Stock Market and Market makers

A market maker is a broker-dealer who stands ready to buy or sell 100 shares of the stocks in
which it makes a market. When a transaction is proposed, the market maker will give a price at
which it would be willing to effect that transaction. The market maker’s price applies only to the first 100 shares. While the market maker system has been widely criticized (after all, how much of a commitment is it to buy 100 shares at a penny apiece?) the system does offer investors some
level of fairness. The more market makers there are in a given stock, the more likely they are to bid against each other, and the price will more likely move to a true “market” price. The names of the market makers of securities traded in the pink sheets are listed in the pink sheets.

Manipulation

Especially when there are few or only one market maker, penny stocks are susceptible to price ma-nipulation. A common and easy manipulation is for a broker-dealer to gather a large holding of a penny stock at a very low price. Through the use of high-pressure sales techniques, the sales force of the broker-dealer hypes the stock and stirs up demand, which seemingly justifies the continual rise in prices given by the broker-dealer (which is probably also the only market
maker).
The price continues to rise until there are no more investors who will buy, and then the bottom alls out and the price plummets. Sometimes the broker-dealer will buy back the
securities at the fallen prices to recapture the stockpile for a future revival of the stock; more often investors are sim-ply left holding the worthless stock.

Initial public offerings

The price and market discussion above relate to penny stocks already trading in the market. Stocks are introduced into the market through an initial public offering (IPO). In most cases, an IPO would need to be registered with the Securities Division, which applies a set of guidelines to the offering to determine whether the offering is “fair, just and equitable”. Although the “merit” system of applying those guidelines is not foolproof, fraudulent offerings are rejected and not granted registration. For this reason, Missourians are not usually victims of penny stock scams in an IPO,but lose their money in the secondary market. In the secondary market, there are broad exemptions in the law that allow many penny stocks to trade in Missouri without meeting the merit standards.

Legitimate penny stocks

Despite all of the problems with penny stocks and the millions of dollars of loss involved with them,there are legitimate companies whose securities trade in the pink sheets at very low prices. Strug- gling young companies just starting out are perfect examples. Investment in such a company, held through the company’s formative years, can pay off well. Such an astute investment requires three things: the ability to choose the right company, the capital to invest and hold the investment, and luck.
In order to choose the right company, you must know something about the business in which the company engages. You must be able to evaluate the feasibility of the company’s business plan and the company’s ability to compete in its field of en-deavor. You must be able to evaluate the ability of the company’s management to run the company.Finally, you must be able to evaluate the capital-ization and cash flow of the company.
If you find the right company, you must be able to hold the investment for years to allow the com-pany to mature and for the stock to appreciate in value. Investment in “growth” companies is long-term investment. Furthermore, you must have sufficient capital to be able to withstand total loss of your investment. Investment in emerging companies is always a high-risk investment.
Finally, there is simply an element of luck in any stock investment. Luck plays an even greater role in a market in which manipulation is so preva-lent. Some legitimate companies have had their stocks manipulated to such an extent that they were were forced out of business. Even without manip-ulation, the success or failure of a fledgling busi-ness is simply unpredictable.

Sources of information

Your broker can be a tremendous help in evaluat-ing an investment. However, in the penny stockarea, there are many unscrupulous brokers whose only goal is to sell. Be sure that the advice you receive is balanced and addresses your investment needs. When in doubt, avoid a penny stock invest-ment, especially if your broker “specializes” in penny stocks.
The prospectus is the most comprehensive source information about an IPO. It sets out where your investment money will be used, describes the capitalization, history and management of the company and describes the cash flow system of the company. If you need help interpreting the in-formation you find in the prospectus, the Division has another pamphlet in this series entitled “How to Read a Prospectus”.

Trade confirmations contain a wealth of infor-mation. The confirmation will show basic infor-mation, such as number of shares, but will also in-dicate whether the transaction was agency or prin-cipal, was solicited or unsolicited (it will say “un-solicited” if you called your broker to place the order without your broker having tried in any way to get you to place the order) and, in the case of most pink sheet and non-NASDAQ National Mar-ket trades, provide the bid and ask at the time of execution of the transaction.

