Skip to Main Content

deleteyourbroker.com

Using the Internet to Beat the Pros on Wall Street

Fund managers and brokerage firm traders have nothing on the savvy individual investor with a PC, Internet access -- and this book.
The Internet has leveled the investment playing field, cutting out the broker as middleman and distributing information once available only to professionals. But challenges still abound: Are there safe ways to invest in the high-tech sector? Is that "hot" IPO you just read about all it's cracked up to be? Where can you go for free, reliable financial information?
In Deleteyourbroker.com, expert stock market commentator Chris Byron demystifies online investing, pointing readers to the most valuable and reliable resources on the Internet and explaining how to use these tools to make well-informed investments. With this as a guide investors will discover:
asset allocation tools that model how much money you invest in different sectors of the market to minimize risk and maximize your returns
customized charts for any stock or index you can think of
balance sheets, earnings and cash flow statements that $1200-an-hour professionals use to analyze the market
the latest on IPOs -- if risk is your game -- from SEC filings to underwriters and more

Chapter One: How the Internet Has Changed Investing

This is a book about investing on Wall Street. It's also about investing on the Internet and about investing in the Internet. This book won't make you rich -- at least not in the Bill Gates scheme of things -- but if you've already got a few dollars, it might help keep you from getting poor...as well as help you make your money grow. It should help you to match, or even beat, the broad market averages -- and it may even show you how to have some fun while doing so. It is written from a perspective of thirty years as a financial writer and columnist covering Wall Street, as well as, from time to time, that of an investor.

It is written in the belief that, in numerous and important ways, the advent of the Internet and its graphical offspring, the World Wide Web, have fundamentally changed the way Wall Street operates, tipping the balance of power for the first time away from professional investors and speculators, and toward everyday individuals. Almost anything -- and I mean anything -- that a professional investor, hedge fund manager, mutual fund portfolio manager, or brokerage firm desk trader can do with his $12,000-per-year stock trader's terminal and his $100,000-plus research reports, can now be done by any individual with a personal computer, a modem, and a $20-per-month connection to the Internet.

But don't quit your day job just yet, because there is a second belief that underpins this book -- namely, that no matter how much you wish it were otherwise, the odds are greatly, indeed impossibly, against your getting rich overnight and staying that way for any appreciable period of time. The structure of the market is against you, some of the cleverest card-counters on the planet are against you, the tax laws and technology are working against you, and on top of all that you've got the powerfully disruptive and unpredictable forces of human psychology working against you.

As I write these words in the spring of the year 2000, something approaching a kind of mini-panic seems to have gripped Wall Street. After years of rising stock prices -- capped by six months of an unprecedented further surge that erupted when people thought prices could absolutely, positively go no higher -- the market just as abruptly turned around and started dramatically dropping. It took nearly thirty years for the NASDAQ Composite Average to climb to the 4,000-plus level (and, briefly, 5000-plus) that the index reached by March of the year 2000. Then in scarcely a single sickening week, it lost 25 percent of those thirty years' worth of gains.

Some stocks -- particularly in the technology and so-called dot.com sectors, which people had thought could only go up -- went down so fast it became impossible to sell them. Many stocks lost 25 percent or more of their value in a single day -- not just one day, but day after day after day as the slide progressed.

On the first trading day of the year 2000, ReSourcePhoenix.com, a California-based Internet company with more than 200 employees, sold for $25 per share and was worth $280 million on Wall Street. Investors who held the shares had watched themselves grow rich beyond their dreams, and many had pledged their shares as collateral on loans to buy yet more stock, or put additions on their homes, or take vacations, or buy sports cars. You name it.

Three months later, ReSourcePhoenix.com was selling for $1.65 per share, and the whole company was worth less than $19 million on Wall Street. In other words, 93 percent of its value had been wiped out, and investors have been taken to the cleaners. By the summer of 2001, the price had dropped to a mere one cent per share.

Obviously, no one can know what the future holds. Were it otherwise, the person with that knowledge would, in the end, wind up with all the money. But we can know what happened in the past, which means that, by slow and careful navigation, we can move forward by constant reference to the rearview mirror of life. And in the end, that is all that investing in stocks is about: trying to figure out where we are headed by looking at where we have been. As we'll see later in this book, the most important single lesson history teaches us in that regard is that, over time, stock prices always rise, but that they do not rise, over the long sweep of years, at more than about 10 percent to 15 percent annually. The corollary to that fact is this: When stock prices do rise beyond the norm, the day comes when they fall more than normally, so that, in the end, the growth rate returns to the norm.

