Investors who bought during the top of the frothy commodities rally are now panicking or kicking themselves. Neither activity helps an investor or trader think straight. Below are a few tips in dealing with the current market shakeout

stocks, investing, uranium, nuclear energy, oil, energy, gas, commodities

Investors who bought during the top of the frothy commodities rally are now panicking or kicking themselves. Neither activity helps an investor or trader think straight. Below are a few tips in dealing with the current market shakeout.

1. If you believe you invested in the right stock(s), then turn off your computer and do something enjoyable. Exercise is a great stress reliever. The market has already begun its shakeout. If you didn’t get stopped out, or failed to place earlier stops, your best opportunity lays ahead in picking up additional shares at a much lower price. Most of the experts we’ve interviewed tell us the next rally should start sometime between late July and Labor Day. In an attempt to interview the uranium guru James Dines in late May, we were told, “Call back in a couple of months.?That was a helpful clue that the markets were less than exciting. Mr. Dines is often eager to be interviewed, but recently he was not.

2. Do you believe the fundamentals which engendered the commodities boom have changed? If they haven’t, then the bullishness is only taking a breather. We don’t see any fundamental change in the markets. Russia still wants nuclear power, and its oil production may be peaking. China hasn’t announced the end of its nuclear expansion program. India wants to spend $40 billion on new nuclear reactors. If you are invested in uranium stocks, spot uranium jumped another dollar to $45/pound this past week. Hardly the end of the bull market.

3. If you worry about your investment in one stock or another, then stop watching the ticker and focus on the company fundamentals. Is the story still true or has it changed? See #7 A, B and C below.

4. There’s an old clich?that the time to buy is when you feel like dumping everything you own in the category. At the exact moment you want to sell your entire portfolio of uranium stocks, it may be wiser to add to your holdings. This applies mainly to the retail investor. Most of the professionals did dump at the top and are now slowly accumulating the shares of the naïve who waited until the washout to start selling off.

5. Has a major, earth-shattering event occurred? The last bull cycle in uranium ended with Three Mile Island (TMI). The last decent rally in the precious metals markets fell off a cliff after it was discovered Bre-X Minerals had perpetrated a fraud about its gold ‘discovery?in Indonesia. Something significant and newsworthy always transpires, and it is also far-reaching. That is the trigger. As with TMI and Bre-X, those were the first shots which launched a later chain reaction to end those bull markets.

6. Before pulling the sell trigger, ask yourself: Do I really want to give up these shares to a bargain basement hunter, who will make a killing on my losses?

7. Since most of you will still panic, please review the following basics for any of the uranium companies you’ve read about:

A) How much cash does the company have in the bank? During shakeouts, cash is king. Prescient companies, which completed their financings during the recent and robust rally, are sitting pretty. They can weather the short-term storm and are well-oiled to move forward when this correction bottoms and reverses. Those companies are the strongest ones to check out when this correction looks gloomiest.

B) Has the management remained the same? Unless the top financial and/or technical people blew out the door, in recent weeks, the story probably hasn’t changed much. Companies which built a strong technical team are resilient and powerful. They will move forward.

C) Have the properties come up dry? One of the reasons you invested in a uranium company was because it announced it had “pounds in the ground.?Some companies have more than others. Some went to the expense and trouble of completing a National Instrument 43-101, which independently confirmed the quantity and quality of the uranium resource. If that changed ?and the company announced, “Sorry, nothing there after all,?or announced, “Hey, we were kidding,?that’s one thing. If you haven’t heard that, or read a news release announcing that, then the uranium didn’t walk away or move onto a competitor’s property. It’s still there.

Next time, when the markets are racing higher, and you feel like you won the lottery, consider this bit of biblical advice. The old joke goes, “When did Noah build his ark??The answer of course is: Before it began to rain.

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Why should the rich guys have all the fun? The small investor can seek out huge returns too…if they know how.

Technical analysis that uses statistics for forecasting price fluctuations is one approach. However, because it is difficult to track changes in fractions of a penny, there simply isn’t enough data to be able to analyze. Therefore, you have to keep an ear to the ground when you trade penny stocks.

One of the biggest forces that drive penny stock prices is hy…

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Why should the rich guys have all the fun? The small investor can seek out huge returns too…if they know how.

