NataliePace.com's 2005 Company of the Year:

by Natalie Wynne Pace, founder and Editor in Chief, NataliePace.com.

OSI Pharmaceuticals with the Biotech Blockbuster Drug, Tarceva.

Biotechnology is one of the most promising, and one of the riskiest, sectors on the street. "One can safely say that the biotechnology revolution is on the brink of transforming human life," writes Barath Shankar, the Research Analyst, Pharmaceutical and Biotechnology Practice, at Frost & Sullivan. Cancer and HIV diagnoses are no longer death certificates, and gene-based treatments for all kinds of disorders are just getting started. That's wonderful news for our health, but how healthy is it to invest in the promise of these nascent cures?

The fall of Merck is a painful reminder of the volatility of investing in the health care industry. Merck lost $19 billion in its market capitalization on the day it was announced that Vioxx was being pulled from the shelves, and analysts are still arguing whether or not Merck will become a trust fund for all of the lawsuits that are forthcoming. IM Clone became far more notorious for the shenanigans of the founders than it did for the groundbreaking treatment, Erbitux, and is still carrying a lot of debt that is undoubtedly related to the rock star lifestyle that the Waksal brothers enjoyed, before Sam was escorted to his new home in cellblock 69. Have we gone mad at NataliePace.com? Is there any merit in picking one standout biotechnology stock when the best protection for your portfolio is diversification?

Diversification is key in biotechnology investing, and if you don’t have a biotechnology index in your portfolio, consider adding one. Biotechnology is a sector this is expected to see tremendous growth over the next three years, as the Baby Boomers (27% of the US population) begin retiring, and the returns can be staggering. "From an investor point of view, this industry has offered a lot in terms of value. For example, $1,000 invested in the top ten biotechnology companies in 1994 would be worth a whopping $240,000 today," Shankar writes. Paul Woods prefers the biotechnology index BTK to NBI, both of which are traded on the New York Stock Exchange, saying, "NBI includes only NASADAQ stocks, has 16% in Amgen, and doesn't include Genentech.  Stocks in BTK are equally weighted and include DNA."

With a solid, diversified foundation, it’s time to beautify and, in our research, there is no company in today’s market with more growth potential, with healthier fundamentals and with stronger relationships than OSI Pharmaceuticals—all in all containing all of the ingredients to yield the sweetest, most prolific fruit for investors. OSI Pharmaceuticals and their partners, Genentech and Roche, stand out in cutting edge cancer treatments, in FDA approvals, in product launch, in marketing, in distribution and on the balance sheets.

Tarceva hit the market in record time. The FDA approved the drug just three and a half months after the application was submitted, and Tarceva was launched just two business days after the FDA approval, on November 22, 2004. That kind of rapid product launch is only possible when you have partners like Roche and Genentech.

In December 2004, OSI reported $650 million in cash and investments, with only $150 in long-term debt--all this before selling its first flagship drug. (Total OSIP revenues for fiscal year 2004 were just $42.8 million.) By comparison, IMClone, which has been selling Erbitux since the FDA approval on February 12, 2004, only has $246.5 million in cash on hand, with $600 million in long-term debt, on nine months revenue of $276 million (source: 10-K, 11.04). That kind of house cleaning and husbandry gives you an idea of the difference between OSI Pharmaceuticals executives and IMClone’s founders (who were the CEO and COO before the scandals). See the Stock Report Card below for more information.

Companies with Cutting Edge Cancer Treatments

While OSI Pharmaceuticals is attractive on the balance sheets, their premiere drug, Tarceva, is, dare we say, the brightest star in the biotechnology galaxy. Tarceva’s Phase III trials posted survival rates of over 42% in patients with lung cancer that failed to respond to initial or secondary treatments. Tarceva’s main competitor, Iressa, AstraZeneca’s drug, was proven to reduce tumors, but the floor fell out on the competition in mid-December, when AstraZeneca reported that Iressa had failed to extend survival in lung cancer patients. Shares in AstraZeneca fell 8.5%, to $36.81 on 12.17.04, while OSI Pharmaceuticals shot up 41.2%, as analysts predicted that doctors would switch to Tarceva.

With no competition, Tarceva sales will "rocket," according to analyst Navid Malik of London’s Williams de Broe. "There is absolutely no reason for anyone to prescribe Iressa when there is Tarceva, which does have survival benefit," notes Bob Pooler, senior research analyst, pharmaceuticals at Lombard Odier Darier Hentsch, in Zurich. Pooler expects Tarceva to take all of Iressa’s sales in 2005. The Associated Press reports that sales of Iressa have been running at around $100 million a quarter, with the United States accounting for more than half. In a company that kept losses pre-sales to just $260.4 million in 2004, cash positive could be less than half a year away for OSI Pharmaceuticals.

Banc of America Securities believes Tarceva has "blockbuster potential," and gave OSI Pharmaceuticals a target price of $102 BEFORE the FDA approved the drug on November 18, 2004. Morgan Stanley set a target price for OSI Pharmaceuticals at $76 before the failure of Iressa, and at that time noted that the Street was "underestimating the profitability of this drug to OSI." Morgan Stanley reports that OSI has a sweet profit-sharing deal with its partners, receiving 50% of US profits, and a low 20% range royalty on European profits. You can expect to see more measured exuberance from analysts worldwide, as OSI Pharmaceuticals begins reporting sales, over the next six months.

Tarceva may well become an effective treatment for MANY types of cancers, not just lung cancer. Colin Goddard, Ph.D, the Chief Executive Officer of OSI Pharmaceuticals has a plan to "expand the label and use of Tarceva to earlier stages of lung cancer patients; to other forms of cancer where EGFR* [epidermal growth factor receptor] is implicated and where we have seen indications of activity; and to combinations of all targeted therapies." Calling Tarceva a "true paradigm shift in the treatment of human cancer," Dr. Goddard believes that Tarceva "can be grown into a major product in the treatment of a variety of cancers." A Phase III clinical trial of Tarceva has been completed for pancreatic cancer, and additional early-stage trials of Tarceva are being conducted in other solid tumors.

Paul Woods, CEO and President of Odyssey Advisors, a veteran money manager with a strong track record of picking winners, has confidence in OSI Pharmaceutical’s growth plan. "Tarceva will become the dominant drug for treating patients with lung cancer, and that's just the beginning. There are no effective treatments for pancreatic cancer and, with FDA approval, Tarceva will probably dominate that treatment. It's also likely to be at least partially effective against other types of solid tumors. OSIP is that rare company that has a drug with blockbuster potential and doesn't have other businesses that will dilute the impact."

OSI Pharmaceuticals reported in September that the international study of Tarceva on pancreatic cancer patients "demonstrated a statistically significant 23.5 percent improvement in overall survival." Not all doctors share Dr. Goddard’s enthusiasm over Tarceva’s results, however. Speaking under anonymity, one pancreatic cancer medical researcher noted that Tarceva had only extended life by two weeks in their Phase III trials, saying, "I believe Tarceva is marketed at over $2,000 for a 30-day supply of tablets - not cheap for a drug with this modest effect in the overall population studied." More information on the trials is being made available to the medical community, where the statistics and benefits of Tarceva will be tested and scrutinized. As is typical of drugs in testing, pre-FDA approval, the road to a cure is full of advances and setbacks, and while Tarceva cannot be ruled out in pancreatic cancer treatment, it is not a sure-shot (at least yet) for FDA approval either.

Future Growth & Profitability
OSI Pharmaceuticals is poised for more FDA and EU approvals on the horizon, has a sales plan that is ready to explode, is unbeatable in efficacy and has virtually no competition as an EGFR treatment for lung cancer. Thus, although January is typically not the best time to find bargains on Wall Street, this may be your last chance to buy OSI Pharmaceuticals at under $80/share. (NataliePace.com subscribers who bought OSIP last month at $45.28, or in November, at $63.59, when we first featured the company, are undoubtedly thrilled!) The European regulator is expected to approve sales of Tarceva in Europe in the 4^th quarter of 2005.

OSI Pharmaceuticals, with Tarceva’s FDA approval and track record in cutting edge lung cancer treatment, is about as safe of a bet as you can get in a world where innovation is occurring at the speed of light. In addition to a very happy bottom line, you may just find your investment in Tarceva improving, extending and possibly even saving someone’s life. Surely investing in cancer treatments that are more effective and humane than chemotherapy is its own reward.