This means that the mood of seeming panic that grips the market as I write these words could vanish tomorrow, and stock prices could begin soaring all over again. But any movement of prices -- either up or down -- outside the norm will eventually be offset by a counter-balancing move in the opposite direction.

Trying to anticipate when those moves are about to occur -- in effect, to snatch the money and run -- is what market timing is all about, and the odds are greatly against getting it right.

* * *

The purpose of this book is not only to help you recognize and appreciate the difficulty of trying to time the market -- to anticipate its ups and downs -- but also to recognize other pitfalls and opportunities of the market -- and to exploit them to your benefit. Some of these opportunities and pitfalls were once limited to Wall Street professionals, but thanks to the Web are now open to everyone.

This book will actually take you into the Web itself so you can look at and understand exactly what is being discussed in the text. Throughout this book you'll find what are known as hyperlinks.

Just type these Web addresses exactly as you see them into your computer's Internet browser and you'll be transported directly to the Web site page that is being discussed in this book. Since the World Wide Web is like an enormous global library in which the librarians are constantly moving around the locations of the books and periodicals, some of these links may be out of date by the time you read this book. So just type the following: www.deleteyourbroker.com, and you'll be taken to a Web site that will list updated links for your convenience.

In this book we'll look at the risks and rewards of day trading -- an activity that basically boils down to trying to anticipate minute-to-minute moves in individual stocks on the NASDAQ electronic stock exchange. Day trading has become an extraordinarily popular pursuit among individual investors in the last couple of years, not least because of the almost deafening level of promotion that has accompanied the growth of online investing itself.

Nonetheless, one of the conceits of this book is that you can lose your pants as a day trader, and that you should stay away from the activity. For one thing, the technology of home-based Internet connections just isn't reliable enough to be dependable on a minute-to-minute basis, and in day trading, minutes (and sometimes even seconds) can mean the difference between profit and ruin. What's more, as a day trader an individual gains no advantage whatsoever against professional traders at major investment firms like Goldman Sachs, who have been doing exactly the same thing for years.

Even so, as an online investor you should at least know what day trading is all about and how it works -- if for no other reason than because you can sometimes profit greatly from the pricing distortions created in the market by the day traders. In short, you don't have to be a day trader to make money from day trading, but you do have to understand how it works and what drives it.

Thus, if you were to type the following hyperlink (known as a URL, which stands for something that we don't need to care about) into your browser -- www.daytradingstocks.com/tradinglinks.html -- you'd be taken to a Web site that lists over 100 different further hyperlinks to businesses and firms engaged in one aspect or another of day trading. You could spend the next four hours clicking from one link to the next, but this book will save you the trouble by identifying which links are the best, and why.

This book will also discuss the all-important topic of fundamental analysis. The hyperlinks in those chapters will show you precisely how to find the most valuable, up-to-the-minute information to undertake your own, independent, unbiased such research. Why is this important?

Because for generations fundamental research on individual companies has been the premier investment tool of every major brokerage house on Wall Street. But generally speaking, the highest quality reports have been almost completely unavailable to individuals -- at least until after the investment firms that prepared them have shared their contents with their major institutional clients. This in turn means that the opportunity for individuals to profit from the buy or sell recommendations contained in the reports have all been exploited and leeched away by the brokerage firm's institutional clients by the time individual retail clients ever see them.

All the major brokerage houses have both institutional and individual retail clients (that's you) -- and in every food chain, the individuals rank at the bottom.

In this book, I'll show you how to set up your browser so you will be alerted whenever one of these reports is distributed by an investment firm to its institutional clients.

For example, click on the following URL --

http://www.jagnotes.com

-- and you'll be transported to the sign-up page for a service called JAGNotes. This service costs $9.95 per month and offers an early morning daily commentary on its Web site of just about everything that nearly every major Wall Street firm is telling its major institutional clients about the market, and individual companies within it, that morning. A lot of this information comes to JAGNotes via cable TV and various Web sites, so if you don't want to spend the money for the JAGNotes service, you can set up your computer to do many of the same things the JAGNotes people are doing.

Best of all, I'll show you how to produce your own reports on almost any publicly traded company using exactly the same raw information that the investment firms themselves use. What's more, because you'll be doing the research (which is surprisingly easy), you'll know it is being done correctly -- which is something you cannot always be sure of in the work of investment firm analysts.

