If you follow my trades and comments, you know I am more of a trader than investor. Given the recent per se deceit flowing from the mouths of government officials and CEOs, I have been spending increasingly more time honing my trading skills because investors (and the public at large) are apparently nothing but suckers.

I have long said that the underlying theme to all the greatest investment ideas is simplicity. Railroads connect geographic locations to facilitate commerce and travel. Cars get us from one place to another. Energy powers everything we need. Microsoft Windows makes computers functional for the masses. Google is our guide to searching the Internet.

In Howard Lindzon’s The Wallstrip Edge: Using Trends to Make Money–Find Them, Ride Them, and Get Off, Howard adds practical investing strategies to this core investment philosophy extolled by other world-class investors including Warren Buffett, George Soros, Peter Lynch, and Carl Icahn. The book is easy to read, full of fun stories, and Howard has an entrepreneurial spirit which will leave you excited and inspired to apply his advice.

The following article is a reprint from this month’s issue of SmartGuyDH’s newsletter Wall St. Cheat Sheet:

Retailers are performing better than Wall St.’s most pessimistic predictions. So, the stocks have helped fuel the recent rally. Regardless, this is truly a matter of “very shitty” outperforming “shittiest.” Thus, don’t get caught sprinting into the headwinds of continuing unemployment and increasing savings rates. Walmart (WMT) continues to be the only low-risk play in the sector.

In the legal world, an incredibly illogical argument is said to “not pass the laugh test.” Last week an anonymous source told Reuters that the Korean Development Bank had Lehman (LEH) on their watchlist. LEH and shares of other financials rallied nicely on the news. However, no one stopped to question the absurdity of a savvy prospective buyer literally showing its cards to the entire world.

For those who did not take Econ 101 or Negotiations 101, here’s a quick primer:

There is a famous American game show, The Price is Right, during which contestants attempt to guess the correct price of a certain item. The winning contestant guesses closest to the true price. A somewhat similar game is occurring with the stock market’s financial companies. However, rather than observing a familiar item and guessing the price based on a few simple known variables, many complicated and obscured variables affect the true value of financial companies.

Let’s attempt to play a simulated version of this game with the headlining stock Lehman Brothers Holdings Inc. (LEH). A little over a year ago, LEH was trading near $80 a share. The company was coming off a multiyear bull run and was profiting from investments related to the strong real estate market, the roaring global boom, and tons of private equity deals and IPOs. The market looked at LEH’s financials and imagined every investment providing superior returns, the global boom spiking without fail, and the deal flow continuing ad infinitum. Although none of those projections were connected to reality, they were included in the stock price nonetheless.

In the latest sign of the global commodity craze, churches in England are seeing increased thefts of metal from roofs, statues, and plaques. And last week, someone even stole the organ pipes from a 13th century church, presumably to cash it in for scrap.  Here in America, we have a little more respect for our religious institutions - so we limit our larceny to kegs and manhole covers.

The bottom line is that metal prices are soaring, especially in the scrap and secondary markets. And as iron ore prices increase - Rio Tinto (RTP) recently announced it secured an 85% price increase for the current contract year) - scrap metal becomes an even more appealing alternative. This is not likely a passing trend; Dan DiMicco, the CEO of Nucor (NUE), the largest metal recycler, stated last month on CNBC that he sees 15-30 years of a strong continued upward trend in metal demand and prices. He acknowledged that there may be some short-term blips, but the overall trend would be sharply positive.

Savvy investing is tough. Success requires solid due diligence and constant observation of the economy. However, many investors like to oversimplify a thesis and then buy-and-hold with total confidence.

Since last fall I have received many emails from readers who challenged my assertion that the bull market was finished. On December 31, 2007, I wrote an article Banking Crisis: No End in Sight. Some Seeking Alpha readers passionately argued that banks were in as little trouble as their CEOs alleged - despite the troubling mortgage and commercial loan data I provided.

Eleven months ago I recommended the water ETFs PowerShares Water Resources (PHO) and PowerShares Global Water Portfolio (PIO). I was specifically seeking an asset class uncorrelated to the broader stock market. However, I think too many traders and funds are buying and selling these assets based on the same signals as broader market indicators. Therefore, the investments have not met my thesis and need to be sold.

This is a good lesson for investing. We have many prospective investments, yet only enough cash to buy a tiny fraction of assets. As a result, we must consider our opportunity costs when holding investments that under-perform. Moreover, we want to cut our losses when a thesis has been proven incorrect. If for some reason these water ETFs start trading as if water is a scarce commodity, then I will happily jump back in the pool.

They say you can’t teach an old dog new tricks. Well, two-time SmartGuyStocks pick PetMedExpress (Nasdaq: PETS) seems to have one impressive trick down pat: beating earnings expectations, as it again bested analysts’ guesses this week for the fourth quarter in a row, growing sales 11% and profit 39%.

But there’s another trick that PETS can’t seem to learn- sustained stock price appreciation. Despite a long history of top and bottom line growth, a quick glance at PETS' chart shows that it just can’t seem to remain in the market’s favor. Sure, it jumps after its predictably great earnings, but then it either seems to trade in a range or slowly trend back down.

Avid readers of SmartGuyStocks know that Nintendo (NTDOY.PK) has been one of our favorite stocks over the past year. NTDOY is the only stock I have recommended twice. The company has delivered two of the most exciting products in the world: Wii and DS. However, I believe price appreciation is limited for the following reasons: skyrocketing shipping costs, the weak dollar, and the current point in the console cycle.

First, let me preface my comments by saying NTDOY is still one of the best companies in one of the hottest sectors in the world. If the global economy was steamrolling, I would hang on to NTDOY through the coming holiday season. Unfortunately, my wish is not the economy’s command. Rather than fight reality and stubbornly hold my shares, I am willing to take my extraordinary gains and accept that my risk-reward ratio has diminished.

