www.youtube.com/watch?v=uu5PlI9CVZE

This is actually a fun question for me, because people ask me, what exactly does the NASDAQ stand for? Well, if we were back in 1971 when the NASDAQ was created, I would say it stood for the National Association of Securities Dealers Automated Quotations, the NASDAQ.

Back when it was first created, this is back when computers filled an entire room, if you even had a computer. Back then, they needed a more efficient way to be able to quote stock prices. Before that it was just, what was it on the floor of the New York Stock Exchange? So that’s what the NASDAQ was originally created for.

Today, the NASDAQ is seen as a leader in growth companies, it’s a stock market in and of itself here in the United States, and companies generally tend to go to the NASDAQ when they’re technology-based because that’s kind of what has been the mystique around the NASDAQ over all these years. And so where once it was just a quoting system, a way to get quotes really quickly, automated, now it has become a whole new thing, a whole new stock exchange, if you will, where companies come to be placed on the exchange.

That way other people can come to that stock exchange and be able to buy those stocks and so on and so forth. That’s why it’s known as one of the truly automated computer-based stock exchanges because that’s how it started, and that’s how it’s always been.

You can own real estate without having to be a landlord.

www.youtube.com/watch?v=5mL5qbhSNeI

What is a REIT? A real estate investment trust (REIT) is a real estate investment company that manages a portfolio of income properties, distributing the lion’s share of its profits as dividends. By getting into a REIT, you can gain an ownership interest in prime commercial real estate … without the headaches of commercial real estate management.

How do REITs work? On one level, a REIT is an agreement with the IRS. In choosing a REIT structure, a real estate investment company agrees to pay out 90% or more of its taxable profits in dividends in exchange for avoiding corporate income tax.¹

In the typical public REIT, investors buy shares in the trust. (You may have heard the term “real estate stock” before; that’s what we’re talking about.) Like any other stock, REIT stock offers you the potential for dividend income and share value appreciation. REIT dividend income tends to be stable, as REITs usually invest in large commercial properties involving long-term tenant leases. The REIT may choose to make some of the dividend a nontaxable return of capital, which results in tax deferral and a lower taxable income for the investor during the period he or she holds the stock. That can boost the after-tax dividend yield. REITs don’t pass their losses onto investors, and they usually don’t have minimums.²

Non-traded REITs. Most REITs are listed on stock exchanges, but not all are. Some REITs are non-traded (or “non-listed”). Non-traded REITs are akin to private equity funds in that they are usually conceived to last less than 10 years before listing their shares, selling out, or liquidating. They typically invest aggressively when they start buying assets, and their dividend yields can be notably higher than those from publicly listed REITs.³

Are REITs right for your portfolio? Many investors are considering REITs these days, attracted by the diversification they provide for a portfolio. Notably, there are REIT mutual funds, closed end funds, and REIT ETFs to choose from, among several options. Before you make the move to invest in a REIT, be sure to speak with a qualified financial advisor who knows the particulars surrounding REIT investment.

Citations.

www.youtube.com/watch?v=iX9qDBff1eQ

Quote of the week. “Avoid having your ego so close to your position that when your position falls, your ego goes with it.”– Gen. Colin Powell

Before I get into the Business side, I’ve got a little Olympic info to address. Did you hear that they’re taking away the gold medal from downhill Skier Lindsey Vonn who won the race? Apparently, they are giving it to Obama cuz he’s heading downhill much faster than she did!!!

Oh come on! That’s just funny! Thank you Rick for Facebooking that joke. As you can tell, I enjoyed it.

Onto the financial news.

The big financial news of the week is that the fed bumps discount rate up to 0.75%. The exit strategy had to get rolling at some point, yet the Federal Reserve’s Thursday decision to raise the federal funds discount rate came sooner than many analysts expected. Yet the move did not prompt the big selloff some traders had predicted. Stocks posted tiny gains Friday after new CPI data was released.¹

So far inflation remains tame. Core CPI fell by 0.1% in January, in the first monthly decline since 1982. Overall CPI rose 0.2% for the fifth straight month. From January 2009 to January 2010, CPI rose 2.6% with core CPI up 1.6%.²

What this means is that we haven’t started paying the piper for our outrageous government spending. Both the democrats and the Republicans have financed our futures away and there will be a day of reckoning. It just isn’t today.

PPI soars. Producer prices, on the other hand, rose 1.4% for January, spiked by a double-digit increase in costs of gasoline and heating oil. Core PPI advanced by 0.3% last month.³

Good news on housing & factory output. The Commerce Department had housing starts up 2.8% in January. Industrial production rose by 1.0% last month, powered by a gain of almost 5% in the auto industry.⁴

Great days for oil, gold & copper. Oil futures jumped 7.66% last week, putting prices at $79.81 on the NYMEX at Friday’s close. Gold settled at $1,121.30 after a 2.92% weekly advance. Copper trumped that with a 9.03% weekly gain, its best week since last July; copper prices settled at $3.36 per pound Friday.⁵ In today’s real estate market, that might make your plumbing worth more than your house. That just kind of warms your heart doesn’t it?