Manuals such as Moody’s and Standard and Poor’s have current financial information about companies, and most penny stocks are listed in the manuals.
Periodic reports filed with the U.S. Securitiesand Exchange Commission have updated informa-0ption about companies that register with the SEC. The most common report is a “10-K”.

Bid / Ask

Penny stocks do not each have a single price at which they are bought and sold, but a number of
different prices. The first difference is between the bid price and the ask price. The bid price is how
much someone is willing to pay for the security, or the price at which you could sell your shares. The ask price is how much someone will sell their securities for, or how much you will have to pay.
The difference between the prices is the spread.

The spread

To most investors, the spread represents a built-in loss at the time of investment. For example, if you purchased a stock that traded at 1/2 cent bid, 1 cent ask, the bid would have to more than double in price for you to break even (the “more than dou-ble” comes from additional costs such as “ticket”charges and other miscellaneous costs). Many in-vestors buy penny stocks believing that “trading at 12½ cents” means that they can buy and sell at 12½ cents. This simply is not the case, and any salesperson who uses such a phrase is only telling half of the truth. The spreads in penny stocks are most commonly 25-33%, are often 50-100% and sometimes are over 100%.

Another factor to keep in mind when evaluating price information about penny stocks is that there are two “bid” and two “ask” prices, the inside and outside bid and ask. As a general rule, the price you will be interested in will be the outside bid and ask, or the lower bid and the higher ask, as those are the bid and ask prices to public customers.

Mark-ups

The last pricing factor concerning penny stocks is called the mark-up. A broker-dealer who has held the security in its account and subject to the risk of market price fluctuation, may mark the price of the security it sells to you up by a certain percentage,on top of the spread. This is to compensate bro-ker-dealers for maintaining inventory sufficient to supply demand for an orderly and liquid market.What it means to the average investor is another cost that creates a built-in loss at the time of in-vestment. In other words, the instant your transac-tion is effected, your securities are worth less than you paid for them.
Although it is no guarantee of a good price, you are more likely to get a better price in an agency transaction using a broker-dealer that has no inter-est in the transaction, due to the pricing factors above. In the typical penny stock transaction, the broker-dealer buys from its customers at the bid and sells at the ask, capturing as compensation the
spread, plus any mark-up.

What are The “OTC”market

Penny stocks are not traded on a stock exchangebut are traded in the over-the-counter (OTC) mar-ket. Part of the OTC market is the NASDAQ Na-tional Market (NNM) of the NASDAQ Nation-al (Association of Securities Dealers Automa-ted Quotation) System, which does not include
any penny stocks.

There are also non-NNM NASDAQ securi-ties, including some penny stocks. The NASDAQ
system has listing standards that change from timeto time and, depending on the standards, there maybe more or fewer penny stocks on NASDAQ. If you purchase a low-priced security that is listed on NASDAQ, it will meet certain minimum stan-dards. In addition, many NASDAQ prices are quoted regularly in newspapers, allowing you to follow the price of your security instead of forc-ing you to rely on your broker for all price infor-mation.

The third major component of the OTC market is the National Quotation Bureau’s (NQB) service,commonly referred to as the “pink sheets”. The NQB’s securities lists and price information, print-ed on pads of long, narrow sheets of pink paper,have, for all practical purposes, no meaningful list-ing standards, and price information is sometimes difficult, if not impossible, for the small investor to obtain. Broker-dealers obtain their price infor-mation by calling the trading desks of three “mar-ket makers”. Obviously, small investors do not have access to those traders and must rely on their stockbroker for accurate price information.

What are a true penny stock?

There is no set, accepted definition of penny stock. Some people define it as stock priced under
one dollar, some under five dollars. Some people include only those securities traded in the “pink
sheets”, some include the entire OTC market. The Securities Division considers a stock to be a
“penny stock” if it trades at or under $5.00 per share and trades in either the “pink sheets” or on
NASDAQ. In addition, a true penny stock will have less than $4 million in net tangible assets and
will not have a significant operating history. (Inother words, if a company has real assets, such as
equipment and inventory, and is engaged in some real business, such as manufacturing, then the Division does not consider the stock to be pen-ny stock even though the shares are low-priced.)

World on a string,Is just one global fund all you need?

