Investing in direct participation, or working interest ownership in new oil & gas prospects being offered by only the very best oil & gas independents, and broker/dealers is now a pretty common way to beat the stock market, and just about any other passive investment being offered to you today…particularly when…but only when…you can do it correctly…

Cash flow is always king, and making money when oil & natural gas prices are going up, and to be able to do so while not having to sell your working interest ownership to make a profit, is a chief advantage of investing in only the most successful of the developmental, and exploratory oil & gas drilling prospects being offered to private & industry investors today…

First, you need to be investing with the right companies…only the most successful…those who are fully aware of all the risks associated with drilling for oil & gas, and they must know how to control them…for example…by being aware of the absolute requirement to diversfy, and spread-out the risk of dry holes, and poorly performing wells…by picking the very best and most lucrative oil and gas options by using only the best technology we have, and by working with only the best drilling companies, and contractors, etc. etc…

Don’t fall for quick estimates of establishing cash flowing distributions from new wells drilled, completed, and placed on line…unless they are very shallow, and simply offsets to other wells already in production. You must normally wait at least 90 days before you begin to receive income from new development activities in a lease hold interest, or Area of Mutual Interest (AMI)…purchase contracts must be negotiated, and fine tuning of new wells is typically required before steady revenue can be established and maintained…6 to 12 months is often needed for cash flow to begin…this is especially true when drilling deep on shore, or off shore wells with big commercial reserves…however, the major oil companies, and large independents are targeting very big recoverable reserves of both oil & natural gas…and their prime objective is to ‘book large reserves’…and maintain revenue streams over a relatively long period of time after bringing their new wells on line…in other words they are looking to establish long term cash flow, and value…as opposed to getting short term ‘bragging rights’…it can be pretty easy to quickly drill a shallow well and find a little production…only to find these same wells falling-off, or declining rapidly…you then find you are just ‘trading dollars’. rather than discovering big new commercial quantities of oil & gas…drilling wells with rapidly depleting reserviors isn’t why the more successful oil & gas professionals are in the business…

You must be 100% sure the tax write-offs are being properly listed as legitimate tax preference items in the yearly K-1 reports, which are prepared by the development companies and sent to the IRS each year…you are then certain of getting all of the legal tax benefits, and be assured of taking every one of these tax write-offs you are entitiled to receive to lower your taxable income from all sources…

Compounding your cash flow from oil & gas monthly revenue distributions, and knowing what your return on investment really is…also…by knowing internal rates of return, and trusting the companies you do business with to be well aware of the ‘time value of money’…when calculating the total returns on your money over time…really is the key…this level of sophistication is only possessed by the top people in our business…if this sounds interesting, and makes good sense…just give us a call, or sign-up for the newsletters, and updates we send to people making inquiries about oil & gas investments.

Couple weeks back, I wrote about stock investing tips and one of my final tips discussed using an online stock brokerage account once you get familiar with stock trading and have some experience behind you. To continue that topic, it would be helpful to know what features to look for in an online broker, as there are many options out there.

Whether you are a novice or seasoned veteran to online stock trading, here are some important features and points to keep in mind when you open an online stock trading account.

What trading tools do you need to conduct your research? Company historicals, independent market research, real time quotes, SEC reports, etc. Check to see what trading tools are provided by the broker, both free and premium tools, which may cost you.

What types of online trading are you planning to do, stocks, mutual funds, bonds, ETFs, retirement accounts, IRAs, etc.? Are these investments offered by the broker? What are the respective fees for each of these investments?

Are you a day trader or a buy and hold trader? In other words, how often do you expect to be buying and selling. If you trade often, then a low commission or trade fee is important. Otherwise, getting good customer service may be more important than a low fee trade.
How is the commission structured? Is it based on the size of the trade, size of the order, or a minimum balance in your account. Make sure to read the broker’s policy about commissions and fees on their website.

Most brokers will require a minimum amount to open an account. The low commission may also be limited to maintaining a minimum amount in your account. Check to make sure these amounts are within your financial limits.

Ensure there is no inactivity fees. If you buy and hold or trade occasionally, then this is important for you to know. Again, read the company’s website for details.

