FSU Editorial: "If it Works, Is it True?" by Doug Wakefield with Ben Hill 02/07/2007

IF IT WORKS, IT IS TRUE
by Doug Wakefield with Ben Hill
Best Minds Inc.
February 7, 2007

About two weeks ago, I attended a function by a gentleman named Josh McDowell. Mr McDowell has working with youth since the early 1960s and has spoken to more than 10 million people over the last 45 years. After he spoke to the junior high and senior high kids in the morning, he returned in the evening for a session to speak with the parents. While the entire session was excellent, there were a few golden nuggets that I had to place down in my journal for future reference. Today, I will share one of them with you.

A Youth in the 1960s would say, �If it is true, it will work.�

A Youth in the 2000s would say, �If it works, it is true.�

As the markets continue their gentle float on the sea of tranquility, the impression given from the last few years is index your way to happiness. For the traders who have traded very defensively over the last 3 years, they have lost clients, and money, due to the fact that �if it were works, then it is true�, or put another way, �if there were a need to be defensive, then it would have worked�. Actually, I have found that most arguments go more like this for investors seeking to grow their money, �Did you make as much money as the Dow or SP500 last year? If not, enough said. The bottom line is all we need to know.�

Indexing solely on a buy and hold basis, takes none of the real world issues into consideration. It is almost assumed that history is totally worthless in understanding future probabilities. This month, the Investor's Mind explored the history of Iran. It is my humble opinion, that the geopolitical events that are centering around this country are but yet one more reason, that a historical understanding of the events that are taking place right now between the UN Security Council, the US, and Iran, and critical to any individual who has the fiduciary responsibility to consider risk when helping those seeking your advice on financial affairs. For those of you who are seeking advice and guidance from others, it should be just as crucial that you understand the connections between these geopolitical events.

However, as the chart below reveals, most individuals believe that the great social engineers of our day have created the eternal state of bliss, no matter what happens in the real world. For those of you have no understanding of this index, let me assure you, that it is quite simple: the higher the reading, the greater the belief that the Dow Jones Industrial will experience an increase in volatility in the near future and the greater the �perception� of risk. The lower the reading, the greater the belief that the DJIA will experience a decrease in volatility in the near future, and the �perception� of risk is muted. On January 24, 2007, the VIX recorded the lowest reading in 17 years. In other words, this numerical reading would give one the impression that investor�s are experiencing on the lowest levels of fear in 17 years. That's right, look at the chart and read the last few sentences again.

Now, for those who happen to watch any form of news, tell me, have you seen anything like the following headlines around in the last 2 weeks?

US Warns Iran to Back Off Attempts to Dominate Region,� Wall Street Journal, January 23, 2007; �U.N. Atomic Chief Cites Iran Enrichment Plan,� New York Times, January 26, 2007; �Chavez and Iran to Unveil Anti-US Fund,� Al-Jazeera, January 15, 2007

If the answer is yes, and you have fallen under the indexing spell of �if it works, it is true�, then I implore you to take some smelling sauce and come to your senses. Then ask yourself if you can answer questions like these. Even better, ask yourself if you think these questions have any relevancy on financial markets and even better, the economies that support the business that depend on global financial markets today.

What civilization was only held under the Greek Empire for a short time and was never conquered by the Romans?
How do German, Russian, British, and American history come together in Iran during the first half of the 20th century?
What does the Treaty of Versailles have to do with Iran in January of 2007?
What does the Tehran Conference, held in 1943, have to do with the UN Security Council today?
What was one of the first court cases brought before the newly formed United Nations?
What effect has Dr. Mohammed Mossadegh had on Iran and how do Iranians view him today?

Let me close this article with a quote from our January newsletter, Persia- Fuel on the Fire, which also includes a quote from our December newsletter, Mindgames, with Dr. Janice Dorn.

�When we understand that we are watching a massive increase in worldwide money supplies, Dr. Janice Dorn�s comments, in last month�s issue of the Investor's Mind, help us make sense of the complacency reflected in the VIX. Dr. Dorn states:

�When an individual has been in the amniotic sac � when we have been �cocooned� � and then the cocoon is gone and we are presented with making choices that we were not used to making before, the neo-cortex [the thought center of the brain] becomes overwhelmed. Since, when placed under a great deal of stress, the brain cannot process this much conflicting information (upon which decisions much often be made) it defaults to the limbic system [the emotional center of the brain]. And by reverting to the limbic system, we make decisions purely on an emotional basis.��

If you have come to a point where you believe that nothing in the investment world should be taken for granted, then I invite you join those who have signed up for one of our two educational services from 41 countries around the world. If you sign up for our research newsletter, The Investor's Mind, you will also have access to our 154 page industry research paper on short selling, Riders on the Storm.

Keep reading, and keep thinking, and never assume that this game called investing is easy. For those of you who are stood on the defensive side of this argument for the last few years and have suffered criticism or financial loss, let me encourage you to reread the words of McDowell at the opening of this article.

�If I had only read that book [speaking of John Kenneth Galbraith�s book, A Short History of Financial Euphoria] at the beginning of 2000. It would have been worth a million dollars to me then.� Henry Blodget, the lead internet analyst at Merrill Lynch from 1999-late 2001, in an interview with Maggie Maher in her book, Bull: A Short History of the Boom.

Doug Wakefield,
President
Best Minds Inc., A Registered Investment Advisor

To read some of our other postings and learn about our educational services, we encourage you to visit our website. Our industry research paper on short selling, Riders on the Storm: Short Selling in Contrary Winds, is available to those who subscribe to our monthly newsletter, The Investors Mind: Anticipating Trends through the Lens of History.

Contact Information
Doug Wakefield, CFP MS
Best Minds, Inc.
Dallas, TX USA
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Best Minds, Inc is a registered investment advisor that looks to the best minds in the world of finance and economics to seek a direction for our clients. To be a true advocate to our clients, we have found it necessary to go well beyond the norms in financial planning today. We are avid readers. In our study of the markets, we research general history, financial and economic history, fundamental and technical analysis, and mass and individual psychology.