More big gains on Wall Street. Across four market days, the S&P 500 rose 3.13% to 1,109.17, the NASDAQ gained 2.76% to 2,243.87, and the Dow rose 3.00% to close at 10,402.35 on Friday.¹

(Source: CNBC.com, CNNMoney.com, ustreas.gov, bls.gov, 2/19/10)^1,6,7,8

Indices are unmanaged, do not incur fees or expenses, and cannot be

invested into directly. These returns do not include dividends.

Riddle of the week. In 15 minutes, a dress will dry on a clothes wire. How long would it take you to dry five dresses?

Contact my office or see next week’s Update for the answer.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.

Citations.

1 cnbc.com/id/35482890 [2/19/10]

2 marketwatch.com/story/core-inflation-drops-on-falling-housing-costs-2010-02-19 [2/19/10]

3 marketwatch.com/story/producer-prices-soar-14-on-energy-costs-2010-02-18 [2/18/10]

4 google.com/hostednews/ap/article/ALeqM5gNiyJ905Ho0Ur96V2TQhsBX19lGwD9DU53SG1 [2/17/10]

5 blogs.wsj.com/marketbeat/2010/02/19/data-points-energy-metals-226/ [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F19%2F09&mode=add&symb=DJIA [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F18%2F05&mode=add&symb=DJIA [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F18%2F00&mode=add&symb=DJIA [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F19%2F09&mode=add&symb=COMP [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F18%2F05&mode=add&symb=COMP [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F18%2F00&mode=add&symb=COMP [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F19%2F09&mode=add&symb=SPX [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F18%2F05&mode=add&symb=SPX [2/19/10]

6 money.cnn.com/quote/historical/historical.html?pg=hi&close_date=2%2F18%2F00&mode=add&symb=SPX [2/19/10]

7 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml [2/19/10]

7 ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield_historical.shtml [2/19/10]

8 treasurydirect.gov/instit/annceresult/press/preanre/2000/ofm11200.pdf [1/12/00]

A special category of securities worth exploring.

www.youtube.com/watch?v=_HiDnbajxSY

Before I explain preferred stocks, let me explain dividends. Dividends are a part of the earnings that a corporation has that are paid out to it’s shareholders – usually on a quarterly basis. Let me give an example. Let’s say you own 1 share of xyz company, and that company is paying out a $5 annual dividend. Every quarter you would receive $1.25 for every share that you owned.

Preferred stocks are stocks that tend to pay sizable dividends. Institutional and individual investors buy preferred stocks because they offer fixed dividends – in fact, dividend yields are typically greater than those of common stocks.¹

Preferred stocks are occasionally called hybrid securities, because they have characteristics of debt instruments (meaning bonds) as well as equities. Let’s review some of their features and pitfalls.

A big feature is the priority of dividend payouts. As the “preferred” adjective implies, these shares are a step above common stock. If you own preferred stock in a company, you will get your dividend first; all the common shareholders will get theirs second if there is money left over. You also have preference if a corporation declares bankruptcy or liquidates and sells assets. In that instance, debt holders are paid first, then the preferred shares, and finally the common shares.

Dividend determination. Dividends paid out on preferreds are akin to coupon payments on a bond. A preferred stock obviously doesn’t have a maturity date like a bond, but it does have a par value, which is used to figure out the payouts. (A good stock research website can help you find the par value and preferred dividend rate of return.) You determine the preferred dividend by multiplying the preferred dividend rate percentage by the par value.

Accumulating dividends. Sometimes a corporation can’t pay dividends to preferred shareholders. If that’s the case, the company will often let the preferred stock dividends accumulate until cash flow improves.

The five kinds of preferreds. Most preferred stocks are cumulative – that is, any missed dividend payments accumulate for an eventual payout. So if a company can’t afford to make the dividend payment for 2 years and then it has the money to do so, the preferred stocks must be paid retro for the missed 2 years while the common stock gets no such consideration. Most preferreds are also callable – that is, the stock issuer has a chance to call (redeem) the shares at par value. Yields on preferred shares sometimes include premiums in recognition of this risk.

Some preferred stocks are convertible, with embedded options allowing you the chance to exchange preferred shares for common ones. (Sometimes a provision is allowed that gives the issuer (or company) the chance to call for the conversion.)

Some preferreds are participating – when a company does well, the dividends from these shares may be greater than the published yield. Finally, when a corporation issues multiple rounds of preferred stock, there may be preference-preferred shares; if you own shares from the first issuance, your preferreds take priority over preferreds issued later.

Now let’s talk about some possible pitfalls. So what is the downside of owning a preferred stock? Well, they do present potential and actual disadvantages. When a market sector heats up and common shares take off, preferreds often lag behind. Also, interest rate hikes can reduce the value of preferred shares. Additionally, you have no voting rights as a preferred shareholder.