Technical analysis that uses statistics for forecasting price fluctuations is one approach. However, because it is difficult to track changes in fractions of a penny, there simply isn’t enough data to be able to analyze. Therefore, you have to keep an ear to the ground when you trade penny stocks.

One of the biggest forces that drive penny stock prices is hype. Whether it’s online in discussion forums or chats, or offline with publicity and press, hype can cause swings in penny stock prices.

Are you looking to trade penny stocks to earn a good return on your money? Penny stocks can be profitable for some, but it can also be a money-losing experience.

What should you watch for when you trade penny stocks?

What are some strategies that professionals and amateurs use when dabbling in the penny stock trade?

One technique that some experts who trade penny stocks implement is to focus on a particular stock. Get to know the stock inside and out; that is, get to know the company behind the stock, any news about that company, and anything else that might affect the stock price. Target one stock, listen to the buzz, and see how the stock responds. The louder the buzz gets, the larger the potential for a big price swing.

Many people who trade penny stocks are small-time investors who don’t have more than $1,000 of investment capital. These people trade penny stocks because it gives them more shares for the money.

Where they might be able to buy dozens of shares in a major exchange such as the New York Stock Exchange, they can buy hundreds when they trade penny stocks. The potential for loss is big, however. It’s almost closer to gambling than investing. The money used is strictly risk capital. Once the money is gone, it’s gone.

Another subset of people that trade penny stocks are amateur investors who use the buy and hold strategy. They purchase a stock and retain it for long periods of time, hoping that the stock skyrockets at some point in the future.

Unfortunately, this strategy hardly ever pays off in the way that the investor had hoped. In the long-term, the stock could end up being completely worthless.

Trading penny stocks can be a profitable, and even fun way to invest. It certainly isn’t a traditional method of investing, and is unlike old standbys such as bonds and mutual funds. However, trading penny stocks isn’t for all people.

You should have a high tolerance for risk, a willingness to analyze every minutiae of your penny stock, and some intestinal fortitude. Have fun with penny stock trading, but don’t expect to stumble into the next WalMart for pennies on the dollar.

And remember, as with anything else in life with high potential for gain there is also high potential for loss. Do your homework, follow your rules, and plan to prosper.

At least four times per year, security prices are more a function of institutional marketing practices than they are a reflection of the economic forces that we would like to think are their primary determining factors. Do you remember the “Circle of Gold” chain letter from the seventies?

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As investors, and we all are investors these days, it is important that we understand the idiosyncrasies of the Stock Market pricing data we use to help us in our decision making efforts. On Wall Street, investing can be a minefield for those who don’t take the time to appreciate why securities prices are at the levels that appear on quarterly account statements. At least four times per year, security prices are more a function of institutional marketing practices than they are a reflection of the economic forces that we would like to think are their primary determining factors. Not even close… Around the end of every calendar quarter, we hear the financial media matter-of-factly report that Institutional Window Dressing Activities” are in full swing. But that is as far, and as deep, as it ever goes. What are they talking about, and just what does it mean to you as an investor?

There are at least three forms of Window Dressing, none of which should make you particularly happy and all of which should make you question the integrity of organizations that either authorize, implement, or condone their use. The better-known variety involves the culling from portfolios of stocks with significant losses and replacing them with shares of companies whose shares have been the most popular during recent months. Not only does this practice make the managers look smarter on reports sent to major clients, it also makes Mutual Fund performance numbers appear significantly more attractive to prospective “fund switchers”. On the sell side of the ledger, prices of the weakest performing stocks are pushed down even further. Obviously, all fund managements will take part in the ritual if they choose to survive. This form of window dressing is, by most definitions, neither investing nor speculating. But no one seems to care about the ethics, the legality, or the fact that this “Buy High, Sell Low” picture is being painted with your Mutual Fund palette.

A more subtle form of Window Dressing takes place throughout the calendar quarter, but is “unwound” before the portfolio’s Quarterly Reports reach the glossies. In this less prevalent (but even more fraudulent) variety, the managers invest in securities that are clearly out of sync with the fund’s published investment policy during a period when their particular specialty has fallen from grace with the gurus. For example, adding commodity ETFs, or popular emerging country issues to a Large Cap Value Fund, etc. Profits are taken before the Quarter Ends so that the fund’s holdings report remains uncompromised, but with enhanced quarterly results. A third form of Window Dressing is referred to as “survivorship”, but it impacts Mutual Fund investors alone while the others undermine the information used by (and the market performance of) individual security investors. You may want to research it.

