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It’s a shame, really, that much of what is offered here – at no charge – is not taught in the public schools. Why is it that you can graduate in the top of your high school class and know next to nothing about credit card debt, adjustable-rate mortgages, or 401(k)s? Founded in 1999, the goal of... More
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  • Treasury Funds: Get These Time Bombs Out of Your Portfolio
    Source : Treasury Funds: Get These Time Bombs Out of Your Portfolio

    by Alexander Green, Chief Investment Strategist
    Monday, June 21, 2010: Issue #1285

    Tens of millions of investors have a ticking time bomb in their fixed-income portfolios.

    Are you one of them? If so, there's still time to defuse it.

    A few weeks ago, I wrote an Investment U column entitled, "Why the Safest Investment is Now One of the Riskiest."

    I noted that investors - frustrated by the microscopic yields on money market funds and certificates of deposit (CDs) - have poured money into longer-term Treasury funds.

    Their thinking is simple. Too simple: "These funds yield over 5%, not bad in this environment, and the bonds they hold are guaranteed by the full faith and credit of Uncle Sam. What's to worry about?"


    Aren't Treasury Funds Free of Risk?

    Unlike individuals, corporations, and municipalities, the federal government can simply create money to meet any obligations. U.S. Treasuries are thus free of credit risk. But they aren't free of interest-rate risk.

    When interest rates go up, Treasury bond prices go down. Yet investors are comforting themselves that inflation isn't currently a problem and that long-term rates remain near historic lows.

    Don't be fooled. There is a monster on the horizon - and he makes Beowulf's Grindel look like Barney.
    • Over the past 18 months, the federal debt has surged from $5.5 trillion to more than $8.6 trillion.
    • Two years ago, it was 38% of GDP. Today, it's 59% of GDP. And by the Congressional Budget Office's own estimates, it's going much higher still.
    This is dangerous. Yet inflation has remained remarkably subdued so far. But understand that if the government opts to stimulate the economy further - especially if some emergency action is needed - short-term rates are already at zero.

    Having already thrown the kitchen sink at the slowdown from a monetary standpoint, the federal government will almost certainly opt to spend even more dramatically.

    The bond markets will not take this news well. Long-term rates are likely to spike. And when they do, it will get real ugly, real quick.

    Investors always think they have time to move out of longer obligations before that happens. But that is not likely to be true...

    The Triple Threat to Treasury Funds

    Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points, driving a stake through most people's bond portfolios.

    Making matters worse, millions of Mom-and-Pop investors have unwittingly plunged into leveraged bond funds in recent years, often on their brokers' recommendation.

    Investment U - What Leveraged bond funds borrow money in the short-term to buy more longer-dated issues and enhance the funds' yields. This is all well and good when rates are flat to lower. But when rates spike higher, look out below. The same thing will happen to these funds as to a margined stock portfolio in a correction.

    In fact, leveraged closed-end bond fund investors could get hit with a triple-whammy...
    • The bonds in the fund will drop when interest rates rise.
    • The drop will be compounded by the fact that the portfolio is leveraged.
    • The fund could plunge to a deep discount to its net asset value, too.
    Become a Bomb Disposal Expert... On Your Portfolio Not pretty. So what to do?
    • First, check to see what percentage of your portfolio is in long-term bonds. It shouldn't be more than 10% as a maximum (as protection against a deflationary scenario).
    • Second, visit and type in the symbols for your fixed-income ETFs or closed-end funds.
    Then look at the number beside the fund's "effective leverage." Zero means the fund is unleveraged. But some may be leveraged up to 40% or more. (That's how these funds are able to yield more than the bonds they invest in, even after expenses.)

    In sum, this is a time to pare back your long-term bond holdings and eliminate most of your leveraged holdings.

    Don't take these words lightly. There is danger on the horizon. But if you act now, there's still time to get that ticking time bomb out of your portfolio.

    Good investing,

    Alexander Green

    Disclosure: No Position
    Jun 22 10:13 AM | Link | Comment!
  • Regenerative Medicine: The Best Ways to Play This Fast-Growing Market
    Source: Regenerative Medicine: The Best Ways to Play This Fast-Growing Market

    by Marc Lichtenfeld, Healthcare Expert Tuesday, June 15, 2010: Issue #1281

    Grab your crystal ball... we're going to jump into the healthcare sector and try to look into the future.