Let’s address ratings. There is no “official” rating system for preferred stocks; however, the big credit agencies that rate bonds rate preferreds as well. Standard & Poor’s and Moody’s do, and when they downgrade, it can hit a preferred stock hard. Preferred stocks rated beneath BBB- at Standard & Poor’s or beneath Baa3 by Moody’s are considered junk preferreds.² If you have to go outside of S&P or Moody’s to find a preferred stock’s rating, that’s a red flag – it might mean that it couldn’t get a decent rating from S&P or Moody’s.

A preferred stock investor would do well to research a company’s financial ratios and cash flow, and its interest coverage ratio (higher is usually better).

Before you decide, consider the variables. Preferred stocks have looked attractive to retirees and others who are just seeking consistent dividends and quite happy with that. Rather than explore them alone, you should see a financial consultant who can help you thoroughly understand your options in this area and compare them to other choices you may have.

Investment advice is offered through Pete Mitchell, Inc. a registered investment advisor.com

 Citations.

¹ mercurynews.com/columns/ci_14249188 [1/23/10]

² kiplinger.com/magazine/archives/2003/10/preferred.html [10/03]

What it is, how it works, and how to get started.

www.youtube.com/watch?v=6H_zzmqy3DA

If you are confused or unsure, you’re not alone. It’s amazing to me how many adults, many of them college grads, know practically nothing about the stock market. Many schools simply don’t offer or don’t require the classes that cover it. If you’ve been holding off on investing because you simply didn’t know enough about it … that’s probably wise. But rather than delay any longer, here’s some information to get you started:

The nuts and bolts. Basically, if you own a stock, you own a part of a company. You’ve invested in that company. If the company does well, the value of your stock tends to rises. If the company does poorly, the value of your stock tends to fall. The value of the stock, or the share price is determined by supply and demand. When more people want that stock, perhaps because it is doing well, the price goes up. When less people want that stock because they see less value in the company, the price goes down. That is the stock market in the simplest terms.                         

When you hear “The market.” Think of it like a flea market. Rather than travel all over town, a flea market offers you a central location where buyers and sellers can meet up. The stock market isn’t all that different. Stock markets are simply gathering places for stock owners to buy and sell stock securities.

Heard the term exchanging or trading? These are terms you hear frequently in regard to stocks, but they can be misleading … and perhaps this is one reason there is so much confusion. You’re not actually exchanging stocks, and you’re not really trading stocks. You are buying them or selling them.

How much does it cost to buy or sell a stock? Actually, there are two costs to consider … 1) The cost of the stock, and 2) the cost of the “trade”. The price of the stock varies hugely from company to company and can change from moment to moment, so that’s a question I can’t answer for you. But there’s also a fee to buy or sell a stock (or “share”). The amount of the fee depends on which stock brokerage you use. Generally these fees can range from under $10 to $20 or even up to $100 per “trade”. Keep in mind you will pay a fee when you buy your stock, and again when you sell it.

What is a brokerage? A brokerage is a conduit for the buying and selling of stocks. For example, let’s say you want to buy a stock that’s listed on the New York Stock Exchange (NYSE). Well, that stock is bought and sold on the floor of the NYSE. So, unless you are authorized to trade at the exchange and want to travel to New York, you instead enlist the services of a broker to take care of your buying and selling for you. Brokerages pay fees to become members of a stock exchange and access the “floor” of an exchange for trading. They then buy and sell stocks on behalf of their clients.

So, how do you get started? There are all kinds of ways to get started and a myriad of brokerage choices, including discretionary dealing (where the brokerage chooses stocks on your behalf), advisory dealing (where the brokerage gives you advice, but leaves the decisions up to you), and execution-only brokerages (where you will be entirely self-directed). Most brokerages have a minimum deposit you must make to get started, so you’ll want to look into that as well. If you’re serious about investing and want to do it frequently and avidly, read up on the markets and consider taking a class to educate yourself.

What is Pete Mitchell, Inc.? My company is what is called a Registered Investment Advisor, or an RIA for short, not a stock broker. Now me personally, Pete Mitchell, I am an Investment Advisor Representative of my company. Even though there are many, the principle difference between an RIA only firm and a brokerage firm (also called a Broker/Dealer) is that we do not earn a commission or charge a fee to make trades for you. We charge a fee for our investment advice.

That may not make any sense to you so let me explain.

Stock brokers typically earn a commission when they sell you a product. After you are in the product, little if any, additional commissions are paid to the broker.  This means that the stock broker does not have the same financial interest that you may have when it comes to investing.

My type of firm charges a fee based on the assets we manage.  This is a percentage of the account (typically 1-1.5%). We get paid 25% of this fee every quarter. So if your account goes down because of either what is going on in the market or some other reason, our paycheck goes down as well. So here is my question for you. Who is more likely to be concerned with what is happening with your account? The guy who got paid up front or the guy who loses when you lose and wins when you win?

It is a rhetorical question.  I think you know the answer to that.

In summary. Before you make any big decisions, though, think about enlisting the assistance of a qualified financial professional who can give you insight and perspective on the financial markets.

Investment advice is offered through Pete Mitchell, Inc. a registered investment advisor in the state of California.