One of my favorite companies is Hurco (HURC), a small manufacturer of machine tools and the software that powers them. Hurco’s machines help manufacturers decrease labor costs and achieve increased production efficiency. I first wrote about Hurco last August when the stock was trading close to 50. In that article, I mentioned that Hurco had experienced solid and consistent growth over the past few years, but has been an extremely volatile stock. I suggested that as long as growth remained strong, I would be a buyer on any undeserved stock price dips.

Well, I believe that time has come. Last week, Hurco announced first quarter earnings that left analysts looking silly. The company earned $1.21/share on $61M in revenue, vs. expectations of $0.90 and $50M. Last year, Hurco earned $0.84 on sales of $47M. Despite slightly down U.S. sales, growth was fueled by insatiable European and Asian demand, helped by the weak dollar. CEO Michael Doar specifically called out new successes in fast-growing India and Eastern Europe.

As I wrote in October, SmartGuyStocks' selection Akamai (AKAM) seems to be falling into a pattern.

1. Akamai reports strong (40%+) YoY revenue and profit growth, in line with or ahead of expectations
2. Analysts predict the end of the company’s growth at the hands of growing competition
3. Akamai reports strong (40%+) YoY revenue and profit growth, in line with or ahead of expectations

We are selling American Software (AMSWA) on the recent price spike as we seek to take profits on our marginal positions, solidify our strong long-term convictions, and wait for the next big opportunities. While AMSWA is a solid, growing company that has beat the market during our holding period, it has been somewhat of a disappointment.

We based our recommendation in part on the under-appreciated 88% interest that AMSWA has in Logility (LGTY), a fast-growing provider of supply chain management software. Or should I say “was” fast-growing. While Logility had routinely been seeing 20% quarterly sales growth, the second quarter brought only an 11% bump. More discouraging were the comments from the conference call, where the CEO underwhelmed investors by predicting that “the third quarter has an opportunity to be better than last year’s third quarter.” Not exactly the kind of words that give one confidence in what is supposed to be a high-growth company.

It’s been tough to jump into this market. Nearly every day, the pundits seem to change course on whether we’ve already hit bottom or are only at the tip of the recessionary iceberg. At SmartGuyStocks, we have decided to generally sit on the sidelines for now with our favorite long-term plays and wait for things to shake out a bit before taking any new positions.

So while we’re waiting to jump back in, I wanted to take this opportunity to catch up with one of our favorite companies, Nasdaq Stock Market (NDAQ). Despite a market slump, the stock is up nearly 30% from where we recommended it in July, and we believe it will continue to be a winner for years to come.

In case you were brilliant and went on vacation last week after raising 100% cash before Christmas, you may have missed the emergency Fed rate cut and the Britney Spears-like attention on a rogue trader who nearly crashed the global markets. An interesting debate has emerged as to whether the Fed pandered to the equities markets and cut to stop the bleeding caused by the rogue trader, or whether the Fed applied “too little, too late” after the US equities markets already lost all gains made in 2007 and housing persists in free fall.

A few respected market commentators opined the following:

Despite the market taking yet another hit, SmartGuyStocks' selection Pet Med Express (PETS) gave us something to smile about, shooting up over 20% Tuesday. PETS beat analyst expectations for its third quarter as earnings rose 60% on the strength of a 19% jump in sales. The company also continued to deploy its strong cash position towards buybacks, purchasing 1% of the float in the quarter.

While the company has yet to release detailed financials, we can guess that overall margins improved due to the strength of re-orders and internet sales, which both outpaced overall sales growth. These are extremely positive trends for the company. Re-orders indicate that customers are happy and the company may be able to rely less on Betty White and more on word-of-mouth advertising. Online growth means that customers are moving away from the more overhead-intensive phone ordering.

I wish I had a dime for every time in the last month I’ve heard a market commentator argue that a beaten-down stock is a buy solely because it is “cheap.” Maybe with all that money, I could pay investors back for all the money they’ve lost buying these supposedly bargain stocks.

At a recent visit to a bookstore, one of the financial publications was touting Wachovia (WB) as a buy at 40. The logic was basically “the stock has gone down a lot already, the PE is only 9, and it pays a 6% dividend while you wait for it to go up.” This might make sense if:
1) The stock hadn’t gone down for a good reason (write-offs, and an uncertain credit and banking market) and
2) Future earnings and dividends are guaranteed (many on Wall Street worry that WB may cut its dividend and earnings forecasts like other banks)

In Ben Stiller’s parody of the fashion industry, Zoolander, the protagonist possesses a critical flaw preventing him from regaining kingship of the runway world: Zoolander does not turn left. As an avid reader of the mainstream financial media, I have noticed a similar critical flaw: many of my peers do not sell short or buy puts.

If the market can go up and down, we need to learn how to invest for up and down. Otherwise, we are like Zoolander or a car driver who turns only right: we lose ground when we need to go left. Thus, investors are not whole without shorts and puts.

Investors want to maximize profits and minimize losses. However, a three-headed monster has been created to use spin and logic tricks to keep the masses buying and holding while smart money sells or goes short. This monster is none other than the financial “buy, buy, buy” bobble-head known as KudSiegStein (AKA: Larry Kudlow, Jeremy Siegel, and Ben Stein).

Over the past two weeks, my favorite financial media sources have been vomiting 2008 prediction after 2008 prediction. So, I think this is a good time to address a few of the major flaws with annual predictions that encourage us to buy and hold investments for the entire new year.

1) Economies and economic transactions do not know when one year ends and another begins.