Making Money Alert
Pfizer Failure: An Important ETF Lesson
12/07/2006
By now, I know many of you have heard about the meltdown in the shares of drug-giant Pfizer (PFE). The company's stock price sank about 11% Monday, after news broke last weekend that Pfizer had cancelled clinical trials of what was supposed to be its next big thing: the heart-disease combating drug torcetrapib.
The failure of Pfizer's latest clinical trial illustrates what's known as "business risk." When investing in individual companies, you are subject to the business risk associated with that company's situation. And while the benefits of owning a big, fast-moving stock can be quite appealing, the downside can be really, really ugly.
Let's take a look at a six-month chart of Pfizer shares.
If you bought the shares in August, after the stock had broken above its 50- and 200-day moving average, you likely are holding onto a loser today. You were a star for a few months; now you're a has-been. That kind of stock price downturn hurts. Such results often scare people away from the market entirely.
Fortunately, there is a safer way to play the pharmaceutical-sector game without subjecting yourself to an individual company's business risk. Let's take a look at a six-month chart of the Pharmaceutical HOLDRs (PPH), an ETF that includes the top companies in the pharmaceutical industry.
As you can see, if you would have purchased PPH in August you would be sitting on a gain right now. Sure, you wouldn't have had seen quite the spike in price you saw in PFE shares, but you wouldn't be in the red right now taking it on the chin and wondering where you went wrong either.
Herein lies a great lesson for investors. By using ETFs, you can minimize the business risk associated with individual companies. At the same time, you can participate in that sector's price movement.
Of course, things won't always work out this way. Sometimes an individual company's returns will far outpace the sector's ETF. That said, for consistent safety as well as solid upside, no investment tool can beat ETFs.
Remember today's Pfizer lesson the next time you are tempted to buy a particular stock instead of that stock's sector ETF.
SECRETS TO VARIABLE ANNUITY SUCCESS 5
When it comes to variable annuities (VAs), I have what could be described as a classic love-hate relationship. I love VAs because they are a great tool to help you enhance your retirement nest egg. They offer unlimited contributions -- a great benefit for those who receive some type of windfall such as inheritance, a life insurance payout or a big settlement. You also can get the benefits of active portfolio management, plus you can select your own type of income stream payout, such as a lump sum or a monthly distribution.
I hate VAs because so often, they are used by unscrupulous brokers who charge outrageous commissions to gullible investors who often are unaware of what exactly they are buying. Also, I hate when IRAs are put in a VA, because there simply is no reason for a tax-sheltered investment to be placed inside another tax-sheltered investment. Finally, I hate two popular VA strategies, buying-and-holding your investments without regard to market conditions, and the so-called "index" annuities, which make promises of performance that they may not be able to make.
So, how do you put the love on your side and how do you minimize the hate when it comes to VAs? Well, that's exactly what I cover in my online seminar, The Secrets to Variable Annuity Success. If you want to find out more about these great retirement investing tools, I encourage you to check out my seminar by clicking here.
I guarantee that after this seminar you'll be up to speed on the essentials of smart variable annuity investing.
COMMODITY TRAIN KEEPS A ROLLIN'
The train kept a rollin' all night long
The train kept a rollin' all night long
With a heave and a ho
I just couldn't let her go
-- The Yardbirds
Maybe those lyrics now should be changed to: "Commodity train kept a rollin' all night long"?
How strong is the latest commodity bull run? Well, let's look at two charts that will illustrate just how far -- and how fast -- two premier commodity sectors have run in recent months.
In the above chart of the streetTRACKS Gold (GLD) -- an ETF that mirrors the spot price of gold bullion -- we see that despite today's pull back, gold prices have been on a tear ever since early October. By mid-October, gold's rapid ascent pushed this ETF above both its 50- and 200-day moving averages.
One of the factors driving the recent run in gold is a falling U.S. dollar. The greenback now is trading right around all-time lows against the euro and the U.S. currency has seen precipitous declines against other foreign currencies such as the yen.