In some cases, especially if you trade more frequently, you may have cash sitting in your account. Compare the interest rate provided for cash residing in your account with the online brokers you are considering.

Read and review independent third party reports to see recent news, articles, and other evaluations by consumer research groups on the company to see if there is any information on the company that might concern you.

These days, online privacy and online security is of the up most importance. Read the company’s privacy policy, security policy to protect your personal information, and ensure that your account is insured.

Hope you found these tips valuable and will aid you with your search for a suitable online trading account. I am currently in the process of evaluating several online broker trading accounts. About 12 years ago, I opened my first online stock trading account with TD Ameritrade (it was just Ameritrade back then). Since then I have not looked at other companies or searched for other options. Well, over these 12 years or so, a lot has changed and there are a lot more options out there. Its time to review again and I plan to post a summary of my findings for our members. Keep an eye out for the report!

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Benefits of Online Stock Trading

The new fad is online stock trading. Online stock trading refers to buying and/or sell securities by the stock investor himself on the Internet as compared to calling the broker and having him or her place the order. There are many benefits to online stock trading that I will discuss here.

Convenience/Quickness – Online stock trading allows you to place your orders from anywhere and at any time. The only piece of equipment needed is a computer. When an investor does online stock trading they save themselves time and money. Calling your broker takes longer and costs the investor more.
Control – With online stock trading the investor has full control of his or her investments. With online stock trading there is no having to explain to your stock broker on why and how long you plan to hold your position.

Efficiency – With online stock trading you can get account balance, positions, real time quote and other information instantly while when calling you broker would take much longer to receive this information.

Online stock trading allows all investors to take advantage of real time news and market movements. In the past when a stock investor had to call his broker it would take much longer to buy or sell and investors could not take advantage.

Article was written by David Hot Penny Stocks

We are coming up onto a crossroads two weeks post-global correction that started February 27. The resource stock-laden Canadian TSX Venture Index dropped from 3,274 to 2,955 at closing March 5, a haircut of almost 10%. Since then, it has climbed back up to 3,127 a nd is looking for direction: will it rise and try to break through a double top (May 2006 being the other peak) or further correct downwards after last week’s bounce?

Since the bulk of North American uranium stocks are listed on the TSXV and generally move more or less in lock and step with the exchange, overall sentiment should be gauged. However, if one is relatively assured that the correction is mostly over and done with, there seems to nothing that can obstruct uranium stocks from buoying higher.

This is because the uranium fundamental story that concretized in many investors’ minds after Cameco’s announcement of its Cigar Lake mine flooding back in October 2006 will now be buttressed by news of another unforseen flooding: the Ranger Mine of Energy Resources of Australia Ltd. (ERA). On March 7, ERA sent out a press release describing the aftermath of cyclone George on its uranium mining operation. First, a force majeure was declared by ERA on its sales contracts as a result of the flooding. Second and more importantly, its first quarter production is estimated to be between 20-30% lower than last year, with second quarter impact still yet to be assessed. James Finch of Stockinterview.com penned an article suggesting that the impact of the Ranger mine flooding could be the reduction of 4% of 2006 worldwide uranium production, a figure that simply cannot be made up by new production this year.

Indeed, Tradetech’s March 9th report raised the uranium spot price from $85 to $90US/lb in part due to ERA’s surprise announcement. It seems that the psychological $100/lb of uranium oxide will be broken sooner than expected, although analysts have already been revising their uranium estimates upwards.

Thus, as long as the broader markets remain stable, uranium stocks, especially newly-minted and near-term producers with unhedged uranium sales contracts will likely see short-term appreciation: this list includes sxr Uranium One and Urasia Energy, two uranium juniors who will merge together shortly, as well as Paladin Resources and Denison Mines; Denison, itself a recently-merged company from International Uranium Corporation and Denison Mines, is in the process of applying for an AMEX listing in hopes of attracting some of the nascent American investor interest in uranium stocks.

Stock Investments Direct From The Company

Direct Dividend Reinvestment Plan is another method of investing directly in a company. It is generally called a DRIP. The High quality feature of this plan is that instead you receiving the dividends, you agree to reinvest the dividends in the company for more stock. It is a regular Direct Stock Plan with a reinvestment agreement. If you have a broker you may carryout a similar investment plan with your other stocks & mutual funds.

