The financial theme song for 2008 should be Stephan Sondheim's poignant ballad, "Send in the Clowns." It was written for the musical, A Little Night Music and it was sung by a 40 something actress who was rejected by a former lover. Overcome by regret, sadness, self-pity and anger, she sings the song, "Send in the Clowns." It ends with the desperate lines:

But where are the clowns
There ought to be clowns
Well, maybe next year.

"Send in the clowns," is a theatrical term used when things haven't been going well. In other words, the clowns are supposed to liven up the act. For millions of investors, things certainly have not gone well in 2008 and they definitely would like to liven up their portfolios. In 50 years of investing, I have never seen such massive, wide-spread loss of wealth. It is sad, indeed, but what can we do about it?

Surely, regret, sadness, self-pity and anger doesn't do any good. So one needs to examine what went wrong, learn from adversity and get better. I can say this from experience because I grew up during the depression, made a lot of financial mistakes, and faced adversity on many occasions. The key is to identify the root causes of one's adverse experiences and take corrective action to get better. I'm not going to go off on a tangent here, but I've learned more from my mistakes than I ever did from my successes.

The problem most investors face is that it's not easy to identify the root causes of one's failures. The reason is that much of what Wall Street has taught us about investing is wrong. It's not all wrong, of course, but that makes it even harder to know what one has done wrong. To see what I mean, let's consider the recent Business Week article, "Back to Basics," (pg. 44, 12/29/08), written by Mr. Christopher Farrell. It says that while many investing mantras, e.g., the investing trinity of diversifying, buying and holding stocks, and dollar-cost averaging, have been ineffective over the last decade, the old proverbs that preach diversification and dollar-cost averaging remain good advice for anyone investing for the long haul. Well, let's take a look at these items one at a time.

Diversification has not been shown to be ineffective over the past decade, so I continue to believe that it remains good advice for anyone's investment strategy. Buying and holding stocks is a flawed strategy. The fact that stock prices are back to 10-year lows is a sordid reminder of that. Dollar-averaging has indeed been ineffective over the last ten years and it is not good advice for anyone. Since it entails buying stocks going down in price, dollar-averaging is a sucker's game.

Legendary money manager, Bill Miller, destroyed his reputation as a premier fund manager by buying Citigroup, AIG, Freddie Mac, Wachovia, Bear Stearns, Washington Mutual, Countrywide Financial and other stocks as they were getting crushed. His fund dropped 58% this year and he now says he's working on new strategies to improve performance. Mama mia, Send in the Clowns.

P.S. For more information on dollar averaging, please click on Views, VectorVest Views, then click on Search Views at the top of your screen, type dollar averaging in the Search Text box; then click on Search at the bottom of your screen. You may also search for dollar averaging in our Blog at www.vectorvest.com.

How would you like to pick stocks like Mr. Warren Buffett does? You're not alone. USA TODAY featured a cover story yesterday on 47 books with Mr. Buffett's name in their titles. I'm happy to say I ingested Mary Buffett's excellent book, Buffettology, many years ago.

Here's what I wrote on February 6, 1998: "Want to know how Warren Buffett turned $37,000 into $20 billion? Read Mary Buffett's book, Buffettology. Want to know how VectorVest really works? Read Mary Buffett's book, Buffettology."

Yes, the similarities between the VectorVest system of stock analysis and Mr. Buffett's methodology are striking. But it's not a coincidence. Both seek to identify safe, undervalued stocks. Both are based upon the valuation fundamentals of Graham and Dodd. Both employ the comparison of earnings yield to interest yield and both favor stocks of companies with consistent, predictable earnings growth. When Prudent Investors buy high Relative Value, high Relative Safety stocks, they are using VectorVest to implement the concepts of "Buffettology."

With the famous words of Mr. Buffett, "To be fearful when others are greedy and greedy when others are fearful," still ringing in my ears, how can I build a stock portfolio that would make Mr. Buffett proud and still not read all 47 books? Simple, I'll just create a VectorVest search to find all the stocks in our database having RV > 1.00 and RS > 1.00 and sort them by RV*RS*GRT*MC Desc. I'll call it the "Best of the Biggies."