    Let's spring forward 10 years and ask a simple question: With technological improvements, what medical advances will be routine procedures?

    Unfortunately, as optimistic as I am about new therapies for cancer, I'm pretty sure there won't be a full cure. Same goes for heart disease and diabetes.

    However, come 2020, I suspect that it won't be unusual to be able to re-grow tissue, organs and perhaps even limbs.

    And it will come courtesy of game-changing - not to mention life-changing - progress in one particular medical field...

    Regenerative Medicine... A 7,766% Market Explosion in Five Years

    The regenerative medicine market is set to explode.

    In 2008, the market was approximately $1.5 billion. In 2013, it's expected to generate revenue of $118 billion, according to Life Science Intelligence.

    Some of the advances in this field are already incredible.
    • For example, doctors are growing organs in labs and transplanting them in humans.
    • Soldiers injured in wars are able to re-grow muscle and even achieve mobility and sensitivity with body parts transplanted from cadavers.
    • And trials are ongoing across the globe, applying regenerative medicine principles to spinal cord injuries, organ failure, cosmetic procedures and a host of other uses.
    • The world of stem cell research is enjoying equally amazing progress. Stem cells that are injected directly into the spinal chord and brain may help ALS and stroke patients.
    • And early clinical trials are showing that patients who receive an injection of their own stem cells suffer less damage to their heart after a heart attack.
    Industry expert, Robin Young, says that by 2015 "virtually every surgeon in the United States will be incorporating stem cells in either autologous, allograft or cultured forms into their practices."
    Investment U - What

    Autologous, Allograft and Cultured Cells

    These are medical terms, pertaining to the world of human cells. Autologous cells are harvested from a patient's own body. Allograft cells come from a donor. Cultured cells are grown in a lab.
    So how do you play the regenerative medicine sector?

    Investing in Regenerative Medicine: The Right Way and Wrong Way

    There are a few different ways that you can try to identify potential winners in the regenerative medicine field...
    • The Shot-in-the-Dark Method
    If you're familiar with my many columns here at Investment U, you'll know that the biotech sector can be a high-risk/high-reward proposition.

    However, if you're right and stumble upon the next great company, a small investment could end up making you rich. That's the case with stem cell companies, so one way to pinpoint companies in the field is to look for those that are in early-stage clinical trials.

    Just do a search for stem cell stocks and you'll likely find that almost all of them will have some early studies. The best hope is that these firms are either bought out or actually have some incredible new treatment that will be proven in a few years. However, the likelihood for success is low.
    • The Mammoth Odds Method
    Few stem cell companies make it past the early trial stage, so later-stage studies are harder to find.

    For example,, the government's database of clinical trials, lists 3,050 trials involving stem cells. But only 186 of them are in Phase III. Even worse... of those 186, only one involved a publicly traded company that was studying the effect of injected stem cells (as opposed to studying various forms of chemotherapy after a stem cell transplant).

    That company is Bioheart (OTCBB: BHRT), which is currently in a Phase II/III trial for congestive heart failure.
    • The Beyond-the-Trial Method
    A better way to play the regenerative medicine sector is to look for companies whose businesses don't depend on the success of a clinical trial.

    For example, there are companies that produce and sell stem cell lines and products to researchers. Millipore (NYSE: MIL) is one of them. It sells a variety of life science tools, including those used in regenerative medicine. The firm is being acquired by German drug maker Merck KGaA. Sigma-Aldrich (Nasdaq: SIAL) has a similar business model to Millipore's.
    • "Research" Your Way to Regenerative Profits
    Perhaps the best way to invest in the regenerative medicine field at the moment is to go for Contract Research Organizations (CROs), like Charles River Laboratories (NYSE: CRL).

    These companies run clinical trials for other firms. Charles River Labs and other CROs are involved in a wide range of trials, including stem cell therapies.

    Investing in a CRO or equipment company lets you participate in the expansion of the regenerative medicine market without making what is often an all-or-nothing bet on some of the earlier-stage companies.

    No Flying Cars... But How About Stunning Medical Breakthroughs Instead?

    Of course, if you do want to swing for the fences with earlier-stage stem cell companies, be sure to spread your risk among several stocks and keep your investments small, as it's still a speculative area.

    Over the next 10 years, however, I suspect regenerative medicine companies and their investors will make a lot of money.