Facts/Additional Information on OSI Pharmaceuticals:
*EGFR, epidermal growth factor receptor. Tarceva is a small molecule designed to target the EGFR, which is one of the factors critical to cell growth. EGFR plays a role in the formation and growth of numerous cancers. Tarceva is designed to inhibit the tyrosine kinase activity of the EGFR signaling pathway inside the cell, which may block tumor cell growth.

For Tarceva full prescribing information, call 1.877.TARCEVA or visit http://www.tarceva.com

ABOUT OSIP: Tarceva is OSI’s flagship product, the 1^st OSI drug discovered and developed by OSI to obtain FDA approval. OSI also markets Novantrone and Gelclair, and established Prosidion Limited, an independently operated diabetes and obesity subsidiary based in the United Kingdom. For additional information about the company, please visit http://www.osip.com.

Full Disclosure: Natalie Wynne Pace does not own OSI Pharmaceuticals, yet.

Tarceva: Treating Cancer with a Pill.

by John McCamant, Editor, Medical Technology Stock Letter, www.bioinvest.com.

Genentech and their partner OSI Pharmaceuticals saw the sales prospects for their drug Tarceva increase during December when AstraZeneca's Iressa failed to show a survival benefit in a Phase III trial in 1,700 non-small cell lung cancer (NSCLC) patients. Iressa is Tarceva's main competitor in the orally available anti-EGF drugs, and some analysts had predicted that Tarceva would become a niche drug, despite having already shown excellent survival data in NSCLC. We beg to differ and believe that Tarceva has significant potential outside of NSCLC, including colon, pancreatic, and head and neck cancer (all cancers for which anti-EGF drugs have either shown promise or been approved). A major differentiating feature of Tarceva is its ability to be taken orally. Tarceva has the potential to accelerate a new treatment paradigm in cancer treatment, sending cancer patients home with a bottle of pills after initial treatment at a hospital.

At this point, Tarceva is clearly a better drug than Iressa, and with DNA's top-notch cancer sales force behind it, Tarceva is poised for strong sales. DNA has historically done a good job of managing investor expectations, as they are doing now with Tarceva. We expect DNA to under-promise and over-deliver on Tarceva sales. An oral drug to treat NSCLC is no small accomplishment, and certainly represents an outstanding treatment option for NSCLC patients.

Pixar's Incredible Lead Over DreamWorks Animation.

The string of blockbusters that Pixar has amassed is Incredible, but it is even more impressive considering that Pixar does it with almost half of the employees (way less overhead) of DreamWorks Animation, with 700 employees to DreamWorks 1200. Consider Pixar’s filmography: Toy Story, Toy Story 2, A Bug’s Life, Monsters, Inc., Finding Nemo, The Incredibles, and upcoming summer 2006 film: Cars, starring Paul Newman and Owen Wilson. DreamWorks has Shark Tales, Shrek and Shrek 2, but they also have the far less memorable Prince of Egypt, Road to Eldorado, Chicken Run, Spirit and Sinbad.

Can DreamWorks and Shrek 2, with worldwide sales of $880,871,036, stomp ahead of Pixar, in one giant step? Not likely. Finding Nemo has worldwide sales of $865,000,000, and The Incredibles, with U.S. cumulative gross sales of $242,425,976 (source: Yahoo, 12.26.04), may not be far behind. The critical acclaim of The Incredibles should ensure superhero gross sales of its own.

Bottom Line: WAIT AND SEE
With virtually no presence in this holiday season’s DVD marketplace and no new film releases on slate for 2005, both companies may find their share price suffering next year. (The Lord of the Rings: Return of the King crowned the DVD sales this year.) "Both DreamWorks and Pixar expect to have early summer releases in 2006 and 2007, and while this is not a disastrous scenario, we think it is an incremental negative for both companies," said Michael Savner, an analyst with Bank of America Securities. Cars release date is summer 2006; Shrek 3 is scheduled to come out summer 2007. Both strategies are to capitalize on the holiday DVD crowds, which is sourly missed this year.

Pixar’s track record, balance sheets and lean, mean operating margins appear to be far superior to DreamWorks, as an investment. NataliePace.com plans on checking in on the share price during the summer doldrums of 2005, when the cost may be more to our liking. Put "Buy Pixar at $59 or less" on your calendar for August 30, 2004, and see just how close our predictions are. (This strategy is a calculated shot in the dark, not a crystal ball!!) Click on PIXAR Report Card to compare the companies by P/E, debt/equity ratio, sales, insider trading, earnings/share and more.

Betting the Ranch: Risking Your Home to Buy Securities:

an Investor Alert from the NASD. In short, investors who bet the ranch could lose it.

With a rising stock market, record low interest rates, and large gains in home value, some investors have taken out new mortgages, refinanced, or obtained line-of-credits secured by their homes for the specific purpose of investing in securities. The hope is that the investment will not only pay the mortgage, but also generate additional income. Unfortunately, it doesn't always work out that way.

NASD is issuing this alert because we are concerned that investors who must rely on investment returns to make their mortgage payments could end up defaulting on their home loans if their investments decline and they are unable to meet their monthly mortgage payments. In short, investors who bet the ranch could lose it.
This alert outlines the risks involved in playing the market with the equity in your home, and offers advice to consider before making such an investment decision.

Your Risk is Compounded
There is risk to principal when you invest in virtually any security. Taking money out of your house to buy securities compounds your risk for the following reasons:

• When you buy securities with mortgage money, you are investing with borrowed funds. While this increases your buying power, it also increases your exposure to market risk, similar to buying securities on margin. The difference is your mortgage loan is likely to be greater than any amount a securities firm would loan you on margin. Investing borrowed mortgage money amounts to a huge bet that the investment will increase.
• Unlike investing with savings, when you invest with mortgage money, you stand to lose more than your principal if the investment goes sour. You can lose the collateral supporting the loan—namely your house. Even if you don't lose your house, you could lose the equity in your home that may have built up over a considerable period of time.
• You may put your money in higher risk investments than you might normally select, in an effort not only to match the rate of your home loan but in the hopes of surpassing this rate. Furthermore, with so much at stake, if a given investment does poorly, you may feel compelled to move your investment into even more risky investments to make up the difference, further jeopardizing your home, credit standing, and overall financial health.

Worst Case Scenarios Can Happen
NASD is aware of instances in which investors have had difficulties paying their mortgages as a result of declines in their mortgage-financed investments. Here's how this can happen:

A retired couple's house is paid off, but they have very little extra money to meet their everyday living expenses. They decide to take out a new mortgage of $250,000 at 6%, seeking to invest this mortgage money in the hope of making more than 6%. They lock into a mortgage requiring monthly payments of $1,663.00. On the advice of their broker, they invest their mortgage money in a mutual fund that has earned an average of 12% over the past five years. But instead of gaining value, the couple's investment loses money from the start and continues to decline. After one year, their investment is worth $200,000. Since they were depending on this investment to generate $1,663 per month to pay the loan and have no other assets to liquidate to make up the difference, they are faced with a tough choice: sell off part of their now depleted original investment to pay the mortgage payments and hope that the investment turns around, or sell their house and hope that the selling price is enough to pay off the loan and pay for real estate commissions. Either way, they run the risk of losing money—and their home.

How to Avoid Losing Your Home
If your broker recommends this strategy, it comes down to one very simple question. Before taking out a mortgage or refinancing to invest in securities, ask yourself: How will I pay for my mortgage or loan if my investments decline? Do you have a secure salary or reserve funds to make mortgage payments if your investments lose value?

If the answer is no—just say no to betting the ranch to invest in securities.

Where to Turn for Help
If you already have a problem with a mortgage-financed investment recommendation that your firm did not resolve to your satisfaction, you can file a complaint online at NASD's Investor Complaint Center.

Resources 
To learn more about the risks of investing with borrowed funds, read "Investing with Borrowed Funds: No "Margin" for Error."

©2004 NASD. All rights reserved. | Legal Notices and Privacy Policy.

NataliePace.com NOTE: Brokers are salespersons. More than one brokerage has paid a fine in the last two years for failing to disclose marketing arrangements with the mutual funds that they are paid to peddle.

1. Edward Jones will pay $75 million to settle charges that it did not disclose marketing arrangements with mutual funds. Source: New York Times 12.21.04
2. Morgan Stanley paid $50 million last year.

On 12.13.2004, the National Home Equity Mortgage Association Urged Consumers to use Caution when investing home Equity. Home equity asset-backed securities rose 80% in 2004, to $338 billion, according to the Association.

13 Tips to a Better You in 2005.

A Queen, A First Lady, Oprah, Stars and CEOs Reveal Their Secrets For Success and Personal Fulfillment at the California Governor's Conference For Women.