LOS ANGELES (MarketWatch) -- Investors who want to cover the globe often end up with a portfolio that looks like the United Nations -- a general assembly of mutual funds.

That's not a bad strategy for experienced investors who are capable of dealing with the complexity of multiple prospectuses, proxies and quarterly statements. But for newcomers or less-savvy savers, such an approach can be overwhelming.

Enter the global or world fund, an investment vehicle that gives you exposure to the whole world via a single fund investing in both U.S. and international stocks.

Such a fund can be just the ticket for savers starting out in the work force or for parents setting up IRAs for their children, folks who may have just $1,000 or $2,000 to initially invest and who will be adding a limited quarterly or monthly sum after that.

Elliot Herman, partner in charge of wealth management at PRW Associates, in Quincy, Mass., employs this strategy for younger investors, or those who want to keep their investments simple initially. He argues that the one-stop funds he recommends often hold their own against a larger portfolio.

"These are proven strategies that over the years have done well or better than a diversified portfolio," he said. Two he likes are American Funds' Capital Income
Builder (CAIBX:58.37, -0.98, -1.6%) and Capital World Growth and Income
(CWGIX:41.36, -1.03, -2.4%) . Both carry initial sales charges, or loads, and require a $250 minimum investment.

The growth-and-income fund, which has an annual average return over the last 10 years of 13%, invests around 72% overseas. The less adventuresome Income Builder fund puts just 39% in non-U.S. stocks and has returned 11% annually over the last decade.

"You have a team in American Funds that is made up of experts in both the international world and the domestic world, supported by a number of analysts who cover these funds," Herman said.

A bigger world

A few years ago few in the U.S. would have considered global funds as a one-stop investment solution, said Kai Wiecking, a Morningstar fund analyst. "It's good we've made that much progress to recognize that foreign equities belong in everyone's portfolio," he said.

The global funds allow even investors without much cash to have a stake in evolving world markets. While the U.S. currently commands the lion's share of the market capitalization in stocks worldwide, Wiecking and others assert that situation is likely to change as Asia continues to emerge as a market powerhouse.

Wiecking's favorite world funds include American Funds' New Perspective (ANWPX:31.71, -0.78, -2.4%) , for its experienced management and highly diversified offerings, and Oppenheimer Global (OPPAX:65.33, -1.78, -2.6%) , which zeroes in on themes of new technologies, mass affluence and the aging population. Both carry a load or initial sales fee.

Among the no-load funds, he likes Oakmark Global (OAKGX: 22.16, -0.58, -2.5%) , which offers small-cap and midcap stocks, unlike most global rivals that stick to better-known large-cap stocks, and T. Rowe Price Global Stock (PRGSX:23.07, -0.72, -3.0%) .

Adam Bold, founder and chief investment officer of The Mutual Fund Store, headquartered in Overland Park, Kan., advises investors who want to use just one global fund to seek those that have matched or outperformed their peers.

He also likes the Oakmark fund, but makes a couple of other no-load recommendations as well: Polaris Global Value (PGVFX:16.79, -0.29, -1.7%) , which has beaten the S&P Index (SPX:1,330.63, -37.05, -2.7%) year-to-date and in one-year and five-year periods; and Julius Baer Global Equity
(BJGQX:40.68, -0.96, -2.3%) , a newer fund headed by the team of Rudolph-Riad Younes and Brett Gallagher, who have already proven their mettle on the now-closed Julius Baer International Equity (BJBIX:40.39, -0.71, -1.7%) .

Bold says most people need between seven and 12 funds to achieve diversity, including "large-cap growth, large-cap value, small-cap growth and value, international, bonds of some sort and a couple of sector funds."

"For the person who doesn't do that, wants to get something and have exposure to both, these funds make sense if you have the reality that mutual funds are not buy and forget investments," he said, noting that even one fund should get a once-over twice a year, either by the investor or an adviser.