The major advantage is that company allows a private investor to purchase stocks directly this allows you to set up a pay check withdrawal each pay period for the purposes of the stock plan. There are many advisory services that you can assist in locating companies that provides direct stock purchase plan. I would suggest you can find companies in which you are interested in & make enquiries with the investor relations.

The major advantage of you contacting an individual company yourself allows you to use your own preferences & then do a small amount of leg work. The company representative provides you the necessary forms & gives you an individual advice on how to set up pay roll deduction. On the other hand you can contact your banking institutions, employer human resource or bill payer to set up the account.

It will astonish you a good number of companies that allows you to buy stocks directly by setting up a plan. The possibility ranges include utility companies, fast food stocks, entertainment and retail stocks.

It may be a good option for investing, if you have any solid company that has shown a solid performance. The only thing is you lose your time. The time it takes in gathering the information has a big payoff. You will be able to get a long term relationship & also save your commission fees.

Learn How To Read The Stock Market

Have you ever opened up to the Business Section of the newspaper with complete awe? Do you find the stock market daunting? If you have ever thought about investing, but felt intimidated, read on. Here are some definitions to basic stock market jargon.

AMEX: The American Stock Exchange is the third largest stock exchange by trading volume.

Baby Bond: Issued bonds holding par values less than $1,000.

Bull Market: A period during which the stock market prices are rising.

Common Stock: A security that stands for ownership in a company. Common stock holders elect a board of directors and vote on corporate policy.

Day Trading: Buying and selling a security within the period of one day.

Dividend: Payout of a portion of a company’s earnings. May be quoted in terms of dollars or percent of the current market price.

Dow Jones Industrial Average: Price-weighted average of 30 of the most significant stocks traded on NYSE and NASDAQ.
Hedge Funds: Private investment funds that are only made available to select investors.

January Effect: General stock price increases during the month of January.

Mutual Fund: Money pooled from investors is then invested collectively in stocks, bonds or other securities. Managed by a fund manager.

NYSE: The New York Stock Exchange, or the “Big Board” is a New York City-based stock exchange. The largest in the world in terms of dollar volume, the NYSE lists nearly 3,000 securities.

NASDAQ: The National Association of Securities Dealers Automated Quotations. The world’s first electronic stock market.

Outstanding Shares: Stock shares held by investors.

Par Value: A bond’s face value.

Preferred Stock: A security that stands for ownership in a company, however, holders have a higher claim than common stock holders on assets and earnings. Preferred stock dividends are paid out before dividends to common stock holders.

Reverse Stock Split: Reduction in the quantity of a corporation’s outstanding shares that increases the earnings per share.

Santa Claus Effect: Sudden increase in stock prices during the week between Christmas and New Year’s Day.

Stock Market: A system of trading company shares. A company that trades is also known as a public company. Selling shares allows a company to raise money.

Stock Market Index: Listing of stocks and statistics.

Stock Split: A company’s existing shares are divided into multiple shares.

Treasury Stock: Stock that has been repurchased by the company.

These basic stock market definitions will help you understand basic stock investment procedures.

Just What are Penny Stocks?

A penny stock is frequently described as a plain stock trading beyond the NYSE, NASDAQ, or AMEX stock exchanges and one that has a less than normal market capitalization and often trades beneath 5.00 a share. They are listed on over the counter or OTC quotation services like the OTC Bulletin Board or Pink Sheets.

Several first time investors are intrigued by the economical prices and earning potential that penny stocks present. Along with great profit opportunity comes a fair dose of risk. As new penny stock investors look at this kind of investing there are ways to minimize risk and maximize success.

What is the Amount of Cash that Can be Created With Penny Stocks?

There is a massive amount of money to be made with penny stock trading but you have to comprehend the hazards. If you happen to find an undervalued stock that is just about to move you can amplify your capital very quickly and sometimes attain return rates that are far ahead of conventional trading.

Many people have gotten extremely rich with this sort of investment and now is a great time to start investing in penny stocks because of the values that are presented when purchasing stocks. In general the stock market is moving up and it is a nice time to get in the game.

