The Van Tharp Institute

February 9, 2005 ó Issue #206

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In this Issue:

March Workshop How to Develop A Winning Trading System
Feature Article 1

How to Beat the Markets by Risking LESS, By Dr. Steve Sjuggerud

F-r-e-e Online Tutorial

Why Is Pre-Construction Real Estate Exploding? By Dr. Chris Anderson

Tax Tip

Do You Have Stock Gains, But You Don't Want to Pay the Tax on Those Gains? By Steve Meredith

Recommended Reading

Van Recommends The Book, Marriage of Spirit to Help Reduce Self Sabotage

Listening In

What Attendees Said About The Recent Infinite Wealth Workshop

View this newsletter on-line, or read back issues

 

March Workshops:

How To Develop A Winning Trading System That Fits You Workshop

"A system consists of an input, a process, a hierarchy, and an output to achieve a desired goal.  The goal in trading or investing is to make consistent returns through low-risk." -- Van Tharp

There are two kinds of systems:

Rule-Based Systems -- typically these are systems in which one attempts to make the rules so good that you can allocate nearly all of your capital to one trade.   Another version of it is that these are systems  in which the rules are so complicated that the other type of system (money management) is impossible.

Rule based systems tend to be very human oriented and often discretionary.

Money Management Systems --  these are systems which assume that the markets are not that predictable.  As a result, success depends upon the proper allocation of money across diversified portfolios. 

You'll learn about both at this workshop and discover which is right for you.

Feature Article 

How to Beat the Markets by Risking LESS
By Dr. Steve Sjuggerud
President, Investment U

You don't want to hear it, but the smartest play right now is in SAFE assets...

Most folks believe the saying: "The more you risk, the more you can make..."

Not so fast...

There are ways to beat the markets by actually risking less...

For example, Robert Haugen, in the book The New Finance, proves that buying less risky "value" stocks (defined as stocks with the lowest price-to-book ratios) actually beats buying risky "growth" stocks over the long run. Amazing!

The common wisdom is that you have to invest in risky things like tech stocks and other growth companies to really generate big returns.

Haugen proves it's the opposite... buying "boring businesses" at cheap values is where you make your money over the long run.

Investing ugly should beat investing sexy today and for the rest of the year. It's counterintuitive, but I think it's also the case right now.

Here's what I mean...

Many Investors Are Increasing Risk - For Lower Return

You don't have to take a lot of risk to make a good return. Haugen proves the common belief is exactly the opposite of the truth!

Right now is another time where we can actually beat the overall markets by risking less... But that's hard for a lot of investors to hear.

Investors are disgusted by the returns they're making on their cash... generally less than 1% at the bank.

So they are stretching outside of their comfort zones. And they're putting themselves in danger... like buying junk bonds, just because they're paying 8% interest... not fully understanding that they're risking a serious blow to their principal if something goes wrong.

As recently as 2002, investors collected 14%-plus in interest on junk bonds... Now, that was a risk worth taking!

But today, you make less than 4% above Treasury bonds in junk bonds, with the threat of disaster always looming. Bond defaults could increase, and interest rates on these bonds could rise. You could actually lose money in these...

Just one example of how risky assets are expensive right now...

Boring Bonds... And Other Forgotten Loves

Meanwhile, boring government bonds are paying about 4.5% interest. And nobody wants 'em. Nobody anywhere...

The pros hate government bonds. According to a recent Merrill Lynch survey, only 6% of fund managers think global bond markets are undervalued. And the contrarian in me loves this. When everyone hates an asset, it's generally a good time to start acquiring it.

Individual investors - who have never particularly liked bonds in the first place - now have a smaller percentage of their assets in bonds than at any time in the last 17 years, with the exception of 2000 (data from the American Association of Individual Investors).

Bonds SOARED in value the last time individual investors had this small a percentage of their money in bonds (2000)... Bond yields started the year 2000 at 6.5% and finished the year at 5% - a great year for bond investors - and it was a year when individuals didn't own bonds. Just like now.

Quite often, the best time to buy an asset is when nobody wants it. And nobody wants bonds right now... so I'm buying!

A Rare Moment in Investing: Low Risk for Higher Returns

Everyone is attracted to risk right now - to his detriment.

Risky assets are expensive. And really boring assets, like Treasury bonds that nobody wants, may actually be cheap.

So my message today is, you may actually outperform your friends and neighbors for the rest of this year... by holding a safer portfolio than they do! It is a rare moment, where less risk will likely equal more return...

That's the way I see it.

Steve Sjuggerud has a doctorate in finance and is regarded as one of the best researchers on the stock market around. He regularly offers sound contrarian investing advice as the editor of "Steve Sjuggerud's True Wealth," has been a member of the Oxford Club's Investment Advisory Panel for more than five years, and is the co-founder and President of Investment U. Steve is co-author of Safe Strategies for Financial Freedom and a frequent guest speaker at Van Tharp Institute workshops.

This article, is reprinted with permission from The Investment U E-Letter. To learn more about Investment U and Steve Sjuggerud visit their website

 

Editors Note: Throughout the issues you will see certain words with odd spellings, such as Fre-deom and mort-gage. This is because spam filters are likely to block message that contain certain words and this is one solution.

 

Develop Peak Performance Skills That Will Last You a Lifetime. 

Peak Performance Home Study

Dr. Van Tharp is a consistent, astute and systematic researcher of human behavior. The opportunity to learn from someone of his caliber does not come along every day. He has collected psychological profiles from over 5,000 investors and traders and has personally interviewed hundreds of top people in the field to determine what makes them excel and how they make immense profits. 