The best, most up-to-date fundamental research information on any company comes from its latest financial reports filed with the Securities and Exchange Commission. There's an astonishing array of information contained in those filings -- from how much revenue the company has been collecting to how much it has been paying its top officials in the form of salaries and bonuses. You can even find out if the top executive gets free health insurance or a company car.

All this information, and more, is available for the taking from the forms and reports that publicly traded companies must file with the SEC on a regular basis. There are 10-K forms and proxy statements, 8-Ks and IPO registration filings...a torrent of arcane-sounding material that pours into the SEC every day of the year, covering just about every financial matter imaginable.

Up until about four years ago, you could get these documents in only one of three ways: either phone or write to the investor relations department of the company itself and ask to be mailed a copy (don't hold your breath waiting for it to arrive); go to the public reading room of the SEC's regional office in New York City (or its headquarters in Washington, D.C.) and make a photocopy; or hire a document retrieval and research firm like Disclosure Inc. to do it for you.

Whichever way you chose, you'd have been in for a long wait -- and in one case a major expenditure of money -- before you ever got your hands on a single document. Meanwhile, whatever useful information might have been contained in the reports would assuredly have already been discovered -- and acted upon -- by Wall Street's research analysis, leaving you with nothing in the end but a lot of wasted time and money for your efforts.

Thanks to the Web, you can now get these documents the very instant they are first filed with the SEC -- and you can get them for free. Not only that, you can make watch lists to alert you when specific companies you are interested in submit their documents to the SEC -- and that service is usually free too.

Since May of 1996, these reports have all been submitted to the SEC in computerized form and stored in the SEC's EDGAR database. (EDGAR is an acronym for something, but it doesn't matter what). In any case, you can get instant access to these reports from more than a dozen different Internet-based services, a number of which are now free to the user. Click on the following URL and you'll be taken to one of them: www.edgar-online.com.

But how do we make use of such copious information as investors? What's the difference between income and cash flow anyway -- and does it really matter? What's the difference between short-term and long-term liabilities, and does that matter? Likewise for goodwill and intangibles? What is deferred revenue and why should we care?

These are the sorts of questions that form the grist of fundamental stock analysis, yet for generations on end, Wall Street has so jealously guarded the answers that you'd think they contained the formula for Coca-Cola. An entire vocabulary of befuddlement and confusion has evolved along the way -- a language of obscurantism designed to suggest that only a high financial priesthood has been admitted to its secrets. For example, here is how a stock analyst for the Wall Street investment firm of FAC/Equities at First Albany Corp. described financially attractive investments in the Internet sector in the autumn of 1998:

[those that]...enable and optimize the commerce process for businesses by using technology as an enable.

In this book, we'll demystify the terms -- and the process -- of fundamental analysis, exploring in detail, in everyday language that anyone can understand, how to use such reports without going crazy in the process. You can set bookmarks in your computer to be taken to sites that contain well-prepared, easy-to-use glossaries of these terms. For example, here is the address of one such glossary, maintained for free by Microsoft Corp.:

http://moneycentral.msn.com/investor/Glossary/glossary.asp.

We'll also show you where to find inexpensive -- and even free -- software tools that you can use to automate much of the research process itself. Here's one such link: www.spredgar.com. Click on it and you'll be taken to the Web site of a marvelous little program that will automatically process the raw financial data of any EDGAR-based quarterly filing or annual report into every ratio and chart conceivable. Securities analysts charge tens of thousands of dollars for this sort of thing, but you can do the same thing for the one-time cost of the program, which is $125 for students, and $250 for everyone else.

Yet other chapters in this book are devoted to what is known as technical analysis. Simply stated, technical analysis of stocks is an activity that could not exist in its present form without computers. Yet now that computers are ubiquitous throughout Wall Street, so too is technical analysis. Over the last two decades, this seemingly arcane pursuit has developed into what is arguably the single most important factor affecting the course of the market on a day-to-day basis.

For thirty years a war has waged on Wall Street between the technical crowd and the fundamental bunch over which side has the better approach to securities analysis. One goal of this book is to show you how to make use of both approaches. Institutions are, by their nature, political creatures, with the various people in them all protecting their perceived vested interests and arenas of power. The technical analysts thus think that they alone hold the key to making money in the stock market, whereas the fundamental analysts think it's just the opposite. Private individuals, not trapped by such prejudices, can use both tools with a flexibility that large institutions lack.