1. Queen Noor of Jordan Associated Press

   "It doesn’t matter whether you are a waitress or a CEO—the question is are you true to yourself? Are you improving the quality of life of those you meet and work with? Are you a force for good in a world in desperate need?" Her Majesty Queen Noor
   
   
2. "Don’t compare yourself to other women. There is no woman in reality that looks like she does in a magazine. Concentrate on being the best that you can be." First Lady Maria Shriver
   
   
3. "There is a calling for your life. I go to work. It doesn’t feel like work. It feels like breathing. That’s when you know you’re home." Oprah
   
   
4. "Dream big, bold dreams. Dream as far as your imagination will take you." Andrea Jung, CEO, Avon
   
   
5. "Whatever you do, enjoy yourself by laughing more easily, moving more slowly, connecting with others and expressing yourself authentically." Cecile Andrews, author, Simplicity in a Complex World
   
   
6. "No matter how smart you are, you get more done as a team. Whether a team member or team leader, value everyone – and every contribution." Jane Beseda, Group VP and GM, No. American Parts Operations, Toyota
   
   
7. "The next time you go to buy something, look yourself in the mirror and ask: Why am I buying this? Is it because I’m tired, hungry, bored, angry with my spouse (and want to show him!) or because it’s a habit? Only if you can say you really need it should you dig your real credit card out of your wallet." Jean Chatzky, Financial Editor, Today Show
   
   
8. "Have your first child before 35; don’t wait until your late thirties or forties before trying to have that first child." Sylvia Ann Hewlett, President, Center for Work-Life Policy
   
   

9. Oprah and California First Lady Maria Shriver Associated Press

   "Kindness works. It’s like a boomerang: it ALWAYS comes back to you, even if not from the person you gave it to." Gayle King, editor, O Magazine
   
   
10. "Be Choosy About the Role You Let E-mail Play. Use it as a tool to drive your agenda, not to define your agenda. It is a poor substitute for the nuances of interpersonal communications that require leadership and finesse." Susan Decker, CFO, Yahoo
    
    
11. "Learn to Play the Game at the Edge. Every workplace has a playing field with boundaries, rules and strategies. Winners play in bounds, but at the edge." Lois P. Frankel, author
    
    
12. "Never lose your sense of humor or perspective. Misbehave and have fun." Anne Gust, Executive Vice President, Gap
    
    
13. "Choose to be better, not bitter. If you experience trauma, be sure to give yourself at least one year to grieve and begin the healing journey before throwing yourself into volunteerism. If you don’t take time to focus on yourself before focusing on others, it can make you bitter and angry, rather than positive and productive." Wendy Hamilton, National President, Mothers Against Drunk Driving (MADD)

From Tips for Women and Families, a booklet distributed to all of the attendees at the California Governor’s Conference for Women on December 7, 2004 at the Long Beach Convention Center.

Link to the California Governor’s Conference For Women website.
http://www.californiagovernorsconference.org
Link to First Lady Maria Shriver’s website.
http://www.firstlady.ca.gov/state/firstlady/fl_homepage.jsp

A Tale of Two Themes - Market Cap & Book Value.

By Paul Woods, President & CEO of Odyssey Advisors, LLC.

If you understand these two terms, you'll have the tools to become a better investor than most professionals.

Is it just me, or does it sometimes appear that investors have the attention span of a ferret after a double cappuccino? There seem to be more fads in investing than in the fashion industry, and it’s fair to ask whether there are strategies that stand the test of time.

One of our bibles is the Stocks, Bonds, Bills, and Inflation 2004 Yearbook published by Ibbotson Associates. Okay, so our taste in reading material is a little dry. However, this book has returns on stocks and bonds going back to 1926. To make this really fascinating (for us), the latest edition sliced and diced the stock market in ways that it hadn’t been sliced and diced before.

A Few Definitions
Before we get too carried away, we need to define a few terms. Market capitalization is the total number of shares of common stock outstanding multiplied by the stock price. It is the total value of the company as determined by the stock market.

Book value per share is the accounting value of a company. If you’re an accountant, it’s the depreciated value of the assets minus liabilities. In other words, it’s the original cost of the assets, minus depreciation, minus debt, divided by the shares outstanding. For any number of reasons that I won’t bore you with, the actual market value (stock price) is usually several times higher than the book value per share.

You’re probably wondering why I’m boring you with accounting terms. The short answer is that, if you understand these two terms, you’ll have the tools to become a better investor than most professionals.

Size Matters
Size, as measured by market capitalization, is extraordinarily important. The evidence is overwhelming that, in stock markets in the U.S. and around the world, companies with the smallest market capitalizations produce the highest returns. As companies get bigger, returns go down until you get to the ‘blue chips" which produce the lowest returns of all.

I’ll spare you a long rant about time wasted in endless meetings, too many layers of bureaucracy, lousy incentives, and ruthless bean counters that think they can shrink their way to prosperity by firing people. However, anyone who has ever worked for a big company has a pretty good idea why these make lousy investments.

We’re going to use the S&P 500 Index as our proxy for big companies, the S&P 600 Midcap Index as our proxy for medium-sized companies, and the DFA Small Company Portfolio as our proxy for small companies. For comparison, here are compound returns from 1972-2003….

Compounding a few extra percentage points of return over several decades can make a dramatic difference in the amount you have available for retirement. Here’s what every dollar invested in 1972 grew into by 2003….

As you can see, the saying that good things come in small packages was never truer than in the stock market.

Value
Value is another thing that’s in the eye of the beholder, and every professional seems to have a slightly different idea of what it is. However, when Ibbotson Associates studied long term returns, they divided the universe of stocks into companies with low price to book value and high price to book value. Companies with a low price to book value are considered value stocks and companies with a high price to book value are considered growth stocks.

Following are compound returns from 1972 for the universe of stocks that includes large, midcap, and small….

Every dollar invested in 1972 turned into…

This is another pattern that seems to hold in stock markets around the world. Companies that are cheap tend to outperform companies that are expensive. Companies with low valuations tend to go down less in declining markets, and there’s room for valuations to improve in good markets.

History also shows that companies with high valuations have trouble keeping them. It’s very difficult for even the best managements to beat expectations every quarter, and companies with high valuations have more room to fall when shortfalls occur. This, combined with more downside in difficult markets, produces less attractive returns over time.

Prudent Men and Poor Returns
If small companies are good and large companies are bad, and value is good and growth is bad, why are so many professional investors managing portfolios of large growth stocks? The answer traces its origins to 1830 and a decision from Judge Samuel Putnam that states "Those with responsibility to invest money for others should act with prudence, discretion, intelligence, and a regard for the safety of capital as well as income." Sounds good, but this became a classic example of the Law of Unintended Consequences. This also became known as The Prudent Man Rule and is used by states as the standard for regulating investment professionals.

Most states took a conservative interpretation of this rule. The general interpretation was that bonds had to be investment grade (BBB or better) and stocks should be mostly "blue chips". The mindset on the part of banks, trust companies, and most investment advisors and mutual fund companies was that, if they ended up in court, they’d rather defend the purchase of Microsoft than Nanometrics.

Other criteria evolved over time. Professionals wanted to invest in companies with clean balance sheets, consistent earnings, proven managements, and above-average growth rates as they tried to identify the best companies in each industry. In doing this, they not only ended up with large companies, but companies with above-average valuations.

The recent publication from Ibbotson Associates finally provided the data that showed how a 175 old legal decision and resulting interpretations left most professional investors unable to produce even average returns. Ibbotson showed compound returns on large growth stocks from 1972. For comparison, we’ll also show the most attractive segment of the stock market (small value) and a broad market index for the same period….

And the growth of $1 for the same period…..

If you subtract the fees charged by banks and trust companies, it’s easy to understand why index funds began to look like a pretty good alternative to some people. It’s probably also easy to understand why one of our investment alternatives at Odyssey Advisors is a small value portfolio.

Conclusion
Keep in mind that no strategy works all the time. However, successful investors don’t chase fads, but focus on what works over time. Many of you have retirement plans or 401Ks that offer a choice of investments. In making these allocations, if you focus on smaller companies and value, you’re likely to have to work fewer years and end up with a larger nest egg at retirement.

There are two very good closed end index funds with low fees that I'd recommend.  First is the Vanguard Small-Cap Value Fund, symbol VBR.  Second is the S&P SmallCap 600/Barra Value Index Fund, symbol IJS.  Both are listed on the NYSE.

As far as biotechnology indexes, I prefer BTK to NBI.  NBI includes only NASDAQ stocks, has 16% in Amgen, and doesn't include Genentech.  Stocks in BTK are equally weighted and include DNA.

