Smart Profits Report #556
by Karim Rahemtulla, Investment Director, Smart Profits Report

Yesterday (Monday), one particular stock caught my attention… big-time.

Shares of this well-known company began the day over $12, plunged to $3, and ended the day just under $11.

Talk about one heck of a turbulent ride (and that should give you a clue as to the stock I’m referring to here). Some folks made a LOT of money, while others lost a boatload.

The question is: How do you ensure that you’re on the right side of the equation when the you-know-what hits the fan?

The Rise Of The Machines

In my 20-plus years in the financial and investment business, the stock market is arguably behaving more irrationally now than at any other time. What’s more, it’s not just a quick bit of volatility here and there… the turbulence is occurring over a sustained period of time.

Why? What should we attribute this volatility to? The economy? Energy prices? Inflation? Higher unemployment? The government takeover of Fannie and Freddie? How about the war in Iraq? The close political race for the White House?

These are all factors, for sure. If there’s one thing investors hate, it’s uncertainty.

But there’s another reason for this unparalleled level of skittishness. A new component that was non-existent in its current form just 10 years ago. Something so ubiquitous that we just don’t give enough credit for in making this period amongst the most volatile ever.

Yes, my friend… the machines have finally turned against us, and we don’t even know it…

When Going Online Can Put You Off Kilter

It’s the Internet.

Plain and simple, this one life-changing technology has changed the way we invest. It’s the single most effective means of global communication today - a medium we use to invest and make split-second, broker-less decisions from our laptops from anywhere in the world.

The Internet is a hub of information - for news, sports, music - and investing decisions. We treat the Internet as a news source, regardless of whether the news is accurate. If it’s online, or if we get it from a Google search, it has to be true. There is no due diligence allowed, no time to find out what the real news is - not when everyone has access to the same information. And if the whole crowd is wrong, heck… better to be wrong with them, just in case they’re right. Right?

Wrong. It’s twisted logic. And it’s what caused that stock I mentioned a moment ago to plunge 70% before recovering over 200% in just one 8-hour period.

A Bumpy Ride For United… Courtesy Of A Wacky Web

On Monday, trading in shares of UAL Corporation (Nasdaq: UAUA), the parent company of United Airlines, were temporarily suspended when the stock plunged at the open.

The drop occurred because a news story from a very credible source - the website of the Florida Sun Sentinelnewspaper (owned by the venerable Tribune Company) - mentioned that the airline was considering bankruptcy.

An hour after the market opened, the shares began to plunge… at the exact time the story began to make its rounds. The fall gathered momentum on the source’s credibility - it’s not like it was just some blog site run by unhappy Union employees trying to send a message to management, or from a short-seller wanting to spread rumors.

But it was totally bogus.

The story was first published in 2002 - when United WAS considering bankruptcy - and was buried deep in the archives of the newspaper’s online site.

But that single click on the archived article all of a sudden made it a “live,” present day story (I still don’t understand how that happened) - and as soon as it made it to the “live” world, investors panicked and sold the shares.

The company swiftly refuted the story and the shares recovered - but the gains for some and losses for others were in the hundreds of millions of dollars.

This is NOT the way to invest. On the other hand, here’s a much better way…

Don’t Look For A Bogus Truth… Just “Go Fishin’”

The instability and volatility of today’s stock market is aided and abetted by investors turning to flimsy sources like blogs and messageboards to find the “truth” when there is no other explanation.

More often than not, however, this truth is a concocted story, or an opinion disguised as truth. The answer may be wrong, but it’s an answer nonetheless, and investors are always seeking answers to explain what they cannot. In essence, it turns into any answer potentially being the right one. Is this the kind of basis on which you want to risk your hard-earned money? Not in a million years.

A better solution comes courtesy of my good friend and colleague Alex Green, whose long-awaited book,The Gone Fishin’ Portfolio, has blasted its way up the rankings on popular sites like Amazon.com and Barnes & Noble.

In it, he discusses his extremely successful investment philosophy and the simple, yet effective, techniques for making AND keeping the money that you make.

His observations and advice come from years as a Wall Street money manager and as the guiding force behind The Oxford Club’s phenomenal investment advisory.

Simply put, it’s the very antidote that you should look to during times like this. It’s grounded, logical, and based on the sound investment philosophy that has proven itself in all market conditions - even those like we’re experiencing today.

So do yourself a favor and use the Internet for something that you should use it for! Click on the following link for more information:

http://www.amazon.com/exec/obidos/ASIN/0470112670/ref=nosim/agora192-20

Karim Rahemtulla
  

P.S. Next March, I’ll be jetting away from the craziness of the U.S. market and heading off to France and Italy on my ”Grand Essential Tour.”

Cities like Paris, Rome, Venice, and Florence are all on the agenda - and accompanying me will be acclaimed author and founder of Agora Inc, Bill Bonner, and Colin Wells, a recognized authority on Roman history and archaeology. Between the three of us, we promise lively, diverse banter and a real education into the forces behind Europe’s power.

You’ll gain knowledge about these cities’ legendary status in Europe - the history, culture, geography, art, and architecture, and the inventions that have contributed to their success.

But you’ll also learn about the countless innovations, disciplines, and practices that are commonplace today. For example, the world’s first public issue of company stock … the world’s first multi-national currency … the foundations of our Senate … the story behind the Capitol building… and more.

And of course, today’s best investment opportunities. It’s an exclusive tour, full of history, art, culture, roots, ideas, camaraderie, luxury, and taste. Click here for more information and to reserve your seat now, as places won’t last for long.

Today’s Smart Profits Notes:

• On Monday, it was UAL Corp. shares bouncing wildly. Today, it was Lehman Brothers Holdings Inc.(NYSE: LEH). Shares sank by 45% on reports that Lehman’s talks with state-owned Korea Development Bank were over. That news then sparked concern whether the fourth-largest investment bank could raise the capital it needs on its own. Clearly, shareholders are very skeptical.
• It isn’t just banks that are feeling the affects of Fannie Mae (NYSE: FNM) and Freddie Mac’s (NYSE: FRE) continuing saga. Several big insurance companies who invested in the downed mortgage giants are getting hit. The Treasury Department’s takeover of Fannie and Freddie did the same as placing them in bankruptcy. In turn, that halted a total of $30 billion in dividend payouts to preferred shareholders of firms like Hartford Financial Services Group (NYSE: HIG) and CNA Financial Corp. (NYSE: CNA).
• Elsewhere, Credit Suisse has downgraded the U.S. homebuilding sector from “overweight” to “market weight,” due to declining sales. It sees that trend continuing, too, which is why the firm has slapped the “neutral” tag on D.R. Horton Inc. (NYSE: DHI), Pulte Homes Inc. (NYSE: PHM), Toll Brothers Inc. (NYSE: TOL), and KB Home (NYSE: KBH). Despite a brief rise in profits during the early summer months, all four fell right back on hard times during the month of August and got whacked today as a result of Credit Suisse’s decision.

Related Articles:

How To Handle The Stock Market’s Current Turmoil

Five Reasons Why You Should Use This Powerful Investment Strategy In Today’s Crazy Market

Protect Your Portfolio With These Two Investment Sectors

The Gone Fishin’ Portfolio: Get Wise, Get Wealthy… & Get On With Your Life

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