    I thought by 2010 we'd have cool stuff like jet packs and flying cars. Yet I still seem to be walking and driving everywhere!

    By 2020, I doubt we'll be able to fly to the doctor's office. But we may be able to get new kidneys grown from our own cells, lessen the damage from a heart attack, or even walk after a spinal chord injury. All thanks to the cutting-edge technology in the field of regenerative medicine.

    Hoping your longs go up and your shorts go down.

    Marc Lichtenfeld

    Disclosure: No position
    Jun 15 4:21 PM | Link | Comment!
  • Do Trailing Stops Really Work?

    by Alexander Green, Chief Investment Strategist Monday, June 14, 2010: Issue #1280

    source: Do Trailing Stops Really Work?

    While I was in Baltimore last week, one of our Oxford Club researchers, Matt Carr, told me over lunch that one of the most controversial aspects of our investment policy is trailing stops.

    But they shouldn't be.

    If you don't have a premeditated sell discipline - and the vast majority of investors don't - you're flying by the seat of your pants. And that rarely leads to superior investment performance.

    But do trailing stops really work?

    Survey Says: Use Trailing Stops

    In a word: Yes. Trailing stops protect your profits and your trading capital. And there's much more than just anecdotal evidence.

    In a study published in The Journal of Portfolio Management, Christophe Faugere, Hany A. Shawky and David M. Smith - finance professors at the State University of New York at Albany - researched the performance of money managers who oversee pension funds, endowments and high-net-worth accounts.

    Because most institutions work under strict investment guidelines, these academics were able to analyze performance based on differing approaches to selling stocks.

    The result? Institutional managers who fared best were those with restrictive rules that didn't allow much leeway for holding stocks for emotional reasons. Managers who relied on "flexible" sell strategies did far worse.

    Count me as unsurprised. Institutional money managers are just as prone to rationalizing as individual investors when they make a mistake. (Hence the old Wall Street chestnut, "What does a broker call a trade gone wrong? A long-term investment.")

    Trailing Stops: Providing Protection... Securing Profits

    The culprit is almost always pride, ego, or emotion. Without any kind of sell strategy, emotions come into play. And emotions are almost always wrong.

    But by adhering to a disciplined trailing stop strategy, our Oxford Club investment system mows down emotion-driven trading errors like a field full of dandelions.

    It cures greed. Eliminates fear. And does away with wishful thinking - as in, "I hope this stock turns around and starts going the right way."

    Of course, trailing stops aren't the only sell discipline out there. But they're one of the easiest to implement. They serve two purposes...
    • They make sure we never let a small loss become an unacceptable loss.
    • They keep us from selling stocks while they're still trending up.
    According to the independent Hulbert Financial Digest, over the past 10 years our Oxford Club portfolios have beaten the S&P 500 by a wide margin. Part of our success has come from diligent research and careful stock selection. But part has also come from cutting our losses and letting our profits run.

    Maneuver Past the Market Makers With

    The one knock against using trailing stops is that unscrupulous market makers will sometimes take out your stop order right before a stock takes off.

    But Richard Smith, President and Founder of - and a PhD in mathematics - has a service that provides an ingenious solution.

    If you visit, you can enter the stocks you own, the price you paid and the percentage trailing stop you want to use. There are several valuable benefits...
    • If any of your stocks close beneath your selected stop, TradeStops sends a message - to your cell phone, e-mail, or account page - alerting you.
    • Some brokerage firms, like Fidelity, offer trailing stop alerts with their accounts. But they generally expire after 30 or 60 days. TradeStops information never expires and even offers a 30-day risk-free trial.
    • You can track up to 50 stocks at a time. (And whenever you stop out of one, you can replace it with another.)
    • TradeStops is easy to use. It's specifically designed for technophobes.
    • It's reasonably priced. Ordinarily, the cost is $7.95 a month or $79.50 a year. (If you're an Oxford Club member, you get a special rate of $39.95 a year.) There are additional services available for dedicated short-term traders who want even more.
    • It's important to note that TradeStops notifies you of stops, not your broker. And it doesn't enter sell orders. But the key is to make sure you have an acknowledged point where you'd be willing to sell any individual stock.
    Trailing stops don't just offer to cut your losses and protect your profits. They guarantee it.

    Good investing,

    Alexander Green

    Disclosure: No position
    Jun 14 5:01 PM | Link | 1 Comment
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