Paul Woods is the CEO of Odyssey Advisors, where he manages investments for high net-worth individuals, families and institutions. He can be reached at 310.568.4700.

Information has been obtained from sources believed to be reliable however Odyssey Advisors LLC does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this material and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

10 Common Investment Mistakes.

by Natalie Wynne Pace, CEO and Founder of NataliePace.com.

Avoid them and Profit!

Did you know that an overwhelming 97 percent of investors realize they need to be better informed about investing, according to a survey conducted by the NASD? What that means is that you ARE NOT ALONE in the temptation to throw caution to the wind and invest blindly, just so that you can read about Julia Robert’s twins instead of Delta’s twin engines.

In an effort to make wisdom a little more palatable, we’ve put together a list of the 10 COMMON INVESTMENT MISTAKES that are made EVERYDAY! These ultra-high risk practices are like mirages. They look delightful and easy, but actually lure many an unsuspecting investor to a dry, disastrous end. I’m not guaranteeing that you’ll stay awake through this list, but if you do, you’ll start on a road to much more exciting returns. And those profits could well buy you a trip to paradise—the real paradise, with palm fronds, fruity drinks and beautiful bodies clad in swimsuits.

1. Trading on Analyst Recommendations. Researchers at the University of California and Stanford found that, in the year 2000, the most highly rated stocks had a –31% return. Those least favored soared an annualized 49%. This study examined 40,000 stock recommendations from 213 brokerages. While analysts are not all criminals (like Jack Grubman and Henry Blodget were accused of being), they are definitely not fortune-tellers! The phenomenon has a lot to do with supply and demand. Everyone buys on recommendations, which means that the price goes up. Hard to find a good price when demand pushes the price up.
   
   
2. Bankruptcy Buying. Think buying US Airways at $1.28 a share is a brilliant idea, especially because you are POSITIVE that they will come out of bankruptcy? Guess again. Last year’s US Airways reorganization plan cancelled all of the existing common stock. Shareholders received nothing. (Read this again! Your stock becomes toilet paper). Common stock shareholders are wiped out during bankruptcy because they are last on the priority list with claims against the company’s assets. Global Crossing shareholders and employees had their assets completely wiped out after the bankruptcy filing in January 2002, as did Enron, Kmart & World Com shareholders.
   
   
3. Fat Free. Fat may taste good, but too much of that fat good thing is definitely horrible for your health, just as buying high, on fattened up prices can be catastrophic for your bottom line. It’s very tempting to buy stock AFTER shareholders have earned seven thousand times their investment or AFTER real estate has posted astronomical gains over the last five years, but that is called CHASING MONEY. There were people, lots of them, who bought AOL Time Warner and Priceline at peak share prices in 2000, thinking that heavenly heights could last forever. Too bad losing weight isn’t as easy as losing money. The phrase is, "Buy low; sell high," not "buy high, sell higher." Real estate investors and homebuyers should seriously heed this tip.
   
   
4. Hot Tips on the Bulletin Boards. Pump and Dump schemes abound on the bulletin boards, where shareholders (and scam artists) can ANONYMOUSLY talk up stocks for their own gain. When the story sounds UNBELIEVABLE and you think you have to ACT NOW to get it before the rest of the world finds out, you could save yourself a big NIGHTMARE by peeking under the corporate financial sheets. If it sounds too good to be true, it probably is. If you can’t find any information on the company online, and there are millions of online financial gurus, there’s likely a good reason for it. If you have a company you wish to check into, it’s worth a call to your professional, or to NataliePace.com. We’ll dig into the dirt for you.
   
   
5. Headlines. Headlines are usually not written by the writers who pen the story. They are written to catch your eye. If you don’t read the fine print, you could be missing the most important information. Morningstar had a report this week on mutual funds, entitled, "The 10 biggest wealth-destroying funds of 2004," listing "semiconductor stocks" as a "major factor." Within the article itself, Russel Kinnel, the writer, noted that, while semiconductors got crunched in 2004 (in the 3^rd quarter to be exact), "That doesn’t mean that this is a bad fund or that it won’t make most shareholders money over the long haul." Sounds like a direct contradiction to "wealth-destroying," doesn’t it? Additionally, the semi-conductors had a fairly substantial rally in the fourth quarter of 2004, with the Fidelity Select Electronics fund (FSELX), one of the losers highlighted, rallying 15% since the August lows. Oddly this statistic wasn’t cited in the late December online article. (Articles for print publications are written months in advance, explaining the omission. Online articles do not require this kind of lead-time, however.) There is always more to the story than the headline. Read it all.
   
   
6. Press Releases. Press releases are written by professional writers, who are employed by the company that they are writing about. Press releases are not filed with the SEC. A company can talk about an increase in revenue without ever mentioning that the company is losing money, or that, due to cash constraints, the company’s fiscal health is on the ropes. When reading press releases, ask yourself, "What aren’t they saying." Look online for dissenting views from respected professionals and analysts in the industry. (And yes, analysts do offer great information on the companies they study, especially in today’s tight regulatory environment. It’s the buy/sell recommendation that you have to be more skeptical of.)
   
   
7. Relying too heavily upon the advice of your broker. If your broker has handled your account beautifully through the market downturns, and/or over the past few decades, just skip this one. You’re lucky to have a partner who cares about your future and has the knowledge and expertise to get you there. Many investors don’t understand that brokers are salespeople. They receive commissions for the funds that they sell. Additionally, the broker is the entry-level position in the business, with a VERY large turnover. Finally, brokers don’t have to have a college education or prior experience in the field (although they do have to pass a series of tests.) If it sounds like your broker is just giving you the runaround, s/he probably is—the run around that leads you to throw up your hands and just sign the auto-deposit slips. This applies to ALL brokers—mortgage, real estate, bond and stock.
   
   
8. Buy and Hold. Most financial professionals-- money managers, not brokers, who are salesmen-- today, prefer the mantra, "Buy low, sell high." Day trading may not be your bag, but experienced money managers and financial planners recommend re-examining your portfolio routinely (once a quarter), or at specific buy/sell target points. Buy and hold strategies, or ignoring your portfolio, resulted in monumental portfolio losses from 2000-2002. NASDAQ and the S&P500 still haven’t recovered. The NASDAQ is still off –50% , since December 1999, and the S&P500 is still down –20%.
   
   
9. ROULETTE: Placing all your chips on one sector or one investment. Even the most stable stock is considered to be high-risk. Additionally, all markets are cyclical. Lynn Newman, CFP, warns that if everything in your portfolio is doing poorly, you're not well diversified. Conversely, if everything is going great, look out!! Diversification is your best protection against any market downturn. Have holdings in real estate, stocks, cash and/or bonds. When you get a run-up in any one area, take your profits!! Redistribute your portfolio according to your age, investment goals and risk tolerance. These are all terms that your broker should be very familiar with! In today’s climate, many money managers have increased the percentage of cash in their client’s portfolios.
   
   
10. Blind Faith. Peter Lynch says that if you invest without doing research, it’s like playing poker without looking at your cards. Blind faith in any investment, in any broker, in any real estate deal, in anything mortal (and fallible) is giving yourself an enormous handicap that you don’t need. Brokers—real estate, stock, bond, mortgage, ALL brokers--are salespersons. Ask questions, get statistics on their track record and note if they call you every month at a certain time with a new product to peddle. Mortgage brokers are not giving you the best advice when they sell you an interest-only loan, just to get you into a piece of property that is above your budget threshold. Stockbrokers are not giving you the best advice when they tell you to pull equity out of your home and invest it in the stock market, especially if they’ve only talked about how the market outperforms inflation, without disclosing the risks. Real estate brokers who only quote the recent run-up in real estate, without disclosing the price dips or average yearly performance, are just trying to sell the house at the highest price.

If you can’t blindly trust analysts, or brokers, or long-term strategies, or headlines, or hot tips, or press releases, or past winners, just what is left to judge an investment by? PLENTY! Read next month’s ezine when we discuss the three-part foundation of a winning investment strategy. The best news is that you already have two out of the three pieces, though you may not realize it!

Please note: NataliePace.com does not act or operate like a broker. We are a media and information center. This article is intended to educate and inform individual investors, and, thus, to give investors a competitive edge in their personal decision-making. The publicly traded companies mentioned in this article are not intended to be buy or sell recommendations. ALWAYS do your research and/or consult an experienced, reputable financial professional before buying or selling any stock.

Rich and Happy: Everyone Wants It, But How Do You Get It?