How to Rule Penny Stocks

As with everything that needs a monetary outlay you must do a adequate amount of research on the stock you are looking to get. Glimpse into the company and its past and look at financial statements. Don’t believe everything you see about a stock on internet forums and newsletters. Try and come to a common consensus from different sources before taking the dive. Contemplate ‘paper trading’ before truly using actual money.

You can make note of your stock picks and track them to see how well your trades do before actually investing.

The greatest way to get a lot of money with penny stocks is to discover a stock that is ready to ‘breakout’ and show a genuine gain. This gain may be short-term and quick and you have to be set to act. The value of penny stocks can be fickle with sizeable volumes and changes on a daily basis.

If you realize how to capitalize on these swings there is alot of money to be made.

The greatest way to succeed with penny stocks is to work with a proven method that offers a complete formula for researching and picking stocks that are about to move. You need to understand how to evaluate penny stocks quickly and decide when they are about to explode.

Instead of gold or silver bullion, many investors opt for precious metals mining stocks because they normally yield higher percentage increases than gold and silver when metals prices rise. However, investing in precious metals stocks carries risks beyond buying gold or silver bullion.

The risks are many and varied, and sometimes unforeseen problems can send stock prices plummeting, which, of course, is true of all stocks. Management mistakes cause most mishaps. With precious metals and other mining stocks, the sizes and grades of ore deposits can be overestimated or the cost of extracting the ore can be greater than expected, resulting in lower profits or even losses.

Additionally, businesses always struggle with economic downturns, interest rate increases, labor troubles, governmental interventions, and environmental requirements. Increases in energy costs–even energy shortages–could plague some mining companies, notably those operating in Nevada’s famed Carlin Trend.

For disastrous management decisions, Sunshine Mining and Refining Company comes to mind. Once a favorite of silver stock investors, Sunshine traded at $13 in early 1998 on the NYSE. However, by 2000 Sunshine was in Chapter 11, and its stock has traded at less than a nickel on the NASDAQ.

In 1996, Sunshine’s management borrowed $30 million and in 1997 an additional $15 million for development of its West Chance ore body at the Sunshine Mine, after which the company is named. Part of the borrowed funds were used to delineate what the company calls a “world-class” ore body in Argentina.

Although management claims the West Chance efforts were successful, management misjudged cash flow and was unable to meet interest and principal payments on the $45 million. Efforts to refinance were unsuccessful, and the lenders took control of the company and mothballed the famed Sunshine Mine. Shareholders wound up with about 3.6% of the company. Unfortunately, this was not Sunshine’s only brush with disaster.

In 1972, a fire in the Sunshine Mine nearly destroyed the company. While Sunshine’s stock price suffered, the company managed to survive. Now, Sunshine Mining essentially has been taken over by its creditors.

Ashanti Goldfields (Ghana) and Cambior (Canada), two gold producers, also exemplify what can happen to share prices when managements make bad decisions. In early 1996, Ashanti (ASL) traded at $25; in 2000, Ashanti’s stock traded below $1.50. In early 1996, Cambior, traded at $16; in late 2000, Cambior’s stock traded at twenty-five cents.

Both companies got caught up in forward sales, and their balance sheets were severely damaged by margin calls in 1999 when gold rallied from the $250s level to $338 on the announcement that 15 European central banks would limit gold sales and leasing for five years (The Washington Gold Agreement). Gold’s price move caused Ashanti and Cambior to liquidate assets and/or convert loans to equity shares at rates that severely damaged the value of their stocks.

Forward selling remains a threat to other gold mining companies because the amount sold short via forward sales is disproportionate to the size of the gold market. Some estimates have total forward sales equivalent to three to five years of production. One or two small short positions could be unwound with only minor price increases. But, the total position is enormous, and reversing it without the price of gold skyrocketing will be difficult, if not impossible.

Forward selling involves borrowing gold and selling it, and it is done mostly by mining companies because, logically, they should be able to replace the borrowed gold out of future production. Forward selling is profitable because the lenders, primarily central banks, lend with charges (lease rates) of about 1%, sometimes even less. The borrowers sell the gold with effective returns of somewhere between 6% and 10%, depending on the borrower’s credit rating.