As of yesterday, 10/23/08, this search found 474 stocks with mighty Exxon Mobil ranked at the top. I also saw names like Microsoft, Apple and Google high on the list. But seven out of the top 10 stocks were in the Petroleum Business Sector. While these are all great companies, I still want to pick stocks Warren would love and I also want to diversify my selections. What should I do?

I know, I'll use Portfolio Manager. It will allow me to limit how many stocks I get from any single Business Sector or Industry Group and it will also allow me to sort and rank them however I want. A complete click-by-click procedure of how to create a 100 stock portfolio using the "Best of the Biggies" search is presented in the Strategy section, shown below. The portfolio is called "Blue Chip Bargains" because the RV and RS criterion assures me that all of these stocks are undervalued and have above average financial track records.

The "WatchList View" feature within Portfolio Manager allows me to analyze, sort, screen and rank all 100 stocks however I want. First, I'll sort them alphabetically just to see what I have. Wow, what a list of great names, starting with ABB Ltd., at the top and finishing with Westpac Banking. Some of the more familiar names include Anheuser Busch, Caterpillar, Hewlett-Packard and Lockheed Martin. Some of the less familiar names include Alcon, Danaher, Hologic and Sasol.

Next I'll rank these 100 stocks by VST-Vector Desc. This indicator brings the stocks with the best combination of Value, Safety and Timing to the top of this list. Guess what? Mighty Exxon Mobil is ranked highest with a VST of 1.24 and it has an "H" recommendation. The stock with the lowest VST, 0.92, is Google with an "S" rating. I wouldn't worry about the "S" rating at this point because we're bottom-fishing and just about all of these stocks have an "S" rating. To be sure, Google should have been sold last January when VectorVest gave it an "S" rating at $617 per share.

One more thing I like to do is sort by YSG-Vector, i.e., Dividend Yield, Safety, Growth Vector. I see that Banco Sandantar and PetroBras are at the top of the list with juicy dividend yields of 9.93% and 7.35%, respectively. If you think that's good, read my essay of August 29, 2008 on how you can double or triple your cash income on these stocks even if their prices go nowhere.

The next thing I would do is look at a five-year graph of each of these stocks, taking special note of those with the smoothest, most consistent earnings (EPS) patterns. Take a look at Alcon, ACL, for example. Yes I know it got killed yesterday, but this company knows how to make money. Also look at Schlumberger, truly a great company. It, too, has gotten killed. My oh my, just look at the great stocks in this list, selling at bargain basement prices.

OK, so how would I go about building a portfolio from this list of stocks? I'll re-read my "Guide to Worry-Free Investing." It says to: (1) Buy high VST-Vector "B" rated stocks, (2) Diversify in What and When you buy, and (3) Use Stop-Sell Prices. I would be in no hurry to buy these stocks right now. I'd wait at least until the Price of the VectorVest Composite goes up for two consecutive weeks; then I would begin to nibble at the list and I would buy Leaps instead of stocks unless I wanted the cash from dividends and I'd sell Covered Calls against my positions to reduce cost and risk. That's what I would do with these Blue Chip Bargains.

MAKE MONEY FOR A LIFETIME.
I took a call yesterday morning in which the caller wanted to know whether I had purchased the Contra ETF's we had written about Wednesday evening. I didn't answer his question directly, but asked whether the market was going up or down. As I remember it, he said he wasn't sure. Then I suggested we take a look at the Yahoo!Finance homepage. It was just before 11:00 AM and we saw immediately that the Dow and S&P were up, but the NASDAQ was down. Obviously, the market was mixed, so we could not conclude that it was going down. Therefore, I had not purchased the Contra ETF's.

As we talked I suggested he click on the "Read more" link located in the lower left hand corner of the Yahoo!Finance homepage. A neat summary of market activity appeared on the screen which showed trading volume, number of advancing and declining issues and so on. The Dow and S&P began taking off as we spoke, but there were far less advancing issues than declining issues. I said it looked like a sucker rally to me. Sure enough, the Dow peaked at 8,779 exactly at 11:00 AM and started to move lower. So what did I do? I started thinking about buying some Contra ETF's.