By Marilyn Tam, founder & executive director, Us Foundation; Former President, Reebok Apparel.

Happiness. Ah, what does that much used word mean? Happiness is regarded as such a fundamental need that that the pursuit of it, along with life and liberty, is written into the Constitution of the United States of America, as one of three inalienable rights.

Marilyn Tam Photo credit: Clint Weisman

Most of us strive to achieve what we think is going to make us blissful: a new job, a promotion, a special recognition, a different physical appearance, a certain amount of money, some particular possessions, and generally more "stuff." Are we content when we attain those things? You know the answer. It may for a brief time, and then the hunger and the restlessness creeps back; now if only I had...

Dr. Ed Diener, a professor of psychology at the University of Illinois, has devoted his distinguished career to studying the link between happiness and wealth. His conclusion is that emotional well-being is determined not by your bank account, but most significantly by the quality of your social relationships and satisfaction at your work.

What really makes us happy are usually not things. It is the warmth of the smile and openness of a child as he/she reaches for your hand; it is in the inner glow you feel when you know you’ve helped and connected with someone; it is in the center of your being when you know that you are doing the right thing.

Chasing happiness by pursuing a material goal is like climbing the ladder to the top only to find that you have climbed up the wrong wall. What do you do instead? First, laugh. Allow yourself to see the silliness in buying into the relentless media messages that bombard you to believe that joy comes from outside. Happiness ultimately is an inside job.

Young children focus on the immediate events around them. Their joy comes from what is happening in the moment. They are not fearing the future and bemoaning the past. They are not waiting to be happy. They delight in the butterfly that lands delicately on a flower, clap happily when they hear a favorite song, and are wide-eyed with wonder and joy when they see the first snowfall. Do you remember?

One day without any conscious effort, things begin to change. We begin to define our happiness by certain goals in the future: "Once that happens then I’ll be happy." Or we are unhappy because of something that happened already. There are many reasons for sadness: health challenges, financial challenges or the loss of a loved one, to name a few. How we deal with the situation is what either moves us back into equilibrium or keep us mired in the grief.

I lost my husband suddenly to a heart attack when I was in my thirties. It became a struggle for me to even want to get out of bed and to change out of my pajamas in the morning. I lost a lot of weight and was sleepwalking through life in the next few months. I grieved deeply and also prayed for Spiritual guidance to find the blessing in this unforeseen experience. It was a true test of my philosophy of happiness as an inside job.

I made a ritual to give thanks everyday for my blessings as soon as I woke up and as the last thing I did every night. Slowly the exercise of gratitude returned me to my center. My inner knowing sent me the message that events happen for good reasons, even though they may seem inexplicable at the time. I sought to find the good in my loss. One thing I learned was how to have fun without waiting for others to suggest entertaining activities; I now delight in initiating play. I resumed my non-profit work and took on a challenging new position across the country. The more I put my focus on what was good, the more I noticed there was more good. My mood lifted with each expression of gratitude I gave, and in time I noticed that I was happier again.

Long-term happiness is related to whether one is living their life purpose. When I feel that I am making a positive difference in the world, I feel fulfilled and content. Each one of us has a unique reason for being. We each have our individual dreams, but they all come down to one central theme: we want to feel that it mattered to someone(s) that we have lived.

How do you know if you are living your life mission? When the noises in your head, the "shoulds, would haves, ought tos" quiet down, you know you are on your path. Take time to journal and meditate on what is truly important to you. Take the steps to do what really calls to you. Research, prepare and plan for contingencies, but go ahead, step fully into your dream. You will be exhilarated and alive. The urgent is not as critical as the important; sometimes the ringing phone can just keep ringing. They can call back or leave a message.

Happiness is also taking time to say thank you, to appreciate the small as well as big things that we are grateful for. The very act of acknowledging the good lifts our spirits. It is in delighting in the little joys, like a long hot bath after a grueling week of intense work, or the ten-minute break to call an old friend for their birthday, or a great physical workout. Happiness is living fully.

Celebrate fun! Be spontaneous, invite your friends, order take out food and have a little surprise party, just because. Give yourself a treat like a 15-minute massage as you walk by that stress relief store in the mall or airport. Smile at the Salvation Army bell ringer. Make a donation. Stop at the sidewalk stand that the neighbor kids set up. Chat with them. Buy something. Tell someone that you appreciate them, and say why. Ask questions and listen; pay attention to people when they are speaking. You’ll learn a lot more and also find that communication and relationships go much smoother. When you do these fun and easy things, you’ll find that your days are happier and that you smile more and yes, people smile back at you too!

In today’s hectic world it is very easy to feel rushed and stressed. It may take you conscious effort to remember to delight in the simple joys in life. Laugh, find humor in some of life’s small frustrations, it will make the day go better.

Maybe one day our whole world will be like Bhutan, a country with a "National Gross Happiness Index." Bhutan's King Druk Gyalpo Jigme Singye Wangchuck wanted an alternative to the conventional Gross Domestic Product (GDP) ranking. He felt that the GDP did not indicate a nation's true wealth. Visionary leaders shouldn't only strive for the country’s material wealth, they must also cultivate inner contentment for their people. Bhutan's Index covers everything from protecting natural resources to promoting a strong national culture and ensuring democratic governance -- goals that help create a foundation of happiness for the citizens.

You can start being happier right now. It’s easy, just smile and give thanks that you are relaxing for a moment and reading this article!

"Often people attempt to live their life backwards.
They try to have more things or more money to do
more of what they want, so they will be happier.
The way it actually works is in reverse. You
must first be who you really are, then do
what you need to do to have what you want."
-- Margaret Young

Marilyn Tam is an influential corporate leader, speaker, consultant, author and social activist. www.HowToUseWhatYouveGot.com

Marilyn Tam’s book, How to Use What You’ve Got to Get What You Want, receives an average 5-star rating from Amazon.com customers. In her book, Ms. Tam talks about how to discover your own inner North Star, and how to use it to navigate your efforts to achieve maximum personal success. The hardcover is just $14.00 on Amazon.com. Check it out!

Side Bar On Bhutan
Bhutan, the Buddhist kingdom tucked between India and China, is the size of Switzerland and has less than a million people (830,000). Their economic wealth is among the lowest in the world and they only ended their self-imposed isolation in the 1990’s. Yet the Bhutanese are reputed to be the happiest people in the world. Outside observers, as well as the Bhutanese themselves, attribute this to the wisdom and vision of their King, His Majesty King Druk Gyalpo Jigme Singye Wangchuck.

In 1972, King Jigme Singye Wangchuck, deeply concerned about the effects of globalization on their unique culture, was determined to protect it. He wanted to safeguard their social and cultural values by converting them into quantifiable terms so that the wider world may understand and respect them. This lead eventually to the development of the Gross Happiness Index to gauge properly the country’s social, cultural, and environmental assets, as well as its economic development.

In 1998, the Prime Minister, Lyonpo Jigmi Thinley, formalized the vision into the government's new master plan, the Four Pillars of Happiness. These pillars: sustainable economic development, conservation of the environment, the promotion of national culture, and good governance -- create conditions "in which every individual will be able to pursue happiness with reasonable success," says Mr. Thinley.

"Bhutan is a very rare example, probably the only example in the world, of a country that has built happiness into the center of its development strategy," says Ron Coleman, director of GPI Atlantic, a Canadian nonprofit research organization that studies the quality of life. "They are sacrificing short-term income for long-term social health."

Cash Crunch!

Stock Rich Technology Entrepreneurs Crash Into Reality-Worthless Stock, Huge Property Tax Bills and No Cash. Panicked, They Turned to NataliePace.com's Living Wealthy Team for Advice.

Each month, NataliePace.com provides subscribers with your chance to have four seasoned financial consultants give you a personal money makeover. The Living Wealthy financial consultants are: Carista Luminare-Rosen, Ph.D., Educational Director of Inner Securities and Holistic Wealth Consultant, Stu Zimmerman, Chairman & CEO, Inner Securities and Holistic Wealth Advisor, Gregory Wendt, CFP®, Money Manager and Certified Financial Planner, and Judith Green, Mortgage and Real Estate Financial Advisor. See the end of the article for instructions on how to receive your personal money makeover.