If the funds from the sales of the gold are invested in high-grade bonds, the borrowers receive probably 6% to 8%, for a tidy margin of 5% to 7%. However, if the borrowers use the funds in operations, thereby permitting those to forego borrowing in the credit markets, then they effectively receive higher rates, depending on the companies’ credit ratings.

Hundreds of millions of dollars are made via forwarding selling. The central banks earn fees on an otherwise “sterile” asset. The mining companies earn 5% to 9%, and the bullion houses that arrange the central bank loans and handle the gold sales earn huge fees. Forward selling pays off like a broken slot machine–except for gold mining companies’ shareholders. Shareholders lose because forward selling distorts gold’s supply/demand fundamentals and puts downward pressure on the price of gold. However, forward selling is not without its risks.

If the price of gold rises, the lenders want additional margin deposits, which is what hammered Ashanti and Cambior. (Despite the borrowers having millions of ounces of gold in the ground, the central banks require “margin deposits,” usually US treasuries. This works much the same way as margin deposits do on futures and stock exchanges.) It is believed that some bullion houses have even given the central banks guarantees that the borrowed gold will be replaced. If so, then adverse developments in the forward sales arena could force government bailouts, such as was the case with the Fed-engineered rescue of Long-Term Credit Management.

Precious metals stocks are a way to participate in the gold and silver market; however, compared to gold and silver bullion, stocks are risky. No one ever went broke holding gold or silver. The same cannot be said of paper assets. Call the <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link/1694742']);” href=”http://www.usgoldinvestors.com”>Superior Gold Group</a>today and start your account NOW!

Penny Stock Psychology

To me psychology is the key to trading. Many trades on hunches about economic or political trends, while others use “insider information” or simply hope. Do you remember how you felt the last time you placed an order? Were you anxious to jump in or afraid of losing it all? When you closed a trade did you feel humiliated or embarrassed and started to secon d guess yourself? These feeling evolve among thousands of traders which merge ultimately into a huge psychological wave that moves the markets trend.
The majority of traders spend most of their free time looking for good trades. Once they enter a trade they desired to be in, they start to squirm and lose all self control over themselves. They ride an emotional train and miss the element of winning – which is the management of their emotions. Their inability to manage their emotions leads to a downfall in their stock trades.
All losing amateurs ignore the importance of psychology. If you are not up to date with the market, or you ignore mass psychology of crowds, then you have no chance of succeeding in the market. The importance of psychology is that it focuses on reality, which is you have to live with your eyes open. To be a good trader, you have to invest with your eyes open and make neutral decisions. You need to recognize real trends and not waste time on regrets or hopes that the stock will turn around from a downfall.
Trading is similar to sky diving, rock climbing, and street racing because they all share a common risk involved. These sports involve a considerable amount of risk/pleasure. Many participants in these sports ignore the risks and take thoughtless chances. A person who wants to enjoy the risk and excitement of sports must follow the rules. When he/she reduces the risk of a sport, they get a sense of accomplishment knowing they have control over that particular sport. This same criteria involves trading. You can succeed in trading only if you handle it as a intellectual pursuit to overcome the risks. To help ensure enjoyment/success, a good trader must watch his capital funds as close as a sky diver knows the exact time to release his parachute.

Penny Stocks and Stock Message Message Board

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The current economy is in bad shape – at least that’s what all of the pundits tell us. The conventional wisdom in times like these is to put stop loss orders on everything, put everything you can into blue chips, or settle for the safe, low returns of Treasury securities.

I’m here to tell you that the conventional wisdom is foolish.

In the first place, the conventional wisdom is contradictory. You can’t have automatic trades to comply with stop loss orders going on constantly and maintain major holdings in blue chips. Even the blue chips – maybe especially the blue chips – are subject to market volatility. When the economy is bad, inflation becomes a major concern, and the market starts requiring a higher return on investment. At the same time, the bad economy drives sales downward, reducing corporate incomes and, by extension, return on stockholders’ investment. The result is market dissonance that exacerbates existing market volatility. The general trend is for prices to go down, and the easier a security is to trade the more precipitous its price decline tends to be. This is simply a function of supply and demand: more people want out than in, so supply exceeds demand and prices drop.

