InvestWELL Financial Inc. - Markets This Week

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May 05, 2007 Dear Member, As the weather gets warmer, many traders take time off and the volume in financial markets declines. As a result, the markets have a tendency to plateau or even go down (according to the common maxim "Sell in May and go away"). Our next InvestWELL Report will be released on June 1, 2007. (following the Labor Report which is generally recognized as a "market mover"). Derek Polcyn, President In This Issue: Investment Idea Quiz Our Results Market Highlights Behavioral Finance Indicators Answer to the Quiz

Investment Idea Question: Can investing be safer than keeping money in the bank? Answer: Yes, if done properly. There are two reasons for it. First, the magic of compounding, and second, the eroding power of inflation. For instance, let us assume that an investor bought three different asset classes in 1926. Namely, stocks, bonds and cash. In 80 years, $1 in stocks would grow to $2658, in bonds $93 and in cash $18. During the same time, inflation was 3% per year, which amounts to $11 after 80 years. Thus, we should subtract $11 from the numbers quoted above for stocks, bonds and cash. The growth from $1 to $2658 in stocks was not an easy ride. There were years when stocks declined by over 40% (during the great depression) or rose by the same amount. However, stocks not only provided superior gains in the long run, but also a solid protection from inflation. To reduce volatility of stocks, it is recommended that investors combine stocks with other asset classes (e.g. bonds) in their portfolios.


Quiz Why do stocks offer the highest potential gains if held over a long period of time? A) Due to the power of international investing B) The effect of compounding C) The government intervention D) The impact of liquidity Answer to the Quiz at the bottom of the newsletter


Our Results (Cumulative %) InvestWELL Picks & and S&P 500 index are almost at the same level as a year ago (with InvestWELL Picks slightly ahead). As if we needed it, this is another proof of the market efficiency. Investment Strategy – MEMBER SECTION Chart 1.


Market Highlights During the last month, the US equities have managed to climb to new highs (Charts 2 & 3). Again, the market appears to overextend itself. Summer months are usually quiet and the market also tends to have less action than during the turn of the year. Charts 2 & 3. S&P 500: 3 Years and Last Month Charts courtesy of StockCharts.com During the last month, the Canadian equities have managed to climb up in tandem with the US market (Charts 2 & 3). However, most of the gains came during the last few days. Charts 4 & 5. TSX Canada: 3 Years and Last Month Charts courtesy of StockCharts.com Last month, the US employers added 88K new jobs, while the unemployment rate rose slightly to 4.5%. In April, the job growth in the U.S. fell to its lowest level in more than two years, as payroll losses spread from struggling homebuilders and factories to retailers. The Canadian labor data will be available next Friday. The anecdotal evidence seems to suggest that the favorable employment outlook will continue. The dollar rose from a record low against the euro as private reports showing resilience in U.S. manufacturing and services industries reduced concern over a slowdown in the world's largest economy. The U.S. currency also touched a two-month high versus the yen this week. April data showed manufacturing was the strongest in almost a year and services including banking and retailing grew the fastest in three months. An unlikely combination of business executives, labor leaders and public-policy gurus have joined together recently to write an obituary for the US employer-based health-care system and call for changes that would ensure universal and affordable coverage for all Americans by 2012. It would be a very welcomed change in the US policy, given that the country badly needs to reform its health care system in order to remain internationally competitive. Opportunities and Risks – MEMBER SECTION


Behavioral Finance Indicators (see explanation) Here is a direct quote from the Behavioral Section in last month's Member newsletter: "The market is recovering from an oversold condition at the turn of February. However, this oversold condition was a direct result of the market running ahead of itself for several months. The current situation will likely result in the continuation of the downward trend, given that the excesses of the market had not been fully corrected during the last downturn". Well, it turns out we were wrong and the market went up. If one is wrong about the market, it is best to quickly acknowledge it, cut the losses and move on. There will be plenty of other market opportunities in the future. MEMBER SECTION Charts 6 - 8: Advancing/Declining Line, AAII and Equity Put/Call Ratio Charts courtesy of StockCharts.com and DecisionPoint.com

Answer to the Quiz B is correct. The effect of compounding gains on previous gains, etc.

Thank you for reading InvestWELL Report. Invest WELL Financial.com


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