Profile of this month’s LIVING WEALTHY Candidate:
Name- Jack and Judy Johansen
Age – 57, 54
Married – yes, and work together
Children – grown, independent
Profession – Software developers, entrepreneurs
Annual Income - $25,000 this year, $250,000 last year
Net Worth - $900,000, plus debatable value of shares in sold company
Asset Allocation - $700,000 house value, $190,000 misc. retirement investments, $10,000 savings
One Year Life Goal – To survive and develop a new business idea for the future
Five Year Life Goal – To have a business well established, ready to sell
Ten Year Life Goal – To be happily retired with money in the bank
Deepest Heart’s Desires – To have the freedom to work together, and to enjoy financial riches from our work
Greatest Fear/Insecurity about Money – That we will work hard and have nothing to show for it

Jack and Judy seek help, in their own words:
"Last year we were on top of the world, and didn’t believe anything could go wrong. Together, over the past four years, we developed a unique software product, built a business, and sold it for what looked like a fortune. We got some cash, and a lot of stock. On paper, we were millionaires many times over. We paid cash for the house of our dreams, and expected to enjoy a fantastic retirement in a year or so, when the restrictions were lifted on our stock. We never expected a major company to step in and dominate the market and that the new owners would choose to shut down rather than compete. Our stock is worth about the same as the newspaper we put in the bottom of the parrot cage.

Over the past months we’ve drained our savings just paying utilities, food, car payments and homeowners’ dues. Property taxes are due in a couple of months and we don’t know where the money will come from. Jobs in this area pay so little, it’s hardly worth looking. That’s why we started the old business in the first place. We’ve been so anxious we can’t even think about what to do next, but we know our creativity is our best shot at creating a better future.

Right now we’re considering cashing in our retirement to have a little bit to live on. We always dreamed of having a paid-off house, but now we’re not sure if we should get a small loan on it to tide us over. And we know that if we don’t clear our heads quickly, we’ll have more to worry about and less ability to deal.

CARISTA’S RESPONSE:
Dear Jack and Judy,

It sounds like you have been through a major life crisis this year because there is loss on many levels. You have lost a dream that you had invested so much time, energy and money into, with faith that the outcome was the fulfillment of your deepest desires. I sense you feel a loss of control and a loss of self-confidence. I would like to invite you to consider caring for your emotional loss as well as your financial one. Unexpected financial setbacks of this magnitude commonly affect one’s self-identity, and your feelings need to be attended to for optimal resolution.

You have a healthy reason to feel a spectrum of emotions. Grief, sadness, anger, anxiety, and confusion are common emotions when a person has suffered a loss. When there is a human death, the grieving process is much more tangible and justifiable. But the death of a dream (especially when it affects your survival needs) can feel very disorienting and threatening to your sense of reality and your self-worth. In your case, your net worth was lost as well.

If this experience is affecting your inner security ( self-worth), please give yourself permission to seek support. Feeling overwhelmed with any emotion, sleepless nights, and fear of the future can affect your peace of mind. Because money is presently limited, you may benefit from hearing from others in similar circumstances. Consider surfing the web for some support groups or information. You can explore www.Google.com using search words such as "financial loss" or "grief and money."

Here are some creative exercises you may find healing:

1. Write down a list of your deepest and most conflicting fears and feelings about losing your dream. Simply expressing them can release stress.
   
   
2. Write a letter to the people who you sold the company to and express your suppressed feelings about what has happened. This is not a letter to send, but one to express your own feelings in order to let them go…. and free yourself from the emotional pain regarding how their actions affected your life. This letter is for you and your healing so really let those feelings rip. Speak your truth without fear of retribution; you get to be free of the past! Then do something with that letter that is symbolic of letting what happened to you be released a bit more from your heart. Burning the letter, ripping it up, or deleting it from your computer may give you a deeper sense of freedom from the emotions.
   
   
3. Write a list of what you need to feel safe (or perhaps feel courage) to create a new dream.
   
   
4. Now, write a very detailed vision of the new dream you want to begin focusing on with your partner. Be playful with this one, as if there are no limits. Then create a practical plan to start the first few steps… and as far into the future you feel inspired to clarify.

Remember, after every winter comes spring. Many seeds and bulbs generate the most beautiful flowers when they are planted in the coldness of late fall and winter. Trust the process of loss means there is something new to create. Life is here to support you.

Carista Luminare-Rosen, Ph.D., Director of Education, Inner Securities, Inc. To contact Carista directly to share comments or for a consultation, she can be reached at Carista@Innersecurities.com or visit the website www.innersecurities.com.

STU’S RESPONSE:
Dear Jack and Judy –

I feel your discomfort. Life throws us all sorts of curve balls because of all the events that are truly outside our control. And that does feel so scary, especially when our security, including our financial safety net, is threatened. Your greatest fear/insecurity about money of "working hard and having nothing to show for it" is widespread across the world. Unfortunately, there are no guarantees in life.

Practically speaking, although there is much outside your control, such as the local job market, you can take ownership of what you do have going for you, so let’s focus and build on your assets. First and foremost, you two are blessed to have enough professional talent that you created millions for yourself on paper. Given that you are in the field of technology, there is a high likelihood that you can telecommute anywhere around the world. So to jumpstart your cash flow, you may want to consider taking on some software development projects on a subcontracting basis. Given your track record, your market value may be considerable.

We want you to be living your deepest heart’s desires – namely, to have the freedom to work together and to enjoy financial riches from your work. Well, great news! You have half the battle won already! You do have the freedom to work together right now, don’t you? Why not enjoy the richness your collaboration brings to your life today?

As for the financial reward, once again, there is never any guarantee in life. That said, your enjoyment of your financial position is completely within your control each and every day. With gratitude for what you do have right now (e.g., you have significant equity in your house) and clarity and determination on what you want to create professionally and financially, you have the ingredients in place for living a great life now.

Here’s a simple exercise to ground what you have going for you and to boost the quality of your life every day. Spend a few minutes of quiet time, take some deep breaths right into your heart and ask yourself: "What am I grateful for right now?" Consider your physical, emotional, mental, spiritual and financial well-being. Make a list and count your blessings (literally and figuratively). By placing your attention on what you appreciate, you actually improve your attitude… just like that. This also opens your heart for you to feel the depth of your deepest heart’s desires. The power of love and will within you provides you with the energy and determination you need to live your dreams.

Stu Zimmerman, Chairman & CEO, Inner Securities. To contact Stu directly for a consultation, he can be reached at Stu@innersecurities.com or visit the website www.innersecurities.com

JUDITH’S RESPONSE:
Dear Jack and Judy:

It sounds like you’ve lived both the American Dream and the American Nightmare. You may feel alone, but unfortunately you have lots of company. Sudden wealth doesn’t necessarily bring the security people have come to expect. Lottery winners and entertainers face the same issues as you two. And, in the post "dot.com" world, a lot of people who thought they were financially set for life found their jobs downsized or sent offshore, and their stock portfolios and even "safe" retirement plans at work shriveled to less than their original value. Conventional financial advice, generally founded in a predictable income stream and fueled by optimism, doesn’t have much to offer when finances head in this unexpected direction.

As you already know, your biggest asset is your combined creativity, and you need some cash to free your thoughts. Rather than selling off your remaining investments, and in the process perhaps taking a loss or incurring a tax liability, take a good look at that paid-off house.

We’ve been taught to think a paid-off house is the ultimate in financial freedom, but that isn’t necessarily true. Think of the house as a giant gold nugget—yes it’s worth a lot, but you can’t take it to the grocery store, or pay utilities and car payments with it. If you convert a portion of the house value into spendable cash, you’ll have money to cover your monthly bills, including the new house payment, and you’ll be able to make smarter decisions about your future.

You may be tempted to take only a small loan, but that isn’t necessarily wise. From your past experience, you know what it cost to build your business, and you may know that you would have been more cost-efficient if you had more working capital in your hands back then. Consider carefully what money you can effectively use now and over the next year or so, and go for a bit more to handle contingencies.

If you need help deciding to take out more, look at these numbers: $200,000 at 6% interest, amortized over 30 years, costs a monthly payment of $1193. $300,000 at 6% is about $600 more per month. How much more could you accomplish with the additional $100,000 if it meant you could hire an assistant, get the computer support you require, etc. And, of course, don’t forget to look at interest-only and aggressive ARMs for mortgage options. That $300,000 would cost only $1035 per month, under a popular ARM program now available to borrowers with superior credit.

Remember that your money and your assets are just tools that you can use to create your life, and don’t limit your options by holding onto myths that don’t serve you in your life right now.

Judith Green, a mortgage and real estate financial advisor, specializes in problem solving for clients with more complex or non-traditional lending and credit issues. She can be reached for comments or to request a consultation at createmoney123@netzero.com.