Before doing that, however, I had to make sure the market was trending lower. So I checked VectorVest RealTime and waited until the Price of the VectorVest Composite had fallen by at least 2.00% and the Advance/Decline ratio of all the stocks in our RealTime database was less than 0.50. This happened shortly after 1:00 PM, so we began to buy the top five Contra ETFs ranked by VST with AvgVol > 100,000. If you do not have VV RealTime, you could have waited until all three major indexes shown by Yahoo!Finance were in the red and the NASDAQ was down at least 2.00%. Moreover, the NASDAQ would have to have more than 1,000 declining issues. This also happened shortly after 1:00 PM.

Had I been looking to go long, I would have waited until 10:30 AM; then checked to see if the Price of the VVC was up at least 2.00%, the Advance/Decline ratio was above 2.00, and the Price of the VVC was trending higher before making any purchases. If you do not have VV RealTime, you could have waited until 10:30 AM; then checked to see if all three major indexes were in the green and the NASDAQ was up at least 2.00%. Moreover, the NASDAQ would have to have more than 1,000 advancing issues and be trending higher.

So why don't we just send out an email blast telling everyone what we're doing? Simply because it would move the market and you would be hurt in the process. When we first began "Riding-the-Wave," I wanted to make it oh so simple. We would say exactly what we were going to do the next day and which strategy we were going to use. This approach caused some severe problems. For example, we felt compelled to follow the plan regardless of what the market did the next day. When the market went against us, we would lose a lot of money. We and our subscribers lost money even when the market went our way because the stocks we were going to buy or sell had been marked up or down, as much as 50% in some cases, by the rush of orders that had come in prior to the open. We had to change our ways.

The two big changes were to make our commitment to trade conditional upon the market moving in a favorable market direction the next day and we listed several strategies we might use instead of one we would use. Our results improved dramatically but we now had the job of teaching you how to do what we would do. We have done this on an ongoing basis. To learn more about Riding-the-Wave, read my essays of 01/11/08 and 12/23/05, or click on Search Views at the top of your screen and type Best Strategies in the text box. You can also search our blog at www.vectorvest.com using the term, Best Strategies.

A man once said, "If I give you a fish, you will eat for a day. If I teach you to fish, you will eat for a lifetime." So learn to do what we do and you will Make Money For A Lifetime.

Dorothy lived in a small, single room house in Kansas, surrounded by a sea of grass. She dreamed of living in a better place, "somewhere over the rainbow." One day she and her dog, Toto, were whisked away, house and all, by a tornado that deposited them in another land called Oz. Although the Land of Oz was very beautiful and the people, the Munchkins, were very nice, she wanted to go back home. She was advised to follow the yellow brick road to Emerald City to ask the Wizard of Oz for help.

As she walked along the yellow brick road, Dorothy was joined by a Scarecrow who wanted a brain, a Tin Man who wanted a heart, and a Cowardly Lion who wanted courage, all of whom hoped the Wizard would grant their wishes. Using traits they thought they lacked, these unlikely heroes overcame numerous obstacles in their quest to see the Wizard.

Upon meeting the Wizard, the Scarecrow received a head full of bran, pins and needles, the Tin Man a stuffed heart and the Cowardly Lion a potion of courage. Because of their faith in the power of the Wizard, these otherwise useless items happily served their owner's purpose. Dorothy was promised to be escorted back to Kansas by the Wizard who failed to do so. After overcoming a myriad of additional challenges, she ultimately returned to Kansas by virtue of her silver slippers. Upon arriving in Kansas, she realized that there's no place like home.

All of us, young or old, can relate to Dorothy and her friends. We all have dreams and aspirations. As investors, we dream of making money in the stock market and we aspire to achieve financial freedom. But we need a way to get there. We need a plan, a path, a yellow brick road, if you will.

We believe we have created such a road at VectorVest. It is based upon a foundation of fundamental parameters and technical indicators. Its bricks are made of strategies, tools and techniques and its road signs are given by the Color Guard, Market Timing System and VectorVest Views. The VectorVest "Yellow Brick Road" is a trading system which allows investors to make money in both up and down markets. It is easy to use, does not demand a lot of time and can be done at night when the market is closed.

