On this page I intend to give Internet users free advice on anything I have some knowledge and experience, from investment strategies to playing golf.

One of the most popular indices for valuing companies has been the P/E ratio. It is simple to calculate: simply divide the current stock price (P) by the reported earnings (E). Most financial journals and newspapers list this index daily so there isn’t any need to do any research or calculations. However, does the P/E ratio have the same significance for a company like General Electric, which is continuously reporting a 15% annual growth, or a company like Ford Motors where the reported earnings are quite erratic? Then what about a company that is investing heavily in research and development, training, and new technology in order to assure a future income stream compared to another company that is just milking current assets? Furthermore, does it make any difference to the future bottom line whether the company: a) Has it adopted the New Philosophy? (Deming’s New Philosophy – read my book CHANGE MASTER). b) Is it organized for growth and long life, and can shareholders rely on reported earnings? c) Has it adopted into its constitution what I call "Idiot Factors" which will ultimately snake bite shareholders, and eventually take the company into decline and perhaps bankruptcy?

Michael Murphy of Murphy Investment Management, Inc., has done some work in the area of company valuation. He has come up with what he calls a Growth Flow Index. What he’s done is add to the forecasted next years earnings to the company’s R/D investments that indicate a Growth Flow (GF = E+R/D) in future earnings. Hence a Growth Flow Index (P/GF), or P/GF = P/(E+R/D).

The Growth Flow Index = P/GF = 34/3.68 = 9.24, which is reasonable for a company expected to grow at an annual rate of greater than 20%. On the other hand if the traditional P/E ratio were applied, some investors would probably conclude a ratio of 32.4 is simply too high because it is greater than the growth rate. However, the problem with all high tech companies, like Applied Materials, is that they have no choice but to spend a considerable portion of their earnings on R/D just to survive. And when they make an error in judgment as to where the money is spent, or they fail to execute, the consequences can be disastrous.

Assuming they will be right 50% of the time and execute 50% of their programs, I suggest modifying the Growth Flow by adding one-quarter of R/D investment (.5 X .5 = .25) to the forecasted earnings so that GF for the example above is: GF = 1.05+(.25) 2.63 = $1.70/share, and the Growth Flow Index becomes 34/1.7 = 20, which suggest the stock at $34. Per share is at about the right value.

Are there other factors that would affect the valuation positively or negatively? Yes, I believe so. In my book, CHANGE MASTER, I mentioned that companies who have adopted the ‘New Philosophy’ or the philosophy of Continuous Improvement would grow faster and would be stronger competitors than their competition and this would be reflected in future income. But how can a shareholder know for sure whether a company has adopted the New Philosophy? I noticed in annual reports some CEOs declared they have seen the light and are implementing Continuous Improvement. Is this sufficient information to make you a believer? Hell no! The only way I know whether a company has adopted the New Philosophy is to check if their market share is increasing. For example, Winnebago not only has the biggest share in the A-class RVs, their market share is steadily increasing. In other words they are taking sales away from competitors. This fact and the fact they are moving into a favorable demographic time because each week there are 350,000 more Baby Boomers reaching age of 50, their valuation ought to be higher than the S&P average.

Here is a list of positive factors that automatically raise the valuation of any company:

Is buying and holding stock for the long term a good investment strategy? Sometimes it is and often it isn’t. It has been a very good strategy for Warren Buffet because of the way he and Charley Munger go about selecting companies. They look for simple businesses that are likely to be around for a long time and which are managed rather well. In other words they look for companies with few ‘Idiot Factors’. And because they do this work full time and have the time to visit and talk with the managers and employees, they have a reasonably good assessment of the company, its people and its long-term prospects. Most investors don’t have the resources, or accesses to necessary information, and they don’t have Buffet’s and Munger’s instincts to do what they can do. (Yes, instincts are probably more important than information.)

Are you beginning to realize how difficult investing in equities is? Good, then you’ve learned something. Next time I intend to write briefly on what I’ve learned about stock and economic cycles.

Is it possible to time the market? Many say it’s impossible. I’ve worked on timing the market for thirty years and I say it might be possible.

First consider what makes markets go up or down. When you listen to reporters on the Nightly Business News, or any other financial news program, they talk about the cause of hourly fluctuations as if they knew what they were talking about. When the market goes up they say the cause was due to better than expected earnings report by one of the market leaders. Last Wednesday, October 17, 2002, both IBM and Intel reported better than expected earnings, but the market tanked. There new reason for the market drop was due to the anthrax scare. The truth is simple: financial news reporters and market analysists haven’t a clue what drives stock markets up or down, and they should stop offering their stupid explanations. Their explanations simply waste our time.

Market indices like the Dow Jones Industrial Average (DJIA) are simply measures of mass psychology of participating speculators. Note I didn’t use the word ‘investors’ to refer to stockholders. Therefore, if we are looking for causes that move markets, we have to look for things that affect how we feel. In other words: is there something out there in the universe affecting our confidence?