I cannot understand why the media reports so superficially on these “business as usual” practices. Perhaps ninety percent of the price movement in the equity markets is the result of institutional trading, and institutional money managers seem to be more concerned with politics and marketing than they are with investing. They are trying to impress their major clients with their brilliance by reporting ownership of all the hot tickets and none of the major losers. At the same time, they are manipulating the performance statistics contained in their promotional materials. They have made “Buy High, Sell Low” the accepted investment strategy of the Mutual Fund industry. Meanwhile, individual security investors receive inaccurate signals and incur collateral losses by moving in the wrong direction.

From an analytical point of view, this quarterly market value reality (artificially created demand for some stocks and unwarranted weakness in others) throws almost any individual security or market sector statistic totally out of wack with the underlying company fundamentals. But it gets even more fuzzy, and not in the lovable sense. Just for the fun of it, think about the “demand pull” impact of an ever-growing list of ETFs. I don’t think that I’m alone in thinking that the real meaning of security prices has less and less to do with corporate economics than it does with the morning betting line on ETF ponies… the dot-coms of the new millennium. [Do you remember the "Circle of Gold" from the seventies? Isn't GLD, or IAU, about the same thing?]

As if all of these institutional forces weren’t enough, you need also consider the impact of tax code motivated transactions during the always-entertaining final quarter of the year. One would never suspect (after watching millions of CPA directed taxpayers gleefully lose billions of dollars) that the purpose of investing is to make money! The net impact of these (euphemistically labeled) “year end tax saving strategies” is pretty much the same as that of the Type One Window Dressing described above. But here’s an off-quarter buying opportunity that you really shouldn’t pass up. Simply put, get out there and buy the November 52-week lows, wait for the periodic and mysterious “January Effect” to be reported by the media with eyes wide shut amazement, and pocket some easy profits.

There just may not be a method to actually decipher the true value of a share of common stock. Is market price a function of company fundamentals, artificial demand for “derivative” securities, or various forms of Institutional Window Dressing? But this is a condition that can be used to great financial advantage. With security prices less closely related to those old fashioned fundamental issues such as dividends, projected profits, and unfunded pension liabilities and perhaps more closely related to artificial demand factors, the only operational alternative appears to be trading! Buy the downtrodden (but still fundamentally investment grade) issues and take your profits on those that have risen to inappropriately high levels based on basic measures of quality… and try to get it done before the big players do. To over simplify, a recipe for success would involve shopping for investment grade stocks at bargain prices, allowing them to simmer until a reasonable, pre-defined, profit target is reached, and seasoning the portfolio brew with the discipline to actually implement the profit taking plan.

Yeah, I do miss the days when there were just stocks and bonds, but maybe I’m just a bit too old fashioned. Interesting place Wall Street…

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According to the World Nuclear Association, 21 percent of the world’s uranium production came about from ISL mining in 2004. We conducted interviews with some of the world’s top ISL experts, including the father of ISL, to help you better understand how uranium is currently mined for the world’s nuclear power plants.

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It’s time to rewrite the history books. In Situ Leach Mining (ISL), or Solution Mining, was not first commercially started in Bruni, Texas in 1973 by Westinghouse, a consortium of oil companies and others. The birthplace of ISL was never South Texas, as some have claimed. It was begun in Wyoming, about 16 years before an ISL operation was started in Texas. Why there has been a whitewash over the true history of ISL is not our concern. This series is an in-depth investigation into how and why ISL mining came about, how it has been tested over a period of nearly 50 years, and why this type of uranium mining will play an important role in providing U.S. utilities with the raw fuel to power nuclear reactors for the next few decades.

In this modern era of uranium mining, extremely skilled engineers, hydrologists and geologists establish ISL mining operations. Most insiders compare an ISL operation to a water treatment plant. It’s really that simple to understand. However, as with every modern industrial operation, the roots of ISL mining came about in a less genteel or sophisticated manner. In 1958, Charles Don Snow, a uranium mining and exploration geologist employed by the Utah Construction Company, was investigating a Wyoming property for possible acquisition for his company. During the course of that visit, he discovered a new method of uranium mining and helped pioneer its development into the modern form of ISL.

