments? Your basic and most important objective in stock trading is to earn as much return of investment or capital gains from a reasonably low capital expenditure―your investment.

Stock market investment software is a handy and easy program where you can input some of the best strategies at moneymaking through the philosophies of most successful investors like Buffet or Benjamin Graham. The use of this software is necessary before making a transaction to buy or sell in the market, researching a company where you should invest, finding the ways to do research of the company to invest and keeping important points that you should remember. More importantly, it monitors your transactions to evaluate your strategy and enhance it as necessary when you actually place transactions in the future.

For beginners as well as those seasoned traders in the stock trading enterprise, using different stock market trading software programs is necessary in terms of saving one's time and effort from the hassle of human technical errors in calculations when one does a study and research of the dynamic stock market.

It would not be difficult for someone to start in the stock trading business by understanding the general picture of the market through the different stock market research software packages that are available in the worldwide web. There are a lot of investing strategies that you can follow. You can also invent for yourself when you have been active in the business for a long time. But the two basic methods of making money through investments are the technical and fundamental analyses. These basic approaches may well be made easy for you through the use of market analysis software, which could aid in analyzing the financial statements of companies, the business trends and their general economic conditions. There are free market software applications that include trend studies in its analysis. Market trend software allows assistance of the necessary technical analysis of the broad economic movements of the key players in one's chosen business industry. Technical analysis uses charts and many other quantitative techniques to study price actions in the market and its trends through forecasts.

An open-source software application like the market analysis system could provide all the necessary tools for a technical analysis of the market. It can actually provide facilities that are useful for stock charting as well as futures charting through the various technical analysis indicators like price and volume.

Some people opt to invest through the index method where one would hold a portfolio of the entire stock market or only a part of it with the aim to minimize tax from numerous trading and maximize diversification to ride the general trend of the market. One's market share is monitored and constantly updated through market share software. This type of financial software provides tools that help you analyze the financial market so you can keep your investments from dropping in value. It should include the basic technical analysis indicators like the simple moving average, the On Balance Volume, the Exponential Average and the Momentum. Key players of the market should be well observed and their performance monitored when your investment lies heavily on them.

The use of charts has been a standard for keeping records and graphing changes in the valuations of stocks and its movement in the market. These are technical analysis tools that should help you forecast trends and probable investment opportunities. A stock market charting software allows you to display various technical charts for mutual funds, indices, and stocks with technical indicators such as price channels and relative strength index among others. Some of these types of software could also open multiple chart documents, test one's investment strategy, and maintain predefined lists of your investments. Access to the database of over 20,000 securities listed on the major exchanges is brought about by its own built-in ticker look-up. This is important in order to trade better in the market where timing is of the essence in buying and selling stocks. Hence, a stock market timing software is also a good choice, but this may be more appreciated and understood by professional traders. Some software products like this has been made user-friendly for beginners as well. These programs can provide an investor with technical updates of one's stocks on a real-time basis, which allows trading to be easy with just the clicking of the mouse. Stock market timing uses technical indicators that may or may not be the same as those used in your chart applications. Technical indicators will alert the investor of the fluctuations in value of the stocks where by rule, the higher the value the higher the risk and so is the gain should the stocks be sold.

Stocks are highly volatile and one can actually see it in the calculations or graphs and spreadsheets generated by live stock market software where real and actual quotes of stocks are shown. Historical figures of stocks can be accessed and studied. This should come in handy when you buy and sell your stocks.

Stock market manager software should come in handy when you have an existing portfolio of the major trading companies. One should arrange investment strategies and goals by a checklist that a software can keep as your own. You should be updated on the latest price movements which will generally affect your own set of stocks. One should always bear in mind that in stock trading, one has to maximize gains and minimize losses by rebalancing portfolio, and data analysis from the different active brokerages and financial establishments.

There are available stock market simulation software products that attempt to duplicate or imitate some or most of the features of the stock market on your computer should you withhold actual trading of stocks and want to train yourself a bit more in stock trading. Stock market simulators could either be financial market simulators or fantasy simulators, the difference of which lies on the generation of a reality based items or objects. Financial market simulators generate a portfolio that is based on real stock data but with fantasy money while fantasy simulators trade derivatives of real world items that would not normally be included in a commodities or exchange market, examples are television shows and movies.

In 2007, the android platform and operating system has made advances for mobile devices and the business industry has not fallen short of accommodating it in their system. In the android market software for business and finance is a freeware that has allowed users access to libraries, which are Java inscripted. Most stock market simulators online run on Java, ASP or PHP that allows open source or proprietary software with codes that are sold to use for valuable prediction of the market.

Evaluations through investing software applications available through the Internet use accumulated data and performance of a particular trading transaction. Analysis of data closing prices when the daily trading period ends, the stock lows and highs and volume of trade ranked in their risks as either good or bad are all taken into consideration in an evaluation.

Now with all the available software to choose from, one should have the software that he or she could easily practice and understand. Stock market software reviews are available if you do not have the luxury of comparing software on your own. Learning the applications of a certain software package is time-consuming and understanding their uses may be complicated, but one can save much energy by logging on to stock trading software reviews where detailed explanations on the benefits of the different software are available.

Before you download programs and applications, it is good to compare stock trading software to be sure that it is the best-suited software to meet your goals. There are lots of software options with a number of features, which may not be very necessary for you so it is wise to check on the software before downloading it. The best software that one should at least begin with is stock timing software because you would be needing alerts on when to properly make a trade.