Supply and demand also accounts for what happens with bonds, notes, and commercial paper. In a difficult economy, fixed income securities are less appealing because of inflation concerns. Here again, people trying to get out of fixed income securities outnumber those trying to get in, so prices go down and both current yield and yield to maturity go up. At the same time, new debt issues of any kind are almost impossible to sell, and, with the rest of the credit market similarly tightened, companies are unable to borrow necessary cash at reasonable rates, forcing them to offer their debt placements at rather deep discounts. The bottom line is, they must raise cash to weather the economic storm, and they will pay handsomely to get it.

You’re seeing it today on every news channel: the prices of securities are declining virtually across the board. Your broker may be telling you to cover everything with stop loss orders and trade, trade, trade. That may be a case of your broker subscribing to the conventional foolishness, or it may be a case of your broker trying to protect his income: after all, commissions come from trades, and your broker lives on commissions. The question I have to ask is why would you want to sell now? It makes about as much sense as buying merchandise at Nieman Marcus to resell at Wal Mart. This is not, I repeat not, the time to sell. The economy is on an express elevator to the bargain basement, to be sure, but history tells us that when it comes to the stock market, what goes down must come up. Knowing that, this is the time to get in on the bargains. That anext Microsofta that everyone is looking for might be trading for far less than its legitimate value right under your nose right now!

Growing up in Kansas, I was acquainted with a man who had amassed vast holdings of farm and ranch land. He was an eighth grade dropout, and I often wondered how he came to be so wealthy, so I finally asked. aSon,a he said, aMost of my land was bought back during the dust bowl, when farmers and ranchers were selling off their land or bankers were foreclosing and then trying to get what cash they could from the deal. I was just a farmhand back then, but I had a little money saved up, and when land dropped below twenty-five cents an acre I started buying. As the economy started to pick up, I used that land to borrow against and buy more land. By the time the drought was over, I owned almost ten sections [note: there are 640 acres in a section] and hadn’t spent $1,000 to get it.a At the time that we had that conversation (about 1972), his $1,000 investment made between 1930 and 1939 was worth over $3 million, an annualized return on investment of around 25%.

Do you have aa little money saved upa that could be used to pick up the bargains available in the current markets? My friend knew that the drought that caused the dust bowl wouldn’t last forever, and he made a fortune from other people’s panic. Investors are in a panic now, but if you’re smart their panic is your opportunity.

Investments to Avoid

In a struggling economy, investors tend to make the same mistakes over and over, and those mistakes take two forms: running for asafe harbora and becoming extremely active traders in anything that is going up.

The safe harbor crowd always runs to one of two places, blue chip stocks and Treasury securities. As we have already discussed, blue chips are probably the roughest safe harbor you can go to, rather akin to anchoring in Galveston Bay during Hurricane Ike. Market volatility tends to have a more pronounced effect on blue chips: add the fact that blue chip companies like General Motors, General Electric, and AIG are all fighting for life right now and a run for the blue chips is borrowing trouble rather than escaping it.

Treasury issues are, without a doubt, safe. After all, if the Treasury defaults the money is meaningless anyway. The problem is, this is a asafea harbor full of purchasing power pirates. The return on Treasury securities rarely keeps pace with inflation in an economic downturn, so while your safe harbor investment may be earning you a return in nominal dollar terms, in real dollar terms you’re losing purchasing power. It doesn’t do much good to earn 3% on your money if prices are going up an average of 6%.

Sadly, many investors who don’t run for safe harbor become speculators, moving money constantly into anything that is going up at the moment. Since most of the market is going down, this all too often drives them to the derivatives market, especially in today’s economy where oil futures have, at times, exceeded $140 per barrel. The problem is, if you’re short at $120 per barrel and the spot market on the settlement date is $140 per barrel, you’ll have to either lose money on an offsetting long position, sell your short at a loss, or have 1,000 barrels of crude setting around that you can part with. On the other hand, if you have a long position for $140 and the spot price is $120, you get to lose money going short or selling the long position at a loss, or you get to take delivery of 1,000 barrels of crude that you’ll lose $20,000 selling on the spot market if you can’t store it and wait.