Since 1957, R.T. Plum, president of Uranyl Research Company, had been experimenting with a leach solution on his property at the Lucky June uranium mine. “They mixed up the sulfuric acid solution and just dumped it on the ground, and soaked it through the material and collected it in a little trench at the end,?Charles Snow told StockInterview. It wasn’t very scientific. Snow added, “They were just learning how, and I observed it and thought that the application could be made through some of the ore that we had in the Lucky Mc mine.?The company was mining uranium this way because it was below the grades miners were used to, when mining. As Snow noted, “It was not worth mining.?But it was practically at the surface. He explained what they were doing at the Lucky June, “There was an area where uranium leached out to the surface in a small area, and it had a clay under-bed. These people put solutions onto the surface, collected the solution, and ran it by resin beads to absorb the uranium.?
While they only recovered about $3600 worth of uranium, roughly 600 pounds, Snow was impressed. He later wrote an inter-office memorandum in July 1959, with the subject header: “Recovery of Uranium from Low Grade Mineralization using a leach in place process.? In his conclusion, Snow recommended, “From the preliminary information available, it appears that it will be possible to treat very low grade mineralization for recovery of uranium at a large net profit.?He explained the process to his bosses, encouraging them to consider this as an option:

“In brief, the process introduces a leach solution onto the surface of the ground and allows the solution to percolate down through the area to be leached. The solution is then recovered from wells and circulated through an ion exchange circuit with the barren solution being returned to the leach area. Recovery of the uranium is made by stripping from the ion exchange medium.?
He wanted the Utah Construction Company to try this method of mining where there was low grade mineralization. Snow succeeded in convincing his bosses. That began yet another innovation for Utah Construction Company, the same company which helped construct the Hoover Dam, decades earlier, before it got into the uranium mining business.

Utah Construction Becomes the
First Commercial ISL Miner

Newspaper reports, through the 1960s, illustrate that ISL mining was in full bloom more than a decade before anyone in Texas began a commercial ISL operation. On June 18, 1964, the Riverton Ranger newspaper reported, “The Shirley Basin mine is on a standby basis. The timbers are being maintained and the water pumped out. Total production comes from solution mining.?Between 1962 and 1969, ISL was the only method producing uranium at Utah’s Shirley Basin Wyoming. Later in that same article, under the section entitled, “Gas Hills Solution Mining,?it was reported, “The Four Corners area is ‘mined?by solution mining techniques similar to those employed at Shirley Basin.?Credit for this new mining method is also reported in that same article, “Lucky Mc introduced the heap leach process of recovering values from low grade ores in 1960.?
Charles Snow explained how his company made the transition from underground mining to solution mining, “The underground mining at Shirley Basin was very expensive, and we were having a lot of heavy ground problems.?The sandstone aquifers containing the uranium were uncemented and brittle, supported with timbers. “In some places, it was too heavy to hold with timbers,?said Snow. “We had to use steel sets underground, and it was even mashing the steel sets. So the expenses were getting very high.?
Water was flowing into the open drifts at prodigious rates. Snow recalled, “Barney Greenly said, ‘Let’s try solution mining over here.?They did a test, and it did operate quite well. They got some pretty good results. So the underground mine was shut down, and they went to a solution-mining program to produce the allocated pounds in the Shirley Basin area.?The procedure was tested for a few years before a full-scale commercial production began. This fulfilled 100 percent of Utah’s Shirley Basin uranium production allotment from the AEC.

There were problems at first. “We started out initially using sulfuric acid, and we had some reaction with carbonates in the formation.?Sulfuric acid plus calcium carbonate produces calcium sulfate, and this plugged up the formation. Calcium sulfate is gypsum, which was insoluble in the leach solution. “It tended to plug up the formation and reduce the transmissivity of the fluid from the input hole to the output recovery hole.?

To prevent interference with the porosity of the formation, Snow switched to nitric acid, but admitted, “We were reluctant to use nitric acid because it was much more expensive than sulfuric.?But they did, because the nitric acid solution did not form gypsum. Unlike present-day ISL methods used in Texas, Nebraska and Wyoming, Utah Construction did not use a carbonated leaching solution in their solution mining. Nitric solution was used during the 1960s and continued until the Lucky Mc switched over to open pit mining.