Some of the features that are included in most software include applications that allow the user to create new technical analysis indicators. Some allow the users to configure the criteria for the automated trading-signal generation. Weekly, monthly, quarterly and even yearly data can be created by the daily data. The best software should be able to handle intraday data and can candle stock and futures data. Input data from a database or files from the web should also be well handled and managed.

Different stock trading software may not have the same operating system as your computer so it is good to check the software compatibility. With the many stock market investing software that are downloadable for free online, one can always find a program that suits one's operating system. The Linux stock software that is available in the Internet is an open-source type of software that can be viewed in Yahoo. Microsoft windows allow several numbers of bills to acquire a license, which is costly to anyone who wishes to invest with minimal cost and earn big profits.

When one has acquired trading software, he or she should practice it as often as possible so that one can easily enter into the trading business by being familiar with the menus and features of the program. The usefulness of a stock trading software comes when you had to juggle different work or your family affairs because you do not need to devote most of your time monitoring averages, price movements and trading activities of the market.

Can Penny Stocks Make Millionaires?

Is it on the cards for nation to thoroughly make a important yield using Penny Stocks, even to happen to millionaires? definitely there are some populate who make huge amounts of money with stocks, mundane intimates who trade in their own time I don't know as a hobby pretty than as a expert trader It is very likely but that although they started on penny stocks they in time moved up to other potentially more money-spinning stocks using better sums of money once they felt they were more skilled and had more money to finish Of itinerary the query then becomes how do you start assembly profits briefly in penny stocks with the least risk?

facingwe remedy that reservation let us hastily mark out faithfully what we mean by penny stocks. There are atypical accurate definitions, but in broad the idiom refers to low priced, highly rough stocks which unexceptionally sell at less than $1 per share They are very fickle and can rise and drop hundreds of take points in action now and again as much as 400%. This can of gush be treacherous but can also be extremely rewarding if you know what you are burden

Now that we know what penny stocks are, how can we momentarily work out what to trade and when, to maximise our proceeds hark back to generally only after we have made a amount of trades using small low risk sums can we even think about assembly the kind of trades we need to make the big money hastily In most cases traders purely have to put in the hours - and weeks and months and years - to turn into experienced in the sell Only after trading many times and analyzing the trends and results over a long time can a dealer say he in actual fact understands trading stocks, and even then he will still lose on many trades.

butthere are of track many shortcuts on bid There are many "systems" presented ways to help you relate trends and money-spinning opportunities as they come about but there are huge troubles with most of them. The main obstacle is merely that any approach still relies on analysing the chronological trends, and this takes time and attempt However there may be a new explanation

Two workstation programmers have produced a piece of software which performs scans of stocks looking for companies who are forming cheerful trading patterns, ie their stocks are about to enlarge This software report past in order all the time and learns more and more over time, and every week it outputs recommendations of stocks it thinks should be bought and sold. These recommendations are only made when the software is poised in the effect based on the huge sum of data it has analysed.

Of itinerary as with all stock trading, and for the most part in the unpredictable penny trades market not every resolution will be assess even the software cannot envisage every possibility But on middling the software is reported to conceive gains of 105.28% per week, even office for the trade recommendations which do not work out. Could this be the key to making considerable proceeds from penny trades devoid of payments years as a buyer it seems that if a big name had put $5000 on each of the not compulsory trades over 4 months last year they would have made $387,684 in gain

Is it on the cards for nation to thoroughly make a important yield using Penny Stocks, even to happen to millionaires? definitely there are some populate who make huge amounts of money with stocks, mundane intimates who trade in their own time I don't know as a hobby pretty than as a expert trader It is very likely but that although they started on penny stocks they in time moved up to other potentially more money-spinning stocks using better sums of money once they felt they were more skilled and had more money to finish Of itinerary the query then becomes how do you start assembly profits briefly in penny stocks with the least risk?

facingwe remedy that reservation let us hastily mark out faithfully what we mean by penny stocks. There are atypical accurate definitions, but in broad the idiom refers to low priced, highly rough stocks which unexceptionally sell at less than $1 per share They are very fickle and can rise and drop hundreds of take points in action now and again as much as 400%. This can of gush be treacherous but can also be extremely rewarding if you know what you are burden

Now that we know what penny stocks are, how can we momentarily work out what to trade and when, to maximise our proceeds hark back to generally only after we have made a amount of trades using small low risk sums can we even think about assembly the kind of trades we need to make the big money hastily In most cases traders purely have to put in the hours - and weeks and months and years - to turn into experienced in the sell Only after trading many times and analyzing the trends and results over a long time can a dealer say he in actual fact understands trading stocks, and even then he will still lose on many trades.

butthere are of track many shortcuts on bid There are many "systems" presented ways to help you relate trends and money-spinning opportunities as they come about but there are huge troubles with most of them. The main obstacle is merely that any approach still relies on analysing the chronological trends, and this takes time and attempt However there may be a new explanation

Two workstation programmers have produced a piece of software which performs scans of stocks looking for companies who are forming cheerful trading patterns, ie their stocks are about to enlarge This software report past in order all the time and learns more and more over time, and every week it outputs recommendations of stocks it thinks should be bought and sold. These recommendations are only made when the software is poised in the effect based on the huge sum of data it has analysed.

Of itinerary as with all stock trading, and for the most part in the unpredictable penny trades market not every resolution will be assess even the software cannot envisage every possibility But on middling the software is reported to conceive gains of 105.28% per week, even office for the trade recommendations which do not work out. Could this be the key to making considerable proceeds from penny trades devoid of payments years as a buyer it seems that if a big name had put $5000 on each of the not compulsory trades over 4 months last year they would have made $387,684 in gain