The fundamental analysts make investment decisions based on the historical record of a company's performance (how much money did it make last year, and was it more, or less, than the year before?...questions like that). Their approach boils down to the assumption that, over the long haul, profitable companies will always turn out to be better investments than unprofitable ones. As a result, the fundamental analysts say that the historical record of a company's profitability is as good an indicator as any for predicting a company's future performance.

That's where they lose the tekkies, who say that a company's past results are absolutely no guarantee of its future performance. They argue that just because General Electric, under its chairman and CEO, Jack Welch, keeps racking up quarter after quarter of rising earnings doesn't mean anything regarding what the company will do in the future. All the tekkies are interested in is how G.E.'s stock price is likely to perform at particular times -- as for example, when the company is preparing to report its latest quarterly numbers. Does trading volume go up in anticipation -- and push the stock price up with it? And if so, where does it stop (what the technical folks call a "resistance point")? Technical analysts ask questions like, "Is there support for this stock at $50?" and "What's the on-balance volume trend?" (These concepts will be explained later in the book.)

To understand this quarrel between the fundamentalists and the tekkies, think of the two ways medical science approaches cancer research. The first way is to get down to the cellular -- and subcellular level -- and try to learn what it is within the organism itself that causes the cells to mutate and divide uncontrollably. We may liken this approach -- which is what a biotech company like Amgen follows -- to fundamental research.

The second approach to cancer research is to collect huge amounts of social science research data on given populations of people, and try to find patterns that correlate incidences of cancer to various conditions in the environment. This approach, followed by the American Cancer Society, the National Institutes of Health, and others, may be likened to technical analysis on Wall Street -- the difference of course being that instead of using statistical evidence to identify at-risk populations of people, technical analysts are trying to spot trends in stocks on Wall Street.

As with anything on Wall Street, there are risks inherent in investing on the basis of technical analysis, and in this book we'll spell them out in detail. But you can also make a lot of money using technical analysis if you do things right -- and the Internet puts every tool you'll need right at your fingertips.

For example, click on the following URL and you'll be looking at one of the tekkies' main tools -- a stock chart -- in this case for General Motors:

http://finance.yahoo.com/q?s5gm&d5b.

There's a lot you can do with a chart like that, and in this book we'll help you do it. Or, just type this URL into your computer: http://moneycentral.msn.com and you'll be taken to an investing Web site maintained by Microsoft. Once you get there you'll have to register as a user, but registration is free and you only have to do it once. This site has more -- and more sophisticated -- technical analysis tools than you can possibly imagine, and we'll discuss many of them in this book. For example, you can create a one-year chart of Dell Computer, the PC assembler and retailer, complete with ten-day and fifty-day moving average trends, a twenty-period Bollinger Band, and an on-balance volume chart.

Never mind what those concepts mean right now. In Chapter 3 we'll get into them in detail; for now it's simply enough to know that the book will show you how to get access to the concepts quickly, and how to make use of them.

Because the Web is an enormous and ever-expanding thing (that is, I think it's a thing), any book about it runs the evident risk of being out of date before it even gets to the printer. Over time, some of the hyperlinks are bound to be changed by the operators of the Web sites referred to in the text, so the book will also show you how to find what you're looking for even without the aid of the links. More important, no matter how much the Web evolves and changes in the period ahead, the basic element that makes it revolutionary for our purposes will remain unaltered: the enormous quantity of information that is available to us, mostly for free, somewhere or another on its Web sites.

In this book, we are not really interested in technology itself. How the Web works is something I frankly don't understand -- and frankly hope never to need to learn, any more than I want to understand the principles of aerodynamic flight. For me it's enough to know that if I show up at Kennedy Airport, ticket in hand, the chances are good that I'll get on the plane, we'll take off, and six hours later I'll be at LAX in Los Angeles. Why the plane actually stays aloft -- or becomes airborne in the first place or doesn't fall out of the sky as soon as we start to slow down -- is not a matter of great moment to me one way or another. Getting there is enough for me.

It's the same with the Internet. Why is it, for example, that when I turn on a computer that is connected to a telephone line I can see real-time live streaming video of clothing-optional beaches in Baja, California, but I can't hear what my teenage daughter in the next room is saying over the same phone line to her boyfriend? Anyway, maybe it's better that I can't hear what they're talking about...right now...in the next room...when she should be doing her homework but isn't.

