It's not like I'm getting requests for this stuff, but when I have time on my hands, well, my fingertips just start pushing keys and before you know it the "send" button has been hit. With that disclaimer, I offer you this micro-compendium of investment tips from The Pit. Not like Poe's pit, or Brad's Pitt... it's the trading pit. Well, not really. But it could have been and you'd never have known. Given the reach and power of cyberspace, Wall Street is no longer a location: it's a state of mind. Investment advice newsletters are a dime a dozen, except that they cost a whole lot more than that. Even Louis Rukeyser pushes one, now that he's figured out that there's a lot more money in giving vacuous investment advice than there is in interviewing others for their vacuous investment advice on PBS. That said, Wall Street Week is the greatest investment advisor's showcase, and it's a great source of guidance. The only problem is, they give you guidance about what already happened...even though it would be a lot more useful to get guidance about what's going to happen. Don't believe me? Try this: don't watch the show for a month, and instead make videotapes of each episode. Then, watch the tapes in random order and see if you can figure out which show was for which week. You'll find very few clues from the on-screen investment sages. They're talking in pretty vague terms about market direction, while not mentioning the likelihood of a 70% drop in the NASDAQ. They simply will not tell you that the bottom is going to fall out until months after it already has. Afterwards they say things like, "it's too late to sell now," which is what passes for professionalism in their field. So, given the plethora of useless advice, here's my contribution which might be worth the time you'll waste reading it: 1. You Can't See the Big Picture Until it's Painted, but You Can See What Colors Are Going To Be Used. Nobody can tell what's going to be important or how things fit together until it's almost over. By the time it shows up in the numbers, it's usually way too late to do anything. That being said, whenever billions of dollars are sloshing around you want to pay attention to where the money is flowing toward. Demographers tell us that the leading edge of the baby boom reached its peak investment years starting about 1990, and this will last to about 2008 or so. This has translated into a billion new dollars invested in US stocks every few days. Over a 20 year period this can add up. So, be where the new money is going to be placed. But don't lose site of the inevitable tide change: from around 2010 through 2035, all those boomers will be retiring and pulling a few billion a week *out* of the market...and there aren't enough Generation Xers to make up for the deficit. Be out the door before the crowd tries to exit. 2. Any Fashion Will Wear Itself Out in a Few Years. Some irrational things can be seen as a good investment idea for a while. It's been a four years since Harvard people started believing that it's OK to lose money because revenue growth is more important than profit growth. And it was a couple of years ago that the Harvard guys started believing that it's OK to not have a lot of revenues as long as you have a lot of customers. Thousands of real millionaires have been created from this "first mover advantage" theory, and it's lasted a lot longer than I expected. Here's what Warren Buffett said about two weeks before the bubble burst last March: "The Internet has no more ability to create fundamental wealth than does a chain letter. The ability to monetize shareholder ignorance has never been exceeded in history." Boy, was he a smarty-pants. As we now experience the law of deferred gravity, even great companies with real profits have been magnetically drawn toward and even below their rational valuation. It's really ironic to look at the companies that IPOd in the last 4 years. Interestingly enough, most of them are now trading way way below their IPO price, and in fact are valued by the market at about the level ($3-4) it was when the VCs last put their own money in. One way of looking at an IPO company is as a plant that's been put in a hothouse and over-fertilized to make it grow and bloom at unnatural rates. But shortly after you buy this plant and take it home, all the pretty foliage falls off. It's OK to buy these kinds of stocks, as long as you know you'll only really be happy with your "plant" for a few days. 3. Dollar Cost Averaging Works...but is usually applied wrong. This is the one where most people say to themselves, "I believed in the stock at $20, so I believe in the stock even more at $10." Buying more after a fall indeed lowers your break-even point, which isn't bad...but it's a consolation-prize strategy. Instead, you should just hold the stock you have, and put any excess funds in a different investment. The winning way to use dollar- cost averaging is while a stock is rising: on a regular basis you put a fixed amount into a great stock, but get fewer new shares each time as the price rises. You should also be doing dollar-cost averaging as you sell the stock, where you make a series of equal-dollar-value sales executed at different prices (like, 75 sold at $20, then 60 at $25, and 50 at $30). This "laddering" of sells makes sure that you don't lose out on future upswings, but you've taken some of your winnings off the table to reduce risk. 4. Short Selling is for the truly testosterone poisoned. This is where you so you borrow stock from somebody else and promise to return it to them a few months from now. Since you are better able to tell the future better than current stock's owner, you make money when the stock goes down in price and you can buy the stock back for less than you sold it. Did I mention that you sold the stock as soon as you borrowed it, and you've got a contractual obligation to return it, no matter how much it might cost to do so? You really get nailed if the stock price goes up. The only thing this strategy is better than is getting a loan from the mafia, but that's only because there's a chance that you won't get your legs broken. This is a complicated game, and to win it you have to be smarter and luckier and have better timing than you obviously do if you're reading this. This is stuff that nobody makes money from even in the movies. Much better to use "portfolio insurance" to get some of the same thrills. 5. Portfolio insurance is like life insurance, except you personally benefit when it pays off. This strategy is where you buy "put" options to provide temporary price protection for the stocks you already own, or to emulate a short sell for the stocks you don't own. This strategy is probably the only truly useful thing I learned in business school. To make it work, however, you must remain glued to the market tickers...and be prepared to make $40,000 decisions in the next 5 minutes. This is a fixation that can cause Bad Things to happen. You'll also notice that your $5-a-trade eBroker won't touch the stuff, and the full-service brokers will make you fill out forms to certify that You Like Insane Levels of Risk. Portfolio insurance is very similar to Blackjack Insurance in Vegas: you must consider every penny you put into it as already lost, but it does provide real protection. If you're going to use it, make sure the options are "leaps" that last 9 months or more. This will give you time to be proven right...or a longer period to realize you weren't. 6. Charting, technical analysis, wave theorists: the Black Arts This is a cross between astrology and Russian Roulette. May be colorful and even informative, but only if you're not personally participating.