He then carefully crafted the information from his studies into a model that people like you can use to improve your skills and increase profits. Furthermore, Dr. Tharp only studied people whose professional and personal lives were balanced. As a result, when you apply his model, it typically helps you lead a much happier and more satisfying life in all respectsónot only in your trading.  

 

Video Article

This week's F-r-e-e On-Line Tutorial

Why Is Pre-Construction Real Estate Exploding?

Education brought to you in a brand new way.  
By Chris Anderson, PhD

Follow the link below and join us in this fun new way of learning.

 
C-l-i-c-k Below

On-Line Tutorial

 

Tax Tip

Tax Tip of the Week

Do You Have Stock Gains, But You Don't Want to Pay the Tax on Those Gains?

by

Stephen S. Meredith, CPA, PLL

Are you currently holding stocks with gains?  Do you want to sell but donít want to pay the tax?  Here are some suggestions:

  1. Give a gift to charity.   You get to write off the market value of the stock.  Since there was no ďsaleĒ, you donít have to claim any gain or pay any tax on the sale.  This works particularly well for people who got stocks as a gift from parents many years ago.  Frequently they donít even know what the basis is or how to determine it.  If you are going to be charitable anyway, donít give cash Ė give stock!
  2. Give a gift to a child.  Children over 13 are the best ones to give it to.  Their income is lower (or non-existent) so their tax rate is only 5% on the long term capital gains.  If it is a long term gain to you, it transfers to them as a long term gain as well.  They donít have to hold it for a year in their own name.  Whatever your basis was in the stock is also transferred to them.  They claim the gain you would have claimed and pay their own tax.  Income (gain) up to about $29,000 will only be taxed at 5% this year.  This is a great strategy for paying for college tuition if you havenít got a prepaid college plan set up already.

But, watch out for kids under 14!  They get hit with the ďkiddie taxĒ.  Any income over $1,500 will be taxed at the parentís tax rate.  This effectively eliminates the benefit of having the child cash in the stocks.  So be cautious with younger children.

The bottom line is this; you donít have to sell it to use it.  Do something that you would have done anyway, just do it in a different way to minimize your tax consequences.

 

Stephen S. Meredith is a CPA in Richmond Virginia.  He specializes in preparing income tax returns for all types of businesses, individuals, estates, and trusts.  He also consults with new business owners on how to properly structure their business to get the maximum benefit from current tax laws.  Steve deals with many stock market and real estate investors.  He has clients nationwide and lectures regularly on tax topics. He is often a featured speaker at Van Tharp's Infinite Wealth Workshop.

 

Recommended Reading:

Van Tharp Highly Recommends This Book to Help Reduce Self Sabotaging Behavior

The Marriage of Spirit - Enlightened Living in Today's World 

Author Leslie Temple-Thurston grew up in South Africa during the oppressive regime of apartheid. She experienced firsthand the extreme polarizations in human consciousness that divide people and drive them to the most inhumane policies and conduct. It created in her a desire to discover and to help heal the root cause of such divisions. Her search became a life-long spiritual quest that combined long periods of meditation and spiritual discipline with the study of ancient wisdom and modern psychology. She discovered, as have others before her, that these divisions are based on the polarizing structure of the human psyche. The Marriage of Spirit techniques are filtered through modern psychological thought and emerge in an original form designed for the more mentally oriented Western person. They are a simple and fast way to recreate balance and harmony in our ordinary, everyday living. They help us to bridge spiritually in the material world and bring us to greater levels of love, compassion and empowerment.  275 pages. $23.00

Order Book

 

Listening in....

Feedback from Van Tharp's Recent Infinite Wealth Workshop

"As always, mind blowing and many paradigm shifts experienced!" Rob Smith

"It totally changed my view of money and my life--past and future"

"Excellent. A great course and very beneficial to becoming financially free." --Steve

"Excellent material. Good group of Students." -- Wayne Howard

"Very good. Lots of ideas and I like the focus on the psychological side." -- Jeremy Martin

"Very relevant for what I am looking for/need." Peony Herrera

"Great course, very thorough. It gave me different sources of wealth generating ideas and ventures. Jordi Llobet Serra

"It was like being part of a family. A family that wants to see everyone obtain wealth." Barbara Lange

"I really enjoyed this course. The content was most helpful. We have listened to the previous tapes repeatedly [referring to the Infinite Wealth home study version], but this was new, fresh and full of new paradigm shifts." Beryl Pleasants

"It was very comprehensive while providing some actionable details."  Barbara Fotiades

"Nice variety of material - range of interests satisfied. Emphasis on working from the inside out continues to be a powerful and valuable approach." Tracey Earlywine

"The course was an eye opener for me. I think the course was well presented." Terry Smith

"Well organized with informative and knowledgeable speakers with lots to offer." Tom Lukat

 

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Van Tharp's Most Recent Market Update including the 1-2-3 Model and the Five Star Model.

Click to Read

 

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Quote of the Week:

"When you reach for the stars, you may not quite get one, but you won't come up with a handful of mud either." ~Leo Burnett

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Feedback Corner: 


The ideas learned at the seminar are becoming more meaningful each day as I try to understand them more fully and actually use them. I have clearly changed some thinking about the market and in particular I'm paying more attention to the big picture rather than the day to day activities. It does provide a different perspective. Thanks for the seminar.

Tom Wersten - Safe Strategies Attendee

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Dr. Van Tharp's Trading Discussion Forum
  www.mastermindforum.com

Ask questions, share ideas, information and feedback with Dr. Tharp and other like-minded traders and investors.