All that really matters, so far as the Internet goes, is that most of the time it works -- and when it does, I can learn almost anything I need to know to make a good investment decision better or avoid stumbling into a bad one.

Of course, we can't be right in these things all the time because, well, if we were, the game would end pretty quickly. But we can be right a lot of the time, and over a generous span of years -- ten or fifteen is ample -- being right a lot of the time can make you some decent money.

How much is that? Frankly, I don't know. I've been in this business of writing about Wall Street for thirty years now, and I've never met anyone able to say how much is "a lot." In the end, a lot always turns out to be more than you've got now. How much more is the tricky part, for as Mark Twain said of bourbon, so is it true with money: too much is never enough.

It's a bit beyond the scope of this book to suggest how you might dwell for a time on the issue of how much is enough in light of your own personal circumstances. But I do know that any time you spend on the matter will be time well spent. The stock market does, after all, have a way of revealing the inner person.

It is, as you'll soon enough see, a core belief of this book that if you are able to stand or sit upright and breathe, you must be "in the market." You have no choice. That's a painful truth for people of my generation and circumstances who grew into adulthood in the 1960s, took liberal arts majors in Ivy League colleges, and basically sneered at and disdained "business" and "Wall Street" as the fountainhead of all that was most vile and corrupt in the world. Didn't Wall Street bring us Dow Chemical? And didn't Dow bring us napalm? And didn't napalm...well, you can just continue on from there.

What we didn't know, and didn't care to hear about or learn, was that Wall Street's ability to raise and deploy capital was also the reason why there were jobs for us when we graduated, and why, from that day to this, life for most of us has gotten better and better, year in and year out -- no matter what the headlines have suggested to the contrary.

But now there are 70 million of us -- and millions more right behind -- who are marching into middle age, and we all know what comes after that! And that's where things will stop getting better and better unless we plan and act accordingly. So let me tell you about my nightmare. It's got to do with money and children, and millions and millions of miserable old people. Consider it a warning -- a wake-up to what lies ahead if you don't force yourself to put money in the market. If you don't you may not die poor, but you'll certainly wind up less well off than you are today.

My dream is about generational warfare in the twenty-first century -- a subject that is just about as taboo at the dinner table as, say, graphic descriptions of man-boy love. In my dream, I am thirty or maybe even forty years older than I am today -- that is, eighty or ninety, somewhere around there...the old old, as we have learned to say. In my dream I remember that there was a time -- back when I was pushing fifty -- when good-looking women half my age would come up to me in the gym, look at me admiringly, and tell me I had a body like their younger brother's. But that stopped happening decades ago...in my dream. In my dream I don't lift weights anymore, the last of my teeth have long since fallen out, and I hobble along with a walker, listening as children make jokes behind me. And guess what, I haven't even gotten to the nightmare part yet.

The nightmare part is that, wherever I look, wherever I go, all I see are people just like me -- millions of them. They are my generation, the baby boomers, the 77 million of us who were born between 1945 and 1964, now depleted by age and entropy to 43 million tottering, decrepit oldsters -- every one of us seventy years of age or older. We are leaving, not singly or even by the hundreds, but by the tens of thousands every week.

In my dream I am living in the Time of Dying. It is worse than anything the country has ever before known -- worse than World War II, when 300,000 died, worse even than the Civil War, when the totals on both sides approached one million. What's happening in my dream is more like some biblical plague. In my dream, nearly 10 million die in a mere five years -- a Vietnam War every week and a half -- and every one of the dead is a member of my generation, the boomers. Like I said, this is a nightmare. Obits fill entire sections of the daily newspapers, and "In Memoriam" becomes a nightly feature on the evening news.

But it gets worse, for it turns out that, when all is said and done, we are just not dying fast enough. In my dream, a desperate national quarrel rages, shouted in code words and euphemisms. On one side are the kids -- the Generation Xers -- now middle-aged and muttering of "personal choice" and "individual rights." On the other side are me and my friends, the boomers, croaking back through saliva-parched voices that the hidden agenda of our children is all too obvious -- that their real objective is simply to get us out of the way before the task of keeping us alive bankrupts the whole nation.

Which is more or less when I wake up, to be reminded, in a thousand subtle ways, that this really wasn't a dream at all, just a quick -- and slightly out of focus -- look at the future itself. If my fears are well founded, America faces a struggle -- not all that many years from now either -- when the boomers and their children begin literally a fight to the death over money. We're not talking inheritance here, we're talking the wealth of the nation itself.