GREG’S RESPONSE:
Dear Jack and Judy,

To begin with, you are blessed to have resources available to you, in spite of the loss of the business. I agree with Carista and Judith that you have your home, which is a "golden nugget," and your "creativity" and ingenuity, which are some of your most valuable assets.

As far as covering your expenses while you pick up the pieces, I would begin by recommending that you definitely do not draw on the assets in your retirement plan. To do so would involve penalties for premature withdrawals (since you are both younger than 59), and you would have to pay taxes on any withdrawals as well.

Consider strategies to borrow against the equity in your home to get you back on your feet. The question remains, how much do you borrow? I suggest you begin with calculating the amount you need to cover one year of expenses. Obviously, you can’t expect to borrow from your home to pay the bills for the rest of your life, but a year will give you enough time to determine your goals, dreams, get back on track and figure out how to make a living again.

In six months or so, hopefully things will become much clearer and you will have a longer view. At that point, you can begin exploring your longer-term plans and even explore retirement goals. I suggest you meet with a financial planner who can work with you to devise a long-term financial plan and clarify your retirement goals. Now is not the best time to do this kind of long term planning, however. Just deal with your current situation, get back on track and begin preparing for the "spring that follows every winter."

Gregory Wendt, CFP®
www.gregwendt.com <http://www.gregwendt.com>
Premier Financial Management, LLC
Investment Portfolio Management, Comprehensive Financial Planning, Socially and Environmentally Responsible Investing

Ask NataliePace.com:

Is January a Good Time to Buy or Sell? Q&A from a subscriber's chat in December 2004.

Natalie – I’d like to start by pointing out that NASDAQ has led this year’s Santa Rally, over S&P 500 and the Dow Jones Industrial Average.

Question: You say that January is a sell-off month. Should you buy anything in January?
December and January are great profit-taking months, but not generally the best times to buy. If you look at 52-week highs and lows, the lows occur, historically, in September and/or October, while the highs tend to be in January. October 2002 posted the lowest share prices in recent history. People who bought then are looking at substantial gains today. In bull markets, there is a continual run-up from January through December, but that is not predicted to be the case in 2005 or 2006. (It was the case in 2003, and NataliePace.com called that, along with many other professionals, as our "pre-election build a platform for the president to run on" year.) The second year of a presidential term is not, historically, a great year for the markets, especially if inflation kicks in.

There are two companies I’d buy now, however—Opsware (NataliePace.com’s 2004 Company of the Year) and OSI Pharmaceuticals (NataliePace.com’s 2005 Company of the Year). I’m not sure that you’ll have the opportunity to buy either company ever again at today’s prices. For disclosure purposes, I own Opsware, but not OSI Pharmaceuticals—yet.

Question: So, in January you look for opportunities to sell rather than to buy?
It is a great idea to meet with your financial planner at least twice a year. In September, you might look into companies that you are interested in buying, and examining if the cost/benefit/value/future of the company make sense for buying in at a good price. In January, you want to see if your stocks have made a lot of profits, and if so, you need to see if your portfolio diversification strategy is out of balance. If your strategy is to have 30% invested in stocks, and stocks have a great run to the point that you now have 80% of your assets in stocks, take some profits from stocks and balance the portfolio again. The older you are, the more money you want in safe, liquid assets. You do not want the majority of your portfolio exposed to risk, to the potential of significant loss, if you are expecting to retire on that nest egg in a few years.

The part of the equation that many people miss is the SELL HIGH part. Last week, I interviewed a person who was advised NOT TO SELL Sun Microsystems at $95 because the person was in a high tax bracket. This man would have netted $600,000 after taxes from his sale. Sun Microsystems is now at $5.00. Because he was advised to avoid paying taxes, and instead to transfer the stock into a trust fund for his kids, he lost 95% of his investment. It’s hard to make a case that, over time, that money will come back, when he could have netted $600,000 four years ago and given his kids the opportunity to do almost anything that their hearts desired.

Do you have a system for looking at a stock or sector?
Yes. Here’s my formula for successful investing. 1) Invest in what you know. (Warren Buffett and Peter Lynch idea). 2) Pick the leader in the sector. 3) Buy low and sell high.

The tricky part is #2. If you don’t have time to do the research yourself, there are companies out there (like NataliePace.com) that do the research for you. Each month, we feature a Stock Report Card, and pick the company that leads the featured sector. Remember that past performance is not a good indicator of the future growth. For instance, Peet’s Coffee may be in a better position to make money for investors than Starbucks at this point.

There is one general trend that is very noteworthy. NASDAQ companies, particularly technology companies, are reporting significant earnings growth (many, like Google and Opware are seeing 100% sales growth), while many of the more mature companies in the NYSE are barely meeting earnings with one-time accounting events and/or hedging. For instance, Southwest Airlines (NYSE: LUV) posted earnings above Jet Blue (NASDAQ: JBLU) last quarter, even though Jet Blue’s load factor was 83.8% to Southwest’s 65.5%, and load factors are most directly correlated with profit in the airline industry. Southwest achieved higher earnings by hedging fuel. That strategy worked for a quarter, but over time, Southwest is going to have to get their load factor up to remain profitable. Would you like to know which sectors are in favor and which ones are distressed?

I would. Thank you.

The airline industry is expected to lose, LIQUIDATE, at least one network carrier in the next six months. (That could be good news for Jet Blue and Southwest, which are both profitable.) Transportation is suffering under rising fuel costs. The auto industry is battling rising fuel and metal costs. Almost all mature companies are waging a hard battle against expensive health care, under-funded pension plans and the fact that less than three workers employed are supporting retirees. Almost a third of the US population starts entering retirement in the next few years. It puts younger companies, like Jet Blue, in a clear advantage, because the company is not supporting the weight of retirees and older health care plans, which provide more expensive benefits to employees.

I’d steer clear of mortgage companies. Fannie Mae and Freddie Mac have been on our SELL list for over two years now. I would be careful of consumer goods and mega stores right now. Transportation costs, in addition to health care, pensions, slim margins, intense competition, etc., have lead major companies, like Wal-Mart to use accounting means to meet earnings expectations, while real growth is rather limp (less than 2%).

Why do you keep coming back to NASDAQ over the NYSE?
Did you know that the Dow Jones is less than 10% under the high in 2000, before the NASDAQ crash, while NASDAQ is still over 50% under? In 2000, the Dow Jones Industrial Average high was 11,500, while NASDAQ was 5,000. That means that on the buy low; sell high continuum, the Dow is high and NASDAQ is still a bargain. The NASDAQ becomes even more attractive when you see that the companies reporting the strongest earnings and sales growth are listed there, including Google, Yahoo, Opsware and more.

I invest in mutual funds, but I want to try individual stocks.
Paul Woods, one of NataliePace.com’s regular contributors, recommends index funds over mutual funds. Please read anything that he writes. It’s great advice! If you’ve never picked an individual stock before, you need to take money that you are willing to learn on and potentially lose. It’s like learning Spanish. You’re not going to be fluent anytime soon, but each day, you’ll learn new words, and one day you’ll realize that you’re ready for a trip to Madrid. In the meantime, while you educate yourself, do not make major changes to your portfolio without the help of a trusted professional. Print out NataliePace.com’s ezine and read the wonderful articles that are written by the most respected financial professionals in the nation. Check out any other publication or television show that appeals to you, including Investor’s Business Daily, the Wall Street Journal, the New York Times, Kiplinger’s, Cavuto on Business, etc. Avoid hot tips, headlines and just watching the price fluctuations of your favorite stock.

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NataliePace.com Stock Picks.

By Natalie Wynne Pace, founder and CEO, NataliePace.com.

In a nutshell, we hope you've already bought your stock because all of our picks, except one (the penny stock that is traded on the Toronto Stock Exchange), are in positive territory!

In general, this is January, many stocks are trading at their 52 week highs, and we’re kicking back to see just how many gains we can rake in (and they are sweet!).

There are a few exceptions to this HOLD strategy, companies we believe are still a good value, compared to their growth potential. So have fun with the list.

Remember, if you are venturing into the new territory of stock picking, use money that you are willing to learn on (and potentially lose). Also, be aware that tax laws are different for day trading than for stocks that you hold longer than a year. Consult your broker and your accountant before trying anything on your own.

Full disclosure: I have listed the companies that I own under the column "NP OWNS?"

Please note: NataliePace.com does not act or operate like a broker. We are a media and information center. This article is intended to educate and inform individual investors, and, thus, to give investors a competitive edge in their personal decision-making. The publicly traded companies mentioned in this article are not intended to be buy or sell recommendations. ALWAYS do your research and/or consult an experienced, reputable financial professional before buying or selling any stock.