A falling dollar, which makes gold more attractive to foreign investors, is a trend that likely will be around for some time. And, that's why I am bullish on gold long-term.
The other commodity sector enjoying a bull run right now is energy. Nowhere is that trend clearer than in the Energy Select Sector SPDR (XLE).
The above chart clearly shows a nearly unabated rise in XLE (an ETF comprised of the biggest oil, gas and energy services companies) from its October low. Oil prices indeed have been on the rise and that means we consumers have to pay more at the pump per gallon of gasoline. It also means we can recoup those losses by putting a little bit of our investment portfolio into an ETF, such as XLE, that rises when oil prices rise.
Rather than complain about the high price of petrol, smart investors do what my Successful Investing advisory service subscribers are currently doing -- namely taking advantage of the bullish train that keeps a rollin' in energy.
Right now, Successful Investing readers are positioned in both gold and energy but we aren't stopping there. We are announcing a new BUY recommendation this Friday that we think will give us the same kind of returns as we've garnered in both GLD and XLE.
What booming sector is next on our profit-producing list?
To find out how to get started with Successful Investing, click here.
NEW "SPECIAL REPORT" AVAILABLE NOW! 3
Worried about managing risk in this uncertain political and economic climate? If you aren't worried, you should be. The risks we all face right now require sound financial stewardship. These days, you just have to know how to protect yourself.
That's why I want you all to go here for your FREE Special Report titled, "The Successful Investor's Guide To Managing Risk."
This Special Report outlines the seven biggest threats to your financial nest egg and how you best can mitigate those risks by employing the strategies that have helped protect Fabian investors for nearly three decades.
If you invest, then you need to worry about risk. To guide you, use "The Successful Investor's Guide To Managing Risk".
WHAT'S YOUR "INVESTOR CONFIDENCE" SCORE?
Do you know the factors that are important in measuring your confidence level in your current investment plan? Can you answer the following statements in the affirmative?
-
I have a solid plan in place with Bear Market Protection (a clearly defined sell-discipline on my holdings) to protect my assets if the market suddenly turns down.
-
I know my broker proactively is monitoring my money every day.
-
I know my investment plan will provide the sufficient asset growth I want and produce the income stream I need for my retirement.
-
I know that my investment advisor is a good value. We have more than just a bull market strategy and we avoid any unnecessary risk for my plan. Fees are reasonable.
-
I know my advisor is an expert, has the experience and is prepared for any situation.
-
I am taking advantage of investment tools like ETFs that keep expenses low.
-
Overall, I know I have the right plan in place to reach my investment goals.
If you can't answer the majority of these statements with a "yes," then you need to go to our website for more information and a FREE portfolio assessment.
Don't wait a minute longer. The only thing you have to gain is financial security.
ETF PROFILES NOW ON YOUTUBE 4
You probably all know by now what a huge fan I am of exchange-traded funds, but did you also know I do a regular ETF profile on my radio show, Making Money with Doug Fabian?
Each week, I profile several ETFs. Now, thanks to YouTube technology, you can catch a video stream of my live ETF and market updates -- and all you have to do is click here.
Plus, it's not just a one-way street anymore when it comes to discussing the markets. Sign up at the website to comment on my videos, send me a message, and get updates when we post new episodes. I broadcast an ETF and market update Monday through Saturday that is uploaded by 5 p.m. PST. And, if you want to check out past shows go to our video archive.
Don't forget, you also can listen to the show through our podcast and live streaming whenever it's convenient for you. It's all at the site and it's just another way we are helping you to stay on top of your money.
A BIG BRAIN ON THE BRAIN
"The brain is like a muscle. When it is in use we feel very good. Understanding is joyous."
—Carl Sagan
Remember these words from the famous scientist whenever you feel frustrated trying to figure out the financial world. I know this field can be complex, but learning how financial markets work will make your brain feel good. It also can help to make your wallet fat and happy.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.