It's pretty grim, this future of mine, but the weight of available research says the odds favor its coming true. Start with demographics. One way to look at the history of America in the twentieth century is through the lengthening life expectancy of its citizens -- from 46.3 years for a male born in 1900, to 72.3 years for one born today. According to the U.S. Census Bureau, this rising trend will continue, with the result that a male born in the year 2035 will be able to look forward to at least 75.8 years of life.

But that number doesn't give you the true picture; it only tells you what the long-term prospects are for someone who has yet to run the full gauntlet of life, starting at birth. If you've actually run most of that gauntlet -- from car accidents as a teenager, to heart attacks, breast cancer, and all the rest of it in middle age -- and actually survived, the longevity picture in fact brightens. You become, as I said, a member of the old old. That is, if you somehow manage to reach eighty, you get to look forward, according to U.S. Census Bureau actuarial data, to somewhere around seven more years of life. The good news, in other words, is that if you live to be eighty you'll probably live to be eighty-seven. The bad news is you won't be able to afford it.

For one thing, the wealth of the nation just isn't growing as fast as its population is aging. America's long-term economic growth rate has been slowing since the 1950s. But the number of elderly has been rising relentlessly. According to researchers Laurence Kotlikoff and Alan Auerbach, the U.S. economy is currently being driven by 3.2 productive workers for every elderly and retired person. By the year 2029, when the youngest boomers will be in their sixties with the oldest (like me) in their eighties, the ranks of the elderly will have swelled so much that there will be only 1.8 productive workers for every elderly and retired person.

In short, unless the nation magically undergoes a sudden, vaulting -- and sustained -- surge in productivity for decades on end, your children and your children's children will be faced with a Hobbesian choice: either support dramatically higher taxes on their own incomes, or sharply cut back -- or maybe even eliminate -- federal transfer payments like Social Security and Medicare to their parents and grandparents (that's you!). Now stop for a minute and think: If you were in their shoes, how would you vote? In fact, you are in their shoes -- right now -- which is why, throughout virtually the whole of the 1990s, you've been voting to cut spending and taxes -- the drag-on's teeth of intergenerational warfare.

And don't delude yourself into thinking that private pension plans and IRAs are going to bail you out either -- at least not at the rate boomers are pumping money into them currently. Says B. Douglas Bernheim of Princeton University, a leading authority on savings trends, "The typical baby boom household is saving at one-third the rate required to finance a standard of living during retirement comparable with a standard of living that it enjoys before retirement."

Buried in the latest U.S. census data is the grim proof of what Bernheim is talking about: Only 25.8 percent of Americans between thirty-five and forty-four years of age -- the very heart of the boomer generation -- even have an IRA or Keogh account at all, let alone have any money in it. In fact, add up all financial assets of the thirty-five-to-forty-four group, from their homes to their bank accounts, mutual funds, stocks, bonds, everything, and their median net worth is only $31,148.

Now $31,148 is a lot more than zero, but for someone turning forty, it's not where you want to be, especially if you want to do more in retirement than eat cat food out of a can. According to the Social Security Administration, if you're forty years old today, and earning $40,000 annually, you'll be able to count on no more than about $1,178 per month, in inflation-adjusted dollars, if you retire at sixty-five in the year 2020 (assuming, of course, that the program's retirement age hasn't by then been shoved back to save money, and that the benefit payouts haven't been cut or taxed). According to the Employee Benefit Research Institute, a Washington think tank on the retirement issue, employer pensions currently contribute only about 18 percent of the income that those already in retirement now live on -- and the number of workers covered by pension plans has been going down in recent years.

It's a generally accepted rule of thumb that any retiree who wants to continue with something even approaching his pre-retirement lifestyle will need, at a bare minimum, at least fifty percent of the income he or she enjoyed as a productive worker. For a family with $40,000 a year of income now, that means at least, oh, let's treat ourselves right and say $25,000 annually, in inflation-adjusted retirement income, beginning at around age sixty-five in the year 2020. But where will the money come from if, at most, you can count on only about $14,000 a year from Social Security (if that) and maybe nothing at all from a corporate pension plan? Life may not always be fair, but in this case at least, its lesson seems clear: You'd better start saving and investing like hell.