Phillips Ruben, president of Boston-based Vision Financial Planning, makes use of Dimensional Fund Advisor funds as one-stop solutions for those investing only a small amount initially, but notes they're available only through a financial adviser. "They offer very broad diversification, are very tax efficient and very cost effective," he said

He likes DFA Global 60/40 Portfolio (DGSIX: 12.28, -0.19, -1.5%) , which is a mix of fixed income and global equity, and DFA Global Equity Portfolio (DGEIX:13.73, -0.36, -2.6%) , which is a more aggressive portfolio investing only in stocks. The latter, he said, would suit a younger investor with a much longer time horizon.

Going with just a single fund to start out, Ruben said, can prevent rash decisions, such as following trends in a particular fund or sector.

"I think a lot of people don't have the expertise to make the decisions to put together an effective diversified portfolio and this takes that decision-making piece out of it and puts it in the hands of the experts."

Five global funds to consider
Name of fund	Ticker	Expense ratio, load	3-year return (annualized)	5-year return (annualized)
Capital World Growth & Income	CWGIX	0.77%, 5.75%,	22.5%	10.3%
Oppenheimer Global	OPPAX	1.15%, 5.75%	21.1%	4.6%
Oakmark Global	OAKGX	1.26%, no load	24.6%	18.6%
Polaris Global Value	PGVFX	1.48%, no load	25.4%	16.3%
T. Rowe Price Global Stock	PRGSX	1.2%, no load	19.4%	2.6%

Source: Comstock

Bull rocket fueling up with $2 trillion

Bull rocket fueling up with $2 trillion

Turn the engines on with a five-star portfolio

LOS ANGELES (CBS.MW) - The MIR station crashing to Earth. A perfect media image for the 2001 market, as the S&P 500 experienced its worst first-quarter performance in its 44-year history -- vaporizing $1.8 trillion.

And in the space of a year, Nasdaq's technology payload triggered a flameout of our worldwide space adventure, with a total wipeout of $4.5 trillion net worth.

Now switch channels to a launch pad at Florida's Kennedy Space Center.

Imagine $2 trillion of cash building up like rocket fuel. Being loaded into a hissing, steaming, vibrating Titan missile. You got it - there's $2,000,000,000,000 being stock-piled in money market funds as investors sit nervously waiting for the next launch, waiting to catapult the S&P 500 and the Nasdaq back up into a bull orbit.

A huge pay-load of fuel

But there's also a heart-pounding fear rippling through the spectators in the bleachers - how do you pick "the bottom?" Will the next satellite launch in the next quarter? Or be delayed until 2002? More frightening, if we haven't hit bottom, how much deeper? Nobody knows. But we do know lots more fuel will be stockpiled! And that's my point. We could end up with $2.5 to $3 trillion in money market cash before we have lift-off!

Get the picture? A new image. Stop focusing on the crash of the MIR. Think positive. Look ahead. Plan. Something's building to ignition. And it will trigger. The longer we wait, the more fuel, and the bigger the explosion. True, bears fear an implosion. History suggests otherwise. Bulls always come roaring back.

Aiming for the stars

History also shows that most investors invariably miss a next launch. The majority of America's investors, including pros, typically misjudge market turning points and take-offs. Like now, most are so nervous and gun-shy from the relentless descent of the past year they'll remain spectators in the stands, clutching their cash, passively watching the next bull lift off.

How about you? Getting an itchy trigger finger? You should be. Let's say you're a typical long-term investor. If you are, here are my picks for a model five-star "lift-off" portfolio. Winners that'll work for dollar-cost averaging in a bear market or for positioning your thinking when your nerve returns, when you decide the bull's ready to move, when you want to move out of cash into the market fast with an aggressive growth portfolio.

Top-gun funds, so good you can fill a portfolio by throwing darts at the list:

Large-cap stock funds (60%)

Here are your core funds. Sixty percent of any long-term portfolio is made up of funds investing in America's blue-chip giants. And every respectable fund family has one or more solid large-cap stock funds to pick from. One fund will work, but I find most investors feel more comfortable diversifying with a few of these winners, mixing value, growth and blend:

Fidelity Dividend Growth (FDGRX:73.49, -2.21, -2.9%) is an $12 billion value stock giant also averaging over 20 percent the past 5 years.