The "Yellow Brick Road" uses two strategies, "Easy Does It - C/Up," for going long on Confirmed Up signals and "Easy Does It - C/Dn," for selling short, if one wishes, on Confirmed Dn signals. The first strategy was presented as last week's "Strategy of the Week." It produced a gain of 190.04% from March 21, 2003 to September 26, 2008. The second strategy, "Easy Does It - C/Dn" will be presented this week. You will see how it turns a brutal year, such as we are now having, into a money maker.

In addition to the wonderful results the "Yellow Brick Road" has produced, it is explicit in telling you what to do when. But to travel this road successfully, you must have character. You must have Dorothy's determination to reach your goal, the Scarecrow's brains to do things according to plan, the Tin Man's heart to control your emotions and the Cowardly Lion's courage to stick to the system.

No system is perfect, but after more than 20 years in business, I believe this is the best trading system VectorVest has ever produced for the average investor. If you don't believe me, see if you can develop a better one. If you can---then use it. You'll get rich! As for me, I believe the best path to Financial Freedom is The Yellow Brick Road.

Last week I introduced the subject of generating cash from your stock portfolio. Not only is that a worthy goal, but I've read that dividend paying stocks outperform the market by 1% to 1.5% per month during downturns. This sounds reasonable to me. Why would someone sell their dividend paying stocks if they could make 20% to 30% a year even in a bear market?

Let's see how this might be done. First of all, we need to find an acceptable dividend paying stock. We can do this by simply accessing Stock Viewer and sorting by YSG Desc. As of yesterday, Thursday, 09/04/08, Cal-Maine Food, CALM, was in the top spot. Although it now has an "S" rating and I wouldn't buy it at this time, I want to keep my eye on it because it's making a ton of money and has an excellent Dividend Safety, DS, rating of 87. So let's use it as an example.

CALM closed yesterday at $34.50 per share and is paying cash dividends at the rate of $2.06 for a yield of 5.97%. If I were to buy these shares on margin, the effective DY would be twice as high, i.e., 11.94%. Of course I would have to pay interest to my broker on the borrowed funds, but the interest expense is tax deductable. Although I'm already looking at a juicy return, how could I get more? I'd sell some out-of-the-money Covered Calls. Yahoo!Finance shows that CALM had its last ex-dividend date on July 28, 2008, so I'd assume that its next declaration will be made in late October. Therefore, I'd be selling the November 40 Covered Calls, which are currently trading at $1.75 per share.

Here's how this trade would work: I would buy 100 shares of CALM on margin for about $1,725.00, not counting commissions or interest and I would sell one CALM November 40 Call Option @ $1.75 per share. My account would be charged $1,725.00 for buying the stock and be credited $175.00 for selling the option. The net charge would $1,550.00 not counting commissions or interest. Around the middle of November, my account would receive a dividend credit of about $51.50. The total income from the sale of the Call Option and receipt of the dividend payment would be about $226.50. This would give me a quarterly return of 13.1%. If I could do this four times a year, my annualized rate of return would be 52.5%, not counting commissions and interest.

This sounds great, but there are several other things that can happen to this trade. For example, the stock's price could rise prior to the ex-dividend date and the stock could be called at $40.00 per share. Although I wouldn't get the $51.50 dividend payment, I'd make about $500 on the stock and get to keep the $175 option credit too. This is not a bad deal.

If, on the other hand, the stock's price fell, I'd have to make some decisions. I could hang on to the stock, collect the dividend and option premium, and repeat the process again the next quarter. But that's no fun. I usually buy back the Call Option at a much lower price than I sold it for; then get more income by selling another Call Option at a lower Strike Price. This technique invokes the risk of getting called out of your stock at a price lower than your purchase price, so I suggest that you practice it with only small amounts of money before using it with serious money.

Incidentally, did you know that most of the market's historical gains have come from dividends? Maybe you've heard that selling covered Calls was the most frequently used option trade. Both generate income. Put them together and you have the Cash Machine, Part II.

P.S. Terra Nitrogen, TNH, closed up $8.51 today and is up over $14.00 since I mentioned it last week.