It all started as a heap leach experiment. “We had quite a bit of low grade in Lucky Mc,?Snow told us, “so we thought we would try a heap leach experiment.?Results were good on the test, and Utah pioneered ISL mining. Snow wrote in an August 2, 1960 memo, “The favorable results of the heap leach project and other research indicate that the process can be successfully applied in many of the low-grade areas to recover much of the mineralization.?Later in his report, Snow calculated reserves from random samples obtained from previous drilling at Lucky Mc, “The estimated reserve for the block is 147,000 tons @ 0.0361 percent U3O8, or 106,616 pounds of U3O8.?He estimated the program would cost $111,471. Using a value of $6/pound for U3O8, the anticipated returns were calculated as follows:

50 percent recovery: 53,318 pounds: $208,377
25 percent recovery: 26,654 pounds: $ 48,453

That was just the start. By the end of the decade, Shirley Basin’s solution mining operation was producing U3O8 at comparable levels to present day production at any of the major U.S. ISL facilities. In a paper presented by Ian Ritchie and John S. Anderson, entitled “Solution Mining in the Shirley Basin,?on September 11, 1967, at the American Mining Congress in Denver, Colorado, these Utah International executives explained the success of the Shirley Basin solution mining operation. In a summary explaining the company’s activities, we discovered the Shirley Basin operation not only filled the Atomic Energy Commission (AEC) allocation requirements from 1962 through 1969 but we learned of the sizeable commitments into the future Shirley Basin was to fill:

“In 1968 sales of uranium concentrate were made to purchases other than the AEC. One of the first sales was to Sacramento Municipal Utility District with a minimum of 950,000 pounds to a maximum of 1,100,000 pounds of uranium concentrate in 1971. Additional contracts were signed with General Electric Company and with Nordostschwerzerische Kraftwerke A.G. (Baden, Switzerland). The contracts called for delivery of 8,000,000 pounds of concentrate to GE between 1968 and 1975, and 500,000 pounds of concentrate to NOK commencing in July 1969.?

Conclusion

The single reason solution mining stopped, well before the first “commercial?ISL operation began in Bruni, Texas in 1973, was because of the improved market forecast for uranium in the 1970s. Utah Construction switched to open pit mining because they needed to produce a lot more uranium. The nuclear renaissance of the 1970s demanded massive quantities of uranium to fuel the rapidly growing nuclear power industry.

Don Snow’s initial field tests, begun in the late 1950s, resulted in continuous production achieved by late 1962. Subsequently, production in the underground uranium mine was shut down by May 1962. The underground mine was maintained in a standby condition until 1965, when all underground operations were written off. Millions of pounds were mined by Utah Construction through its ISL operations in Shirley Basin. It wasn’t heap leaching.

Sufficient evidence confirms that Wyoming, not Texas, first pioneered commercial ISL mining. Not only were well fields designed as early as 1960, but the entire concept of an ISL “water treatment?plant can trace its roots to Utah Construction’s pioneer work. Everything from injection wells to production wells were pioneered in the early 1960s. We challenged Charles Don Snow that some have claimed it was heap leaching, not ISL mining. Snow shot back, “No, we drilled holes in the ground and the material had never been mined. We got our ideas, certainly, from heap leaching, which came from the copper industry.?Snow explained that after the solution mining experiment was successful, “A recovery plant was designed and put into the hoist house, where they had had the underground mine. That was designed by Robert Carr Porter and Ian Ritchie.?Snow added, “In fact, Ian Ritchie and J.S. Anderson have a U.S. Patent on the well completion procedures that we used at Shirley Basin.?
Snow pondered if his friend Jack Bailey may have exported the ISL technology to Texas. “Jack Bailey was the Shirley Basin project manager for the underground mine when we switched over to solution mining,?Snow said. “He later went to work for Chevron, and Chevron had operations in Texas. I believe they even experimented with solution mining. Now, whether or not Jack was directly involved, I don’t know.?As it is with history, many of the old-timers are gone. We were told Jack Bailey had had a stroke a number of years back, and did not trace this further. There may have been others. “Some of the people from that area (Shirley Basin) had gone to Texas,?Snow recalled. “There is documentation, it was published information, and a lot of people who went to Texas, came from the Wyoming area. So, I’m sure there wasn’t a paucity of information being transferred.?Ironically, the Westinghouse-led consortium, which included U.S. Steel and Union Carbide, among others, was called Wyoming Minerals. Now we know exactly why they chose that name.