Warns Bernheim of Princeton, "The accumulated empirical evidence overwhelmingly supports the conclusion that, unless their behavior changes dramatically, baby boomers will be forced to accept a significantly reduced standard of living in retirement." That's a nice way of saying it'll be cat-food-out-of-a-can time. You don't want that.

Why is the investing part important? Because, generally speaking, investing in common stocks has historically proved to be the best and safest way to make accumulated capital grow. I once spent a couple of weeks in a high-powered capital market training course run by Citicorp for the bank's best and wealthiest private clients (not that I fell into that category -- it was just that, as a journalist, you get invited to things like that). Anyway, one of the more interesting presentations in the course involved various things to do with $1,000 to make it grow. The options ranged from putting it in short-term U.S. Treasury bills, to buying bonds, to buying real estate and precious metals, to investing in common stocks.

Of those choices -- which pretty much cover all the choices that matter -- the common stocks option won hands down and going away. For example, during the thirty years between 1964 and 1993 -- a time frame that covers almost every economic and financial condition imaginable except perhaps a 1930s-style depression -- the average American mutual fund returned an average price appreciation of 11.58 percent annually, or half again better than any other investment category in the ranking.

And the most surprising thing was how easy it was to pick the winners: just buy a lot of stocks in well-managed companies and sit there with them. In other words, forget about market timing -- that is, buying at the bottom and selling at the top. Just "buy and hold" and in the end you come out ahead. Of course, if the company itself turns out to be a disappointment -- management fails to deliver on its public utterances about growth, let us say -- then by all means get rid of the stock as quickly as possible. But don't pay any attention to swings in the market because they'll drive you crazy and you'll gain nothing by trying to time the cycles.

Whatever your long-term investment goals may turn out to be, my own experience as a writer and investor suggests very powerfully that the Internet is really the only research tool you'll need. For many years I worked as a business editor at Time magazine, and after that at Forbes. My enduring memory of those days is just how many people we needed to put out the product. In the Business Section of Time, where I worked as an editor from 1975 to 1983, we had, as best as I can recall, the following:

> One senior editor

> Two associate editors

> Three staff writers

> Five researchers

> One photo researcher

> One maps and charts researcher

> One secretary

That's fifteen people to produce roughly 3,000 words of copy per week. And mostly what the people did was hunt around for facts out of which the writers could fashion their stories. We had people who did nothing all day but read newspapers. We had people in field bureaus who sent in more facts. We had filers, organizers, it just went on and on. And all of it was designed, at the end of the day, to place a manila folder with maybe fifteen newspaper clips and three correspondent files on a writer's desk -- out of which he was expected to cobble together a ninety-line story on, say, the health of the West German economy...or the prospects for Exxon...or the troubles at Lockheed.

The Internet changed all that. As a columnist at the end of the 1990s I am still doing more or less what I did as a magazine writer twenty years earlier -- only I am making more money, have more free time in my life, and -- most important for our purposes here -- I am doing it all with literally no research support whatsoever. So far as I personally am concerned, the research capabilities of the Internet mean that one man can now do the work of what used to take fourteen.

Remember when you were a kid in school and they taught you in Social Studies about how Cyrus McCormick's reaper revolutionized the American farm and made it the envy of the world? Well, that's what the Internet is -- the reaper of Wall Street.

Since its arrival on the scene I have used that tool to research hundreds -- indeed even thousands -- of different companies, large and small alike. The goal has been to ferret out underpriced stocks that Wall Street has overlooked, and overpriced stocks with which investors have foolishly fallen in love.

As has anyone in this line of work, I've had a few misses -- or at least what seemed to be misses for a time. I predicted Yahoo, the Internet search engine company, would be a loser. Instead it proved astonishingly successful, roaring out of the gate as an IPO. Yet it eventually cracked as I warned it would, and by the summer of 2001 had fallen by 90 percent from its all-time high -- though the slide did take much longer than I had expected.

And for every Yahoo there's been a Boston Chicken and a Planet Hollywood International -- to mention just two of dozens of preposterously overpriced stocks that crashed and burned when investors finally woke up to what had been obvious for all to see in the companies' financials all along. The Internet enabled me to see those problems coming way down the road. In this book we'll look at these companies and more, to see where the secrets to their future lurked.

Copyright © 2001 by Christopher Byron

Marshall Loeb former managing editor of Fortune and Money, columnist, CBS.com America's wittiest financial journalist has written an exceptionally classy, extraordinarily useful book.