This week I thought I would revisit a subject that everyone needs to pay attention to. We have had a very nice market rally in the past few months. Though no one can tell you exactly where the market will go, this seamlessly endless drop in volatility might make some traders a bit complacent in their trading. We don't want this to happen, because complacently leads to losses. So for the next several weeks we will be looking at the mistakes of investing and how to correct them. Let's start with the first one.

Mistake #1: Letting someone else manage your affairs.

Now this mistake isn't tied to a level of public or private education. Just because you went to college doesn't mean you are smarter than the average person when it comes to money. In fact, the majority of government schools do not teach you anything about handling money. They educate you on the basics that will get you a job, and that's it. Most people that have a decent job have some sort of retirement plan, but even if they are saving money from their paycheck, they don't know the first thing about how to manage it and make it grow. Most 401k plans are put into money at market rates, because of ignorance or fear of investing. So what about the people who have put away savings or created an investment plan? What do they do? Most get someone else to manage their money for them. Here is some history on managed account brokers and money managers.

First, a word about managed account brokers. Ever heard the statement that brokers are generally broker than you are? That is not too far off the mark. Most brokers don't even invest in the ideas that they give their clients. Why? Probably because they can't afford it, or are there just to take a commission. Okay, so maybe you have heard this and think to yourself that your bank investment officer or money manager can handle all of your affairs. Well, there is a problem here, too.

If you ever get a chance to, check out www.morningstar.com. This site tracks thousands of mutual funds for performance, and rates them on this. Now I am not saying that all funds are lackluster; there are good ones out there. What I am saying is that of the thousands of mutual fund products to choose from, less than 1% beat the benchmark of returns. What is the benchmark, you say? The SP500. Last year, the SP500 dropped huge to those who invested in this index. Over the past 10 years some of the most recognized funds barely broke even, while the SP500 has gone up 100% in that time, or roughly 10% a year, only to lose much of this in 2008.

So Tom, what about those funds I was looking at that were up 50% last year? Well, those are the funds that were heavily invested in a falling market or certain sectors that did well. Take a look at what they have done over time. The RYDEX funds saw a great year last year, mainly because of the market drop, but what have they done in the past few months? The problem with the high fliers is that they gain popularity with the public eventually, and you know what that leads to. The end of the Bull Run for those funds.

So how can you beat fund managers? Simple-by recognizing patterns in the stock market and taking advantage of them. We teach several different patterns in up, down, and sideways markets. Peter Lynch has been quoted numerous times saying that the small investor has the advantage. Profit Strategies can help you gain that advantage by educating you about what has worked in the past-not in just bull markets, but bear markets as well.

See you next week!

Tom Gentile
Chief Strategist
Profit Strategies Group, Inc.