While there have been a number of ISL operations built and operated in Texas, there may be little future for uranium mining in that state, unless there are new discoveries. By a few, Texas has been inaccurately called the “home of ISL mining.?Perhaps that came about because ISL operations continued, during the uranium depression of the past two decades, with small amounts of production occurring in Texas. According to Energy Information Administration figures published in June 2004, uranium reserves in Texas stand at 23 million pounds of U3O8 based upon $50/pound uranium. By comparison, Wyoming and New Mexico reserves, using that same benchmark, reach as high as 363 million and 341 million pounds, respectively.

This may explain the rush by junior exploration companies, such as Strathmore Minerals (TSX: STM; Other OTC: STHJF), Energy Metals Corporation (TSX: EMC), UR-Energy (TSX: URE), Uranerz Energy (OTC BB: URNZ), Kilgore Minerals (TSX: KAU) and others, to Wyoming. The large quantities of pounds are in Wyoming, not Texas. It may also explain why Uranium Resources (OTC BB: URRE) has looked beyond Texas into New Mexico to develop its ISL operation, and Strathmore Minerals has quickly been advancing through its permitting stage on one of its properties in that state. It is fitting that the big past uranium producing states may again become tomorrow’s leading U.S. producers. In any event, the entire world of ISL mining owes a debt of gratitude to Charles Don Snow for his pioneering efforts in bringing a heap leach experiment into full fruition as modern-day in-situ mining.

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It is a dilemma that in order to invest, you’ll be face to face with professionals who do not have your financial interest at stake ?but they will all appear to be. Sales people will appear to be on your side right up until the moment you write a check or sign a commitment. Then any problems are yours alone, their verbal promises go up in smoke, they stop returning your phone calls and the fine print suddenly negates the possibility of getting a single dime back from your investment. In my experience, a salesperson’s top priority is never your best financial interest, and you need to realize this no matter how friendly they are or how polished their sales pitch appears. As you walk into a bank or brokerage office, or call a broker, you need to keep in mind that their personal goal is not in alignment with yours. To see past their sales routine, you need specific education, experience with the industry, and, hopefully, a knowledgeable mentor.

For example, I once received a solicitation from a loan broker who wanted to get me into a triple-net lease commercial building with a million-dollar loan. After a few questions it was clear that he was acquainted with lending, but not very experienced. But continued questioning revealed that his knowledge of commercial real estate would barely fill a thimble. And he was the principal agent trying to slam me into a million-dollar loan so he could collect a commission check and move on to the next deal. Although he sounded quite confident on the phone, his responses destroyed my trust in his ability to maneuver through the numerous issues and problems in my best interest. By studying an industry and talking to experienced players, you’ll be better able to ask questions with impact. And in this case, it was the difference between me keeping my money or locking myself into a contract guaranteed to be a huge financial disaster.

To inoculate yourself against sales pitches, you need to do a lot of comparison shopping or at least become a semi-professional in the industry you want to invest in. Develop a healthy amount of suspicion and skepticism of any sales claim, and hire experienced professionals to assist you on your side of the table. These would be attorneys, accountants, financial and operational experts that are being paid directly from you to assess every aspect of a complex transaction. He or she will support you in areas that you may be weak, and ask all of the confrontational questions that need to be addressed before you sign anything.

Due diligence acts as a barrier between your money and all the people that want some of it. I personally want Fort Knox around my money, so I make the effort to educate myself as to what is going on in the areas that I want to invest in. I take some facts that are offered to me and verify them independently, and then I get more facts and continue the process until I feel comfortable enough with the people I am dealing with. If I depend upon the sales people to perform due diligence for me, it is no better than throwing money into the wind and hoping for the best.

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How do we create a confidence building Stock Selection Universe? Simply operating on blind faith with one of the common definitions may be too simplistic, particularly since many of the numbers originate from the subject companies.

Value,stock,investing,equity,selection,worksheet,investment,portfolio,financial,plan,NYSE,fund,manager,asset,allocation,security,investor,IPO,dividend,income

How much financial bloodshed is necessary before we realize that there is no safe and easy shortcut to investment success? When do we learn that most of our mistakes involve greed, fear, or unrealistic expectations about what we own? Eventually, successful investors begin to allocate assets in a goal directed manner by adopting a realistic Investment Strategy… an ongoing security selection and monitoring process that is guided by realistic expectations, selection rules, and management guidelines. If you are thinking of trying a strategy for a year to see if it works, you’re due for another smack up alongside the head! Viable Investment Strategies transcend cycles, not years, and viable Equity Investment Strategies consider three disciplined activities, the first of which is Selection. Most familiar strategies ignore one of the others.