For a basic indexing portfolio, stick with funds tracking the S&P 500 and the Wilshire 5000, funds like Vanguard 500 Index
(VFINX:122.89, -3.41, -2.7%) and Vanguard Total Stock Market
(VTSMX:32.19, -0.89, -2.7%) are solid broad market funds. And if you
lean one way or the other, try Vanguard Growth Index
(VIGRX:30.16, -0.79, -2.5%) or Vanguard Value Index
(VIVAX:23.69, -0.68, -2.8%) .

You should also check out some five-star large-caps with small-tier families. Try Harbor Capital Appreciation (HACAX:33.35, -0.59, -1.7%) , Selected American Shares (SLASX:44.30, -1.36, -3.0%) , Gabelli
Growth (GABGX: 31.93, -0.83, -2.5%) , Excelsior Value & Restructuring (UMBIX:54.06, -2.02, -3.6%) , White Oak Growth Stock
(WOGSX:31.71, -0.97, -3.0%) , and Legg Mason Value Primary
(LMVTX:52.75, -1.92, -3.5%) .

And several of the other key families have super-charged 4-star blue-chip funds that work in a five-starportfolio: T.Rowe Price Blue Chip Growth
(TRBCX:35.33, -0.94, -2.6%) , Janus Growth & Income
(JAGIX: 33.54, -0.77, -2.2%) , Invesco Equity-Income
(FIIIX:8.76, -0.23, -2.6%) , Dreyfus Disciplined Stock
(DDSTX: 31.07, -0.85, -2.7%) , and the American Funds New
Perspectives (ANWPX:31.71, -0.78, -2.4%) .

If you're a real aggressive long-term investor, swap 10-15 percent of your large-cap asset allocation into sector funds in technology and biotech. Keep in mind, however, that about 25 percent of the S&P 500 is already made up of technology companies. Some of the best five-star tech funds are Firsthand Technology (TVFQX:36.33, -0.66, -1.8%) , Invesco Technology
(FTCHX:25.71, -0.68, -2.6%) , Fidelity Select Brokerage Services
(FSLBX: 59.56, -1.31, -2.1%) , and Vanguard Health Care
(VGHCX:131.54, -1.91, -1.4%) . Consider shifting five percent of your large-cap stock fund allocation into two or three.

Small- & mid-cap stock funds (25%)

Liberty Acorn (ACRNX: 26.97, -0.67, -2.4%) is a small-cap no-load managing $3.6 billion in assets and averaging 20 percent the past decade. Some other high performing five-star comparables include Third Avenue Value
(TAVFX:9.98, -0.30, -2.9%) . Then mix in a mid-cap winner like Artisan Mid-Cap (ARTMX: 27.50, -0.73, -2.6%) , Weitz Value
(WVALX:28.78, -0.78, -2.6%) , Strong Opportunity
(SOPFX: 34.31, -0.86, -2.4%) , and Oakmark Select
(OAKLX:23.44, -0.75, -3.1%) .

International stock funds (10%)

One of the top performers with overseas investing is Tweedy, Browne Global Value (TBGVX:

Tweedy Browne:Gl Value

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TBGVX 27.28, -0.35, -1.3%) which manages $3.5 billion and averaged 17 percent for the past five years. Comparable five-star funds include Artisan International (ARTIX: 26.62, -0.71, -2.6%) , Fidelity Diversified International
(FDIVX:36.53, -0.89, -2.4%) , American Century International Growth
(TWIEX: 12.64, -0.29, -2.2%) , and Citizens Global Equity
(WAGEX: 21.01, -0.48, -2.2%) .

Fixed-income funds (5%)

Keep your money markets at a minimum. Instead, load up with ultra-short, intermediate and tax-free bond funds with minimal risk of capital, like Strong Advantage (STADX:8.89, +0.01, +0.1%) , Schwab YieldPlus Investor
(SWYPX: 8.79, -0.04, -0.4%) , or Vanguard Short-Term Bond Index
(VBISX:10.36, +0.05, +0.5%) . And if you prefer municipals, go with SIT Tax-
Free Income (SNTIX:9.01, -0.06, -0.7%) and Vanguard Intermediate Term Tax-Exempt (VWITX:12.83, -0.07, -0.5%) .

3 ... 2 ... 1 ... we have a lift-off!