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Calling all Soldiers from California!

Free Phone Calls Home on the Dime of Maria Shriver, California's First Lady.

60 minutes of FREE phone time is a click away for California’s military personnel, who are serving overseas. We at NataliePace.com encourage you to cut and past this information into an email and send it to your family and friends, who may know a soldier who qualifies for the FREE call home.

To access a FREE LINK to this article to distribute to your family and friends, click on Free Phone Time or cut and paste the following address in your email.

http://www.NataliePace.com/newsletters/members/news.php?np=yes&issue=56/56&article=12

Sending a holiday message, Maria said, "I am so pleased to send our support and gratitude to our service men and women. I speak on behalf of all Californians when I say how honored we are by all your remarkable acts of courage and your bravery as you defend our nation.   I know you are away from your family and friends, it is with our sincere respect and appreciation that we provide you an opportunity to share a few special moments with your loved ones."

The Heroic Holiday Program is a joint effort between the California State Alliance, the Office of the First Lady and the Army & Air Force Exchange Service (AAFES).  To receive 66 minutes of talk time to call loved ones back home, California military personnel will need to send an email to Calphonecards@aafes.com.  The service member must include his or her full name, Operation Enduring Freedom or Operation Iraqi Freedom location to which he or she is assigned, a California address or California driver's license number, and a return email address. AAFES will send an electronic message from the Governor and First Lady and a pre-paid card pin number.  The program will continue through January 31, 2005.

"At this time of the year, I want to express my deep gratitude to our brave troops serving overseas, far away from the people who love them. Your sacrifices preserve our freedom and safety and I am incredibly proud of the job you are doing in defending our country, and all Californians are forever indebted to your for your service," said Governor Schwarzenegger.

Financial News…

Important highlights from the New York Times, Money Central, Reuters, Bloomberg, CNBC, Fox News, policymakers and more.

Companies:
News Corporation (NYSE: NWS). "We are willing to defend very aggressively the independence of News Corp., of which we are invested in… We can convert our nonvoting shares to voting very quickly, and we can buy any amount that is needed to keep News Corp. in the hands of Mr. Murdoch and his sons." His Royal Highness Prince al-Waleed bin Talal, Chairman, Kingdom Holding Company

Inflation:
"The economy is slowing and the government is lying about the inflation rate because they want to minimize the increase in Social Security.  Have you bought gas, health insurance, or anything else lately?  The 2% inflation number is a joke."   Paul Woods, CEO, Odyssey Advisors

"A low CORE number allows us to pretend that American productivity is the best in the world, that the dollar should be strong, and that the markets, by golly are going up. No matter that a gallon of gasoline is over 2 bucks or that a half gallon of milk will set you back $3.69." Bill Gross, PIMCO BONDS, on the "con job perpetually foisted on the American public about the low level of inflation," from his October 2004 Investment Outlook

"With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Statement from the Federal Reserve Board on November 10, 2004

Currency:
"The inability to anticipate changes in supply and demand for a currency is at the root of the statistically robust finding that forecasting exchange rates has a success rate no better than that of forecasting the outcome of a coin toss… Significantly increasing private saving in the United States--more particularly, finding policies that would elevate the personal saving rate from its current extraordinarily low level--of course would also be helpful." Alan Greenspan, Chairman of the Federal Reserve Board, Remarks At the European Banking Congress 2004, Frankfurt, Germany, November 19, 2004

Oil:
"Once fear is alleviated, there will be a median price in the mid-30s." His Royal Highness Prince al-Waleed bin Talal, Chairman, Kingdom Holding Company
The question is, "Will fear be alleviated when demand is insatiable and supply is extremely limited (and running out)?" Not many oil executives in America think that scenario is likely.

DEMAND for Oil
"High oil prices reflect high and growing demand for oil and limited (and uncertain) supplies… To illustrate, world oil consumption for the second quarter of this year, the latest quarter for which we have complete data, is now estimated to have been about 3.7 million barrels per day higher than the IEA projected in July 2003. (For reference, total global oil consumption this year has averaged about 81 million barrels per day). A significant part of this unexpected increase in oil consumption, about 2.2 million barrels per day, reflected quickly growing oil demands in East Asia, notably China." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia, October 21, 2004

OIL SUPPLY
"The relatively limited increases in production delivered so far by OPEC members, together with non-OPEC production that has fallen a bit below projections, have raised concerns that the spare production capacity available in the near term may be severely limited, perhaps below 1 million barrels per day. Interacting with the limits on capacity, and contributing to the exceptional volatility in oil prices of recent months, are uncertainties about the reliability and security of oil supplies. Of course, the oil-rich Middle East remains especially volatile. But political risks to the oil supply have emerged in nations outside the Middle East as well, including Russia, Venezuela, and Nigeria. Weather also has taken a toll, as recent hurricanes affected the production and distribution of oil on the U.S. Gulf Coast." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia on October 21, 2004
http://federalreserve.gov/boarddocs/speeches/2004/20041021/default.htm

OIL RESERVES
"At the end of 2003, the world's proved reserves of oil--that is, oil in the ground that is viewed as recoverable using existing technologies and under current economic conditions--reached more than 1.15 trillion barrels, 12 percent more than the world's proved reserves a decade earlier and equal to about forty years of global consumption at current rates (BP Statistical Review of World Energy, 2004, p. 4). Of course, global oil consumption will not remain at current rates; it will grow." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia on October 21, 2004
"In many cases, the development of new fields also faces the challenge of recovering the oil without damaging delicate ecosystems, if indeed the political process allows exploitation of ecologically sensitive fields at all. I have already noted the uncertainties generated by geopolitical instability; perhaps it is sufficient here to note that, despite the opening of fields in a number of new regions in the past decade, about 63 percent of known oil reserves today are in the Middle East." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia on October 21, 2004

Long-Term Outcome of Oil == Inflation
"Lower productivity in turn implies that wages and profits will be lower than they otherwise would have been. Also, the higher cost of imported oil is likely to adversely affect our terms of trade; that is, Americans will have to sell more goods and services abroad to pay for a given quantity of oil and other imports. The increase in the prices of our imports relative to the prices of our exports will impose a further burden on U.S. households and firms." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia on October 21, 2004

Short-Term Outcome == Inflation
"In the short run, sharply higher oil prices create a rather different and, in some ways, a more difficult set of economic challenges. Indeed, a significant increase in oil prices can simultaneously slow economic growth while stoking inflation, posing hard choices for monetary policy makers." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia on October 21, 2004

Historic Effects of High Energy Costs
"In the past, notably during the 1970s and early 1980s, both the first-round and second-round effects of oil-price increases on inflation tended to be large, as firms freely passed rising energy costs on to consumers, and workers reacted to the surging cost of living by ratcheting up their wage demands... The Federal Reserve attempted to contain the inflationary effects of the oil-price shocks by engineering sharp increases in interest rates, actions which had the unfortunate side effect of sharply slowing growth and raising unemployment, as in the recessions that began in 1973 and 1981." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia on October 21, 2004

Thus, the Fed’s Policy of slow, steady interest rate hikes
"The removal of policy accommodation can proceed at a "measured" pace." Remarks by Governor Ben S. Bernanke of the Federal Reserve Board, lecturing At the Distinguished Lecture Series, Darton College, Albany, Georgia on October 21, 2004

Consumer Debt and Home Mortgages:
"The ratio of household debt to disposable income has risen especially steeply over the past five years and, at 1.2, is at a record high. Moreover, many have recently become increasingly concerned about the exceptional run-up in home prices. They [analysts] argue that a collapse of such prices would expose large, recently incurred mortgage debt to decreasing values of home collateral." Remarks by Chairman Alan Greenspan. "The mortgage market and consumer debt," At America’s Community Bankers Annual Convention, Washington, D.C. October 19, 2004 http://federalreserve.gov/boarddocs/speeches/2004/20041019/default.htm

"If lenders, including community bankers, continue their prudent lending practices, household financial conditions should be all the more likely to weather future challenges." Remarks by Chairman Alan Greenspan. "The mortgage market and consumer debt," At America’s Community Bankers Annual Convention, Washington, D.C. October 19, 2004 http://federalreserve.gov/boarddocs/speeches/2004/20041019/default.htm

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PHILOSOPHY: Member Mosaic. Piecing together a more complete picture of the publicly traded company, one tile at a time, by valuing firsthand consumer experience, conducting evaluations of the executive team and lining up the numbers of the publicly-traded company with its competitors in a Stock Report Card.
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