It just happens there are some folks who keep tack of planet alignment. They claim they can predict not only market movement, but also market levels almost to the exact number. Well I though I’d check them out because an article in one our leading financial journals reported these folks were paid as consultants by some of America’s leading financial houses. Wow, I though, maybe these folks are really on to something. So I began reading some of their books published by well-known publishing houses. Also, as it happened last October 2000 there was one of best planet alignment possible. All the heavy weights such as Jupiter, Saturn were to be aligned and these folks were predicting a serious market fall. On the particular day in question, the market indices hardly budged. Obvious these folks who speak of junctions and conjunctions of plants are just snake-oil salesmen. There is absolutely no connection between planet alignments, and market movements.

When I began studying stock cycles, I noticed some cycles were very sharp while other cycles seemed gradual. I though cycles with curved profiles, like sine or cosine curves, might be related to some economic phenomena, but I had no explanation for the very sharp drop and rises until I purchase and read: Cycles: The Science of Prediction, written by Edward R. Dewey and Edwin F. Dankin. In this book, I discovered some evidence that sunspots had an effect on animals, plants and human emotions. Sunspots are strong localized magnetic energy fields that appear as spots on the sun. Apparently they appear and disappear periodically. When they appear they seem to affect our emotions negatively (we become less confident). I don’t think everyone is affected to the same degree, but enough speculators are affected to want to sell some stock, i.e. to take some profit.

Sunspot periodicity has been studied by a number of researchers. You can find a couple of tables shown on pages 152 and 153 in the book I mentioned. I referred to their periodicity in order to correlate them to sharp rises and falls in the DJIA. I discovered very good correlation. In fact some periods appear more than once. I’m not certain the periodicity is repeated accurate to a day, but perhaps within plus minus a week for say a 22.28-year cycle. A 22.28-year sunspot will appear very suddenly, and after 11.14 years it will disappear. I’ve also discovered a correlation between the drop in the DJIA with the periodicity of the sunspot cycle. For example, a 22.28-year sunspot will drop the DJIA about 5% usually in a couple days. A 5% fall is both jarring and significant. When this sunspot goes offline, the market rises 5% in three or four days. The fall is always sharper. If the fall occurs on the weekend, there is no effect on the market. Usually you can tell a sunspot is affecting the market because all markets are affected the same way, but not exactly to the same degree.

In addition to the individual sunspots affecting markets, the sunspots in the aggregate, called Solar Cycles, also affect stock markets, and they affect consumers’ confidence levels. You see sunspots going online and offline bunch together to produce a periodicity of approximately 11.02 years. The periodicity in this instance is not precise. It varies from 9 years to 12.4 years. And the number of active sunspots varies between 6 to a maximum of 201 (March 1958). Believe it or not, scientists have tracked sunspots since 1755. In all 23 of these Solar Cycles have been recorded. Now how do these Solar Cycles affect the DJIA?

If you look at a long term DJIA chart, say all the way back to 1900, you will notice that whatever other economic cycles are influencing the economy and the stock market: the year with a 5 in it the stock market was always up, and the year with a 0 in it the stock market was down. In Solar Cycle 23, the peak of solar activity is happening in 2001. This year, up to October 17, there have been more sunspots going online than offline. Consequently the market averages are down and the consumer confidence index is also way down off it peak. Very soon there will be more and more sunspots disappearing then appearing. That means we will begin to experience more up surges in the market than down. And you will begin to notice the consumer confidence, as if by magic, rising. Yes despite all the worries about terrorism, anthrax, layoffs, stumbling economy, etc., the consumer confidence worldwide will start rising as if we are heading to springtime of another economic cycle. And confidence would have risen without interest rate cuts, tax breaks, or government contrived incentives.

Solar Cycle 23 began in May 1996 when there were only 6, yes that’s right six, sunspots. This was a very quite period indeed. And you might recall how we felt about everything. We felt invincible didn’t we? Now we are not sure about anything because there are more than 130 sunspots putting out lots of electro- magnetic energy.

Well all this information is interesting and it might be true as you say Mike, but how can I profit from it? Good question. I’ll tell you what I intend on doing. In the next quite period, which will likely occur around 2006, I intend to sell all my stocks and put all my assets in bonds. Why do that? The next period of strong sunspot activity is likely to be a real bitch for several reasons. The Baby Boomer bulge is likely to reach 46.5-age peak in 2008. At age 46.5 we reach peak spending and start saving. At this age usually all the kids have graduated college, so we start to pare down spending and start worrying about retirement. Furthermore, coincidently the growth in population is expected to drop for the next ten years or so. Some pundits like Harry Dent author of The Roaring 2000s,are predicting an economic depression, yes a depression, starting in 2008 and ending 2018. Who knows, they may be right. But for me, if I make some money in the up-side phase of this cycle, I’m not giving any of it back!!

