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PROFITING WHEN OTHERS PANIC

Experienced traders know that panic is poisonous. It is the over riding instinct that causes otherwise solid stocks to suddenly go on sale. You see it all the time. People want out after a meltdown. They can't take the pain, uncertainty, and anxiety so instead of looking beyond the calamity, they bolt after being blasted...

This can provide one of the greatest opportunities you may ever have for increasing your wealth. This issue's Fallen Angels are healthy, rapidly growing gorillas that have been taken down...for now.

BUY WHEN OTHERS ARE COMPLAINING, SELL WHEN THEY'RE CELEBRATING

Panic makes us crazy. Neuroscientists using MRI's have observed what happens to human beings when presented with a sudden and scary financial surprise. A good deal of blood rushes to the area of our brains that causes us to freeze.

The same neurological response occurs for a deer when confronted with a pair of headlights. A cool head and careful attention to the fundamentals can make us a great deal of money when others are fearful. Careful stock selection can help when these recoverable calamities occur.

INFLATION? THE FUTURE LOOKS GOOD

Since 1802, when U.S. Treasury Secretary Alexander Hamilton introduced the first stock, through 2004, stocks' real return, with inflation subtracted, has averaged 6.8% a year with reinvested dividends. Inflation adjusted, stocks have just about doubled every decade.

According to research done by Jeremy Siegel, a finance professor at the Wharton School of Business, a dollar invested in U.S. stocks in 1802 would have been worth $650,000 by the end of 2004. That compares with a mere $1090 for a dollar invested 203 years ago in bonds, $294 in Treasury bills, and only $1.42 for gold. The dollar itself was worth 6 cents of its 1802 value by 2004.

FALLEN ANGELS...STOCKS ON SALE?

1. American International Group (symbol AIG) has fallen to roughly half of it's 2000 price. Aside from the company's potential legal problems (www.aig.com), the stock appears to be a potential double. We calculate intrinsic value at between $83. and $106. Consider it now.
2. UTStarcom (symbol UTSI) is now very cheap. It traded in the $80 range during the telecom bubble, and since then the company has become a major supplier of telecom to China with some $2 billion in revenue (www.utstar.com). I'll bet intrinsic value is somewhere between $31 and $51, but you can pick it up under $8 if you're feeling lucky.

Best Regards,
Gabriel B. Wisdom
gwisdom@amminvest.com

The opinions expressed are those of Gabriel Wisdom and do not necessarily represent those of American Money Management LLC (AMM) an SEC registered investment advisor (www.amminvest.com). Clients and employees of AMM may buy or sell securities mentioned without prior notice. This Bulletin should not be considered investment advice. The opinions expressed should not be construed as a solicitation or recommendation to buy or sell securities. Investing involves risk and you should consult your own investment advisor, attorney, or accountant before investing in anything.

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