This article is Part 1 of a 2-part series on the most common mistakes that investors make and how to correct them. Considering  the recent events that led to the pullback of February 27^th,  I decided that now might be a good time to talk about the subject.

Mistake #1: Letting someone else manage your investments.
Just because you went to college doesn't mean that you're smarter than the average person when it comes to money. In fact, the majority of government schools do not teach you anything about handling money. They educate you on the basics that will get you a job, and that's about it. Most people that have a decent job have some sort of retirement plan, but even if they are taking money out of their paycheck don't know the first thing about how to manage it and make it grow. Most 401k plans are put into money market rates, because of ignorance of fear of investing. So what about the people that have put away savings or created an investment plan? What do they do? Most get someone else to manage their money for them. This mistake isn't tied to a level of public or private education, so here's a little history on brokers and money managers.

First, a word about brokers... Ever heard the statement that brokers are generally broker than you are?  That is not too far off the mark. Most brokers don't even invest in the ideas that they give their clients? Why? Probably because they can't afford it, or are there just to take a commission. Maybe you've heard this before and think that it would be a better idea to get your bank investment officer or money manager to handle all of your affairs. Well, there's a problem there too.

If you ever get a chance to, check out www.morningstar.com. This site tracks thousands of mutual funds for performance, and rates them on this. Now, I'm not saying that all funds are lack luster; there are good ones out there. What I am saying is that of the thousands of mutual fund products to choose from, less than 1% beat the benchmark of returns. What is the benchmark you say?  The S&P500! Last year, the S&P500 returned 13% to those who invested in this index. Over the past 10 years, some of the most recognized funds barely broke even, while the S&P500 has gone up 100% in that time—roughly 10% a year.

So what about those funds that were up 50% last year?  Well those are the funds heavily invested in emerging countries. Take a look at what they have done recently. I have a good friend that lost over $500k last week in emerging funds. The problem with the high fliers is that they gain popularity with the public eventually, and you know what that leads to? Why the end of the Bull Run for those funds of course.

So how can you beat the fund managers? Simply recognize certain patterns in the stock market and take advantage of them. We teach several different patterns in up, down, and sideways markets. Peter Lynch has been quoted numerous times saying that the small investor has the advantage. Profit Strategies can help you gain that advantage by educating you to what has worked in the past—not in just bull markets, but bear markets as well.

Mistake #2: Thinking that it's too late to start saving, investing, and controlling your retirement… Here's a mistake that a lot of people make. They think, "I am in my 40s now, my kids are becoming teenagers, and I don't know how I'll manage to put them through college. How can I save enough money? Well, call me selfish… But if I had to choose between your retirement and my kid's education, I think I'd honestly have to think of myself first. I'm sorry, but I am allergic to becoming anyone else's burden. So if you have limited income to work with, you might just have to think of yourself first. I think my kids would understand this and they know I'd work hard to help them with scholarships, grants, and loans. My parents couldn't afford a dime for my college education so I had to find a way to pay for it.

Okay, let me get off my soapbox and tell you what can be done. First, if you haven't done it already, get into your company's investment plan. There are usually several available, including perhaps one or more of the following:  

• ESOP (Employee Stock Ownership Plan). This is a great first choice. A lot of fortune 500 companies offer their employees the ability to purchase stock through the company through payroll deduction. Stock is typically offered below the market price. I have seen several offer a 15% deduction on the day the plan starts; you get to fork away up to 15% of your paycheck to pay for it. These plans usually last a year before the next one is set in place. Now if you take the average stock in the S&P500, which increases on average of 10% each year, you can expect to get a 25% return per year on this. Add the level of compounding and you've got yourself a winning investment plan. 
• ISO (Incentive Stock Options.) ISOs are for the lucky few. If you happen to be in a growing company, then you might get offered this for your loyalty and services. This is given to key employees on a yearly basis and is also priced at a discount to the stock price. ISOs however, do not come out of your paycheck because they are options. Options that are very much like publicly traded options, but with a longer expiration date attached to them. They are also restricted, meaning you have to vest them in order to take control of them. My suggestion if you happen to fall in this category…  First remember these could be golden handcuffs, so prepare to stick around a while before you capture the profits. Second, talk to your CPA or tax attorney, because there are several ways to offset the gains you will likely get (and be taxed heavily on). This could mean a difference between getting taxed at 40-50% or getting taxed at 15% or perhaps deferring the tax to a later date. 
• 401k plans, IRAs, and other retirement accounts. Regardless of what you decide to do when it comes to retirement, these kinds of accounts can help you stay ahead of the benchmark. It's vital to recognize patterns in the marketplace and use these patterns to determine where the best place and best sector is to put your money to work is at any time. Profit Strategies teaches several methods to help you determine the best probabilities that the market is in an upswing or a downswing. These methods include fundamental analysis, technical analysis, and even how to beat the market using nothing but a calendar. The second thing we do is teach you how to protect your mutual funds in the event of a drop in the markets. This includes finding the market patterns that tell us when not to be invested as well as when to be. We also teach alternative strategies that help protect profits and minimize losses, in stocks, indexes, and of course mutual funds. 