Keep one eye focused on each channel - along with the continuing losses in the Dow, Nasdaq, economy, earnings estimates, interest dates, and spy planes, we also have a continuing buildup of money market cash, the rocket fuel being stockpiled for the next launch of the bull market. We don't know when. Or how much further down. Only that it will happen. And that the lift-off will probably catch most investors in the bleachers as spectators.

Remember, a solid five-star portfolio only needs eight to10 funds for a bull or bear market. With these 38 funds to pick from, you can probably pick the right ones for you by throwing darts at the list - so have some fun, use darts that look like NASA Titan rockets!

Paul B. Farrell, author of "The Winning Portfolio" and three books on online investing, has been executive vice president of the Financial News Network and an investment banker with Morgan Stanley. He holds a doctorate in psychology and a law degree.

Energy stocks swoon along with broad market

Last update: 6:11 p.m. EST Feb. 29, 2008

NEW YORK (MarketWatch) -- Energy stocks swooned with the broad market Friday as woes about the economy and lower oil prices weighed on the sector, but oil, natural gas and oil services shares still managed to hold on to slim gains for the week.

AIG 46.86, -3.29, -6.6%) results stoked fears about a recession, the Dow Jones Industrial Average retreated more than 300 points. Crude futures fell 75 cents, or 0.7%, to $101.84 a barrel, well below the record of $103.05 set earlier.

The Amex Oil Index (XOI:1,420.75, -37.53, -2.6%) fell 2.6% to 1,421. For the week, the index inched 0.6% higher. For the month, it rose 3.7%.

Occidental Petroleum( OXY 77.37, -3.04, -3.8%) subtracted 4% to $77.37as the leading decliner in the group.

The Amex Natural Gas Index (XNG:604.30, -19.71, -3.2%) dropped 3.2% to 604.3 after setting an all-time high in the previous session, leaving it with a 2.3% gain for the week. The index notched a strong 11% gain for the month, putting it firmly in record-high territory. Noble Energy (NBL:77.40, -3.95, -4.9%) fell 5% to $77.40 as the session's leading decliner.

The Philadelphia Oil Service Index ($OSX:, , ) fell 4.3% to 279, with Cameron International (CAM: 42.48, -2.50, -5.6%) falling nearly 6% to $42.48.

For the week, the oil services group advanced 0.5%, contributing to a robust 10.8% rise for the full month.

Southwestern Energy Co. (SWN:, gf65.23, -2.42, -3.6%) reversed earlier gains and fell 3.6% to $65.23 after doubling its fourth-quarter net income and setting a 2-for-1 stock split. See full story.


VLO 57.77, -0.50, -0.9%) set plans to buy back up to $3 billion of its stock and spend $2.4 billion to expand capacity by 90,000 barrels per day at its Port Arthur, TX refinery. Despite the moves, Valero shares fell 50 cents to $57.77.

Among other movers, Frontier Oil (FTO:35.71, -0.39, -1.1%) fell 1% to $35.71 after it set plans to buy back $100 million of its stock.

Exploration and production firm Canadian Natural Resources (CNQ:74.84, -2.50, -3.2%) fell 3.2% $74.84 after a downgrade to market perform from outperform at Raymond James.

EOG Resources (EOG:118.99, -5.74, -4.6%) fell 4.6% to $118.99 after its 18% run-up in the previous session. RBC Capital downgraded the exploration and production firm to underperform from sector perform.

Fluor Corp. (FLR:139.25, -3.23, -2.3%) , one of the engineering giants in offshore oil and gas construction, fell 3% to $139.25, reversing gains following a strong earnings report on Thursday.

PPL Corp. (PPL:45.38, -1.27, -2.7%) fell 2.7% to $45.38 after it revised its 2007 earnings downward to $3.35 a share, reflecting a fourth-quarter charge of $21 million, or 5 cents a share. The charge was due to a reassessment of its natural gas and propane businesses which are expected to be sold in the second half of 2008.

Calpine Corp. (CPN:18.88, -0.23, -1.2%) dipped 23 cents to $18.88 after it reported 2007 net income of $2.69 billion, or $5.62 a share, on revenue of $7.97 billion. The operator of electricity-generating plants emerged from Chapter 11 bankruptcy at the end of January, a little more than two years after seeking protection from creditors.