How should an investor determine what stocks to buy, and when to buy them? Will Rogers summed it up: “Only buy stocks that go up. If they aren’t going to go up, don’t buy them.” Many have misread this tongue-in-cheek observation and joined the “Buy (anything) High” club. I’ve found that the “Buy Value Stocks Low (er)” approach works better. A Google search produces a variety of criteria that help to identify Value Stocks, the standards being low Price to Book Value, low P/E ratios, and other “fundamentals”. But you would be surprised how the definitions can vary, and how few include the word “Quality”. In the late 90′s, it was rumored that a well-known Value Fund Manager was asked why he wasn’t buying dot-coms, IPOs, etc. When he said that they didn’t qualify as Value Stocks, he was told to change his definition… or else.

How do we create a confidence building Stock Selection Universe? Simply operating on blind faith with one of the common definitions may be too simplistic, particularly since many of the numbers originate from the subject companies. Also, some of the figures may be difficult to obtain quickly, and it is essential not to get bogged down in endless research. Here are five filters you can use to come up with a selection universe of higher quality companies, and you can obtain all of the data inexpensively from the same source:

1. An S & P Rating of B+ or Better. Standard & Poor’s is a major financial data provider to the investment community, and its “Earnings and Dividend Rankings for Common Stocks” combine many fundamental and qualitative factors into a letter ranking that speaks only to the financial viability of the rated companies. Potential market performance (a guessing game anyway) is not a consideration. B+ and above ratings are considered Investment Grade. Anything rated lower adds an element of unnecessary speculation to your portfolio. A staff of thousands does your research for you.

2. A History of Profitability. Although it should seem obvious, buying stock in a company that has a history of profitable operations is less risky than acquiring shares in an unproven, or start-up entity. Profitable operations adapt more readily to changes in markets, economies, and business growth opportunities. They are more likely to produce profit opportunities for you quickly.

3. A History of Regular Dividend Payments. The payment of regular dividends, and periodic increases in rate paid, are sure signs of economic viability. Companies will go to great lengths, and endure great hardships, before electing either to cut or to omit a dividend. There is no need to focus on the size of the dividend itself; Equities should not be purchased as income producers. A further benefit of using dividend payment as one of your selection criteria is the clear indication of financial stress that a cut communicates.

4. A Reasonable Price Range. You will find that most Investment Grade stocks are priced above $10 per share and that only a few trade at levels above $100. If you have a seven-figure portfolio, price may not matter from a diversification standpoint, but in smaller portfolios, a round lot of a $50 stock may be too much to risk in one position. An unusually high price may be caused by an unusually high degree of sector or company specific speculation while an inordinately low price may be a good warning signal. With no real structural size limitations, I feel comfortable with a range between $10 and $90 per share… but I would avoid most issues at the higher level.

5. A NYSE Listed Security. I’m not sure that the listing requirements for the NYSE are still more restrictive than elsewhere, but it is helpful to be able to focus on just one set of statistics since most of the information you need regularly is reported by Exchange (Market Stats, Issue Breadth, and New Highs vs. New Lows).

Your Selection Universe will become the backbone of your Equity Investment Program, so there is no room for creative adjustments to the rules and guidelines you’ve established… no matter how strongly you feel about recent news or rumor. Now you can focus on operating procedures that will help you diversify properly by position size, industry, etc., and on guidelines that will help you identify which stocks should be watched closely for purchase when the price is right. Keeping in mind that you want to sell each Equity Position at a target profit ASAP, you’ll want to establish appropriate buying (and selling) rules. For example, I never consider buying a stock until it has fallen at least 20% from its highest level of the past 52 weeks, so I include those that are close or at this price level on a “Daily Watch List”. Then, I select those that I would be willing to add to equity portfolios if they fall a bit more during the trading day. Your actual “Buy List” changes every day in both symbol and limit price.

You will need to apply consistent and disciplined judgment to your final selection process, but you can be confidant that you are choosing from a select group of higher quality, well-established companies, with a proven track record of profitability and owner awareness. Additionally, as these companies gyrate above and below your purchase price (as they absolutely will), you can be more confident that it is merely the nature of the stock market and not an imminent financial disaster… and that should help you sleep nights.

By the way, never say no to a profit when the upward movement equals 10%, and you’ll be able to do it again, and again, and again.