Mistake #3: Investing is safe, but trading is risky. This might have been a logical mistake 30 years ago, but not today. In fact, trading, or speculation as I call it, accounts for many of my biggest winners, It's helped cap a lot of my losses. We've all heard that the market is always higher 20 years from where it is today, regardless of any pullbacks. But it still doesn't make sense to sit tight until then, even if you could better predict a top in the market. Let's take a look at the top reasons that investors are afraid to be traders:

• Long-term buy and holders just don't like to sell. When I hear the words "but I'll have to pay taxes if I sell," I always cringe. Let me tell you, taxes have dropped significantly in the last few decades, so ask yourself this question. If you could go back to the year 2000, how many of you would have sold Lucent Technologies at that time. Surprisingly, even if people had insider knowledge that a top was in place, they still wouldn't have sold. Funny though, taxes are not much of an issue like they used to be.
• Commissions back in the 70s and 80s used to be over $100 a trade. I can see how trading a lot as a retail trader would have made your broker rich, but now that's just not the case anymore. With discount brokers setting up shop like hotdog stands in Chicago, price is not a factor anymore. The average cost to buy or sell stock now is around $5 a trade whether you buy or sell 1 share or 5000 shares.
• Bid-ask spreads have also been a sticking point for investors not to take a profit. Sure, I remember the days of ¼s and ½s that stocks used to trade between. Now, stocks are just pennies between what a buyer and a seller want for stocks on the floor. These spreads are much more advantageous for a trader. There's no excuse to get out of a stock if it's gone past its extreme or has a pullback pattern in place.
• Finally, the number one reason investors don't want to be traders? Too much work. Well think about this real quick… The people that put in more work in their jobs typically get paid more. Don't you think that should be the same in the stock market?  Okay then, perhaps you'd like to try putting a bit more work into managing your own money. If so, Profit Strategies can help you to understand how to be a prudent investor by exploiting the patterns that dictate movement in the markets.

Tune in next week for Part 2 of Mistakes in Investing, and How to Correct Them.

Tom Gentile
Chief Strategist
Profit Strategies Group, Inc.


MARKET CORRESPONDENT:  Jeff Neal


MARKET INSIGHT: Caremark Rx Making Mark in the Pharmaceutical Services Business

Caremark Rx, Incorporated (CMX) is a pharmaceutical services company. Its operations are conducted primarily through its subsidiaries, Caremark Incorporated and CaremarkPCS. Caremark Rx's customers are sponsors of health benefit plans (employers, unions, government employee groups, insurance companies and managed care organizations) and individuals located throughout the United States.

The company dispenses pharmaceuticals to eligible participants in benefit plans maintained by its customers and utilizes its information systems to perform safety checks, drug interaction screening and generic substitution. In addition, Caremark Rx is a provider of drug benefits to eligible beneficiaries under the federal government's Medicare Part D program. 

Caremark Rx operates a national retail pharmacy network with more than 60,000 participating pharmacies, seven mail service pharmacies, the industry''s only FDA-regulated repackaging plant and 21 licensed specialty pharmacies for delivery of advanced medications to individuals with chronic or genetic diseases and disorders.

The company serves the needs of its plan participants through prescription benefit services, including local retail pharmacy and mail service options. They also offer specialty pharmacy services, providing pharmaceuticals and other therapeutic services for plan participants with chronic or genetic disorders. In addition, their disease management programs are the first and only suite of programs offered by a prescription benefit manager to be fully accredited by the National Committee for Quality Assurance providing comprehensive plan participant care for specific conditions.

Caremark is solid fundamentally with impressive operating margins, good return on equity and lots of free cash flow. The latest earnings were very good as net revenues for the fourth quarter came in at $9.27 billion, compared with $8.37 billion in the year-ago quarter. 

The stock is looking good technically with a nice Elliott Wave-4 buy pattern forming and projecting gains into the $70 per share area. Caremark Rx is an optional stock with good liquidity rendering them a viable trading alternative. They also offer LEAPS currently going out to January of 2009, so the options strategist can construct long-term strategies as well. 

Figure 1:  Elliott Wave-4 Buy Pattern for Caremark Rx Incorporated

Happy Trading.


Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
Visit Jeff's Forum
Listen to Jeff at www.ProfitStrategiesRadio.com

TECH WORLD: XCEL Energy, Inc.—An Electric Company That's Powering Profits     

XCEL Energy, Incorporated (XEL) is a holding company engaged primarily in the utility business. During the year ended December 31, 2006, Xcel Energy's operations included the activity of four wholly owned utility subsidiaries that serve electric and natural gas customers in eight states. These utility subsidiaries are Northern States Power Company and Northern States Power Company, Public Service Company of Colorado and Southwestern Public Service Company. Along with WestGas Interstate, Inc., an interstate natural gas pipeline company, these companies comprise the continuing regulated utility operations of Xcel Energy.

Xcel is a leading combination electricity and natural gas energy company that offers a comprehensive portfolio of energy-related products and services to 3.3 million electricity customers and 1.8 million natural gas customers. The company has regulated operations in 8 Western and Midwestern states, and revenue of $10 billion annually; own more than 33,000 miles of natural gas pipelines; and operate power plants that generate over 15,200 megawatts of electric power.

The company is valued as a leader in the energy industry by demonstrating excellence in environmental performance. The most recent National Renewable Energy Lab''s ranking of green pricing programs ranked their Windsource and Renewable Energy Trust first in number of customers and fifth in energy sales out of over 500 U.S. utilities. The company's environmental commitment includes improving air quality, conserving resources, harnessing renewable energy, and protecting wildlife and habitats.

Xcel is strong fundamentally with lots of free cash flow and very healthy operating margins. The latest earnings announcement for 2006 showed regulated utility income from continuing operations was $606 million versus $539 million in 2005. Increased earnings for 2006 were primarily due to a stronger base electric utility margin.

The stock is looking pretty good technically as well with projections going into the $26 to $27 per share range. Xcel also has a liquid options market that also offers LEAPS extending out to January of 2009. This allows the options strategist plenty of time to capture the upside move without having to purchase the stock outright. In addition, by using options the trader has far less capital at risk versus buying the underlying equity.

Figure 1: Elliot Wave-4 Buy Pattern for XCEL Energy, Incorporated

Happy Trading.

Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
Visit Jeff's Forum
Listen to Jeff at www.ProfitStrategiesRadio.com