Some investments, especially derivatives, will go into bubble mode early in an economic downturn, but don’t let that fool you into entering the bubble with them. As any kid who ever chewed bubble gum or blew soap bubbles can tell you, bubbles burst. If your money is in the bubble when it bursts, you can wave goodbye to it as it is scattered on the winds of economic caprice.

Investments to Make

Some companies and industries have proven themselves to be amazingly resilient. Like everything else, their securities are or soon will be selling at bargain basement prices, and if they appear to be struggling the discounts may be extra deep. Do your homework, make sure that they are positioned to bounce back, but if they are, buy while the price is low.

The current debacle started with a meltdown in the sub-prime mortgage market. The result is a large number of foreclosures, with lenders ending up holding real estate when they need cash. As a result, real estate prices are falling, so if you can, this is a good time to buy real estate or invest in companies that are investing in real estate. The prices will go back up, just as they did for my friend who invested in farm and ranch land during the dust bowl.

Many brokers and analysts have an innate fear of high yield (so called ajunka) bonds. Admittedly, some high yields have gone under and become no yields, but as a rule the returns have been in line with the risks, and sometimes a little higher. During an economic downturn, there tend to be two types of high yield bonds on the market: those with something behind them and those with nothing behind them. The former are usually issued by companies that want the capital to invest while the market is down, generally in either income real estate or leveraged buyouts. These tend to be pretty good bets for a sizeable profit in a relatively short period of time, and they offer your investment some diversification while providing at least partial collateral from the assets they invest your money into. The latter are usually issued by companies that are cash strapped and have credit problems, and they’re offering them to raise working capital: as a rule, they’re a bad investment and far more likely to default than the secured high yields.

The best bargains, however, may be in small cap (so called apennya) stocks, initial public offerings (IPOs), and various kinds of notes, especially those backed with some kind of collateral. Some of these securities (especially the notes) can have some pretty creative terms, but if you understand the terms they can be a good, and often high yield, investment.

However, He Said . . .

While you’re doing all of this bargain basement buying, it doesn’t hurt to put a few safeguards into your portfolio. These can take several forms, as you’ll see.

After spending the first part of this article giving you all of the reasons to avoid the rush to blue chips and Treasury securities, I now need to backtrack just a bit. I’m not going into the famous politician’s gambit that aI was against it before I was for it.a I’m still adamantly opposed to loading your portfolio with volatile blue chips and low yield Treasuries, but having a portion of your portfolio in these securities isn’t a bad thing. The blue chips may recover a little more quickly than the market at large, and the Treasury issues will at least provide a good final position in the event of a major, long-term depression.

There are, of course, other ways to protect your portfolio. As you know, I’m against riding bubbles, especially in the derivatives markets. However, derivatives can be used to hedge your positions. Worried that a rise in interest rates will devalue that investment in mortgage notes? Just hedge the position with Treasury note or Treasury bond futures. For example, one long 10 year Treasury note contract can effectively insure one $100,000 10 year mortgage against excessive value loss due to rising interest rates. This doesn’t tie the two inextricably together, but as 10 years Treasury note rates rise toward the level of the long position, its value increases to cover the value lost by the mortgage note.

Another thing that can help your portfolio is investment grade bonds, especially if they can be converted to common stock. The conversion capability tends to buoy the price some, and the bond income can provide money to cover short-term losses in other areas or help your income weather the economic storm.

Of course, you can never go wrong with liquidity. A little reasonably ready cash, whether held in a bank or a mattress, is always a good idea.

There are other areas that you can investigate, such as precious metals, gemstones, and collectibles, but keep in mind that the value of most such items is dependent upon the demand for them, and since most are viewed as luxuries that demand tends to drop off precipitously in an economic downturn.

If you follow the crowd, a bad economy can leave you in dire financial straits. The real trick to making money is patience: buy when everyone else wants to sell, sell when everyone else wants to buy, and wait patiently in between. In the end, life will be a chicken dinner and you’ll be the kid with the drumstick.