One more thing about sunspots: There are two times you have to worry about them. The first time is shortly after the quiet period when many sunspots come online at one time, like the period between October 16 and October 30 of 1987. Sparks did fly during this period didn’t they? The second worrisome period is when many sunspots are active. This won’t happen again until sometime in 2011 or 2012, but it can happen as early as 2010. All this might be good logic, but do I guarantee that the DJIA will be affected by the solar sunspot cycle in the future? Yes.

I decided not to publish my portfolio stocks because I have found it necessary to buy and sell stocks more often than I expected. Some times a stock that appeared like a long term investment is soured by some bad news or by a CEO of a company who says something stupid. When that happens it is necessary to sell the stock immediately. Learning the discipline when to sell is more difficult than picking a good prospect at the right time. When I hone my skill of selling and perhaps taking short positions, I shall really up my performance.

Secrets of a Healthy, Happy and Long Life

1. The first thing necessary is a strong, trim and flexible body.

a) This means you have exercise and do Yoga daily for a about one hour, and

b) Participate in outside activities.

c) Eat good foods, drink plenty of water, and

d) Take vitamin and mineral supplements.

e) Avoid toxic stuff like smoking , drinking excessively and taking drugs. I avoid taking prescription drugs, because they seldom cure anything and they all have harmful side affects.

f) In addition, doctors have found, having quality sex (love) with a cooperative partner about three times a week or more, is also important for many reasons.

g) Get restful eight hours sleep each night.

2. The next important thing is to have a healthy mind. My teacher here is Dr. Amen who says it is possible to have a magnificent mind throughout our lives.

g) Here items a to g apply.

h) Furthermore, you must always try to have positive thoughts and eliminate negative thoughts, and

i)Always be optimistic about the future.

j) Since the brain is a muscle, like any other muscle it must be exercised or else it will atrophy. Exercising the brain can be done by reading, continuous learning and learning new and challenging skills such as dancing, learning to play a musical instrument, or improving playing golf (golf is so difficult that no one learns to be near perfect, not even professional golf players).

k) And speaking about the brain, it is important to develop both the left side (the reasoning side), and the right side ( the emotional, intuitive, and inventive side). So it is important to learn and listen to good music (the classic kind mostly), and learn to appreciate art and poetry.

3. Also important is to have a passion about something. This passion may be about anything: teaching, writing, singing, building musical instruments or even salsa dancing.

4. I think it is important and necessary to have a mission in life. My mission, like many of my heroes, is: to the leave this world a better place than when I found it. And believe it or not, some people, like Monty Roberts the famous horse trainer, and Marva Collins a school teacher and perhaps the greatest woman in history, are succeeding.

5. Take full responsibility for your life. “If you fail, it’s your own fault. If you succeed, it’s your own fault” Or as the wise four year old sage responded to Toni Robbins, a famous motivational speaker, when he was asked the question: “What does Ms. Collins really teach you?” The four year old responded: “People may talk about this and that, but I KNOW THAT I AM THE CAPTIAN OF MY SHIP.”

6. Find a vehicle that makes a difference in other peoples’, children’s’ and animals’ lives. Most teachers who care about the success of their pupils’ lives have an easy time of making a difference.

7. Myths, Rites, Ceremonies and a faith in something (my faith is in Mother Nature) seem to be very important in human lives. Theology, and the WORD are not so good because it is the stuff that divides people. Prayer is not as good as meditation. People who pray a lot are always asking for gifts, which never seem to materialize. As the saying, as far back as 800 BC when the Iliad was written: “God helps those who help themselves”. Every meal can be a rite. Even the act of love making between husband and wife may be like a sacred rite. How important is the ceremony of marriage when eternal vows and rings are exchanged? The man with the most understand of The Power of Myth was Joseph Campbell. There is a book published under the same name. Here is how the book begins: People say that what we’re all seeking is the meaning of for life. I don’t think that’s what we’re seeking. I think what we’re seeking is an experience of being alive, so that out life experiences on the purely physical plane will have resonances within our own innermost being and reality, so that we actually feel rapture of being alive.” “Do you wish to live a magical life? That’s easy. Make some one else’s life magical”.

8. And remember: “when you find yourself living in a strange place—make it your home” (from a TV series: Life on Mars)

Over time I’ll have more to say about each of these topics. To live a long, healthy and happy life (my three wishes) is not easy. You must work very hard at it. Nothing is free and nothing good is easily obtained, and you won’t get anything by praying except, perhaps, peace of mind temporarily. And as Aristotle once said, it helps if are tall, handsome or attractive, and born into a good family i.e., very good genes, and loving parents who have some understanding about parenting, who don’t smoke, don’t take drugs, and drink modestly (like the Italians, and maybe the French, all the other people should not drink or delay drinking alcohol until the age of forty).