August Returns

Index	Month	Year
Dow	-1.5%	-2.8%
Nasdaq	-1.8%	-1.5%
S&P 500	-1.1%	0.7%
Russell 2000	-1.9%	2.3%
Wilshire 5000	-1.2%	2.1%

September is Looming

Remember that historically September is the worst month of the year for stocks.

Reducing Shares

Jason Zweig of Money Magazine says keep track of the number of outstanding shares companies have on the market. Companies will often issue more shares when they think the companies stock is overvalued, and they will buy back stock if they feel the stock is undervalued. Each 1% reduction in shares will increase the stock's return by approximately 0.25% versus similar stocks.

Barron's - Value Line - Favorite Mutual Funds

The August 15 edition of Barron's has the results of Value Line's top performing mutual fund managers survey. Their favorite mutual fund overall was the Fairholme fund. Their favorite funds in each category are below.

Fund Name	Fund Objective
Bridgeway Aggressive Investors I	Agressive Growth
Oppenheimer Real Asset A	Asset Allocation
Oakmark Equity & Income I	Balanced
SB Capital & Income SmB B	Flexible
BlackRock International Opportunities A	Foreign Equity
First Eagle Global A	Global Equity
Fairholme	Growth
Jennison Equity Opportunity A	Growth / Income
PIMCO Commodity Real Return Strategy A	Income
Bjurman, Barry Micro-Cap Growth	Small Company
*Cohen & Steers Realty Shares	Real Estate

* The real estate pick is not from Value Line, but I think there is a place for REITs in the average investors portfolio, so I have added this as an option.

Family-Run Public Companies

Henry McVey, an equity strategist for Morgan Stanley, researched several family-run public companies. His findings were that these companies have done well for the companies investors. He found that the 63 companies in the S&P 500 that would fall into the category have outperformed the index over the past year, 3 years, and 5 years.

Most important for investors were his findings that companies where the family members did not have any more influence than the average investor performed the best. Next were the stocks where family members helped steer the company, but still held the same share class as average investors. Finally the worst performing of the groups were the family's that had super-voting shares. The last group also underperformed the index also.

IPOs - Historical Performance

IPOs (Initial Public Offerings) is the first sale of a companies stock to the public. This price of the initial offering is set for investors who have access to the brokerages offering the stock. But when the stock becomes available on the open market, the price is often volatile for the first several days.

Jay Ritter, a finance professor at the University of Florida, says his research shows that historically, companies with less than $50 million in sales have underperformed the market after going public, while those with sales above $50 million generally outperform. Stocks also tend to experience a price jump in the first six months after the IPO before lockups typically expire, he added. "Companies tend to get the first few quarters right on earnings, then they trail off," Ritter said.

People interested in investing in IPOs should do a lot of research into the companies before they invest, as many offerings will trade down on their first day of trading.

Speculating on Stocks

I'm sitting here watching Mad Money and Jim Cramer has been talking about speculative investing in stocks. He has some interesting ideas about what to look for.

One of the ideas I like best is looking for a company with a small float. This is the number of shares available for the market to trade. His thinking is that if a mutual fund wants to invest in the company and buy a large block of shares, they will have to pay a premium for the stock and increase the value of the shares.

Micro-cap stocks will generally have a smaller number of shares available to trade and will fit this criteria. One problem with micro-cap stocks is they are very volatile, meaning the stock price can change significantly over the course of the day.

You probably will not want to invest in stocks with a small float if you may need the money soon, as it can be difficult to sell the stock in a hurry.

Baidu.com IPO

Baidu.com is the best performing IPO in 5 years, and the best ever foreign IPO on the Nasdaq.

Now that Google's stock has done so well, we have people who are looking for the next opportunity to get a quick return. I had every expectation that this stock would jump significantly from it's IPO issue price, but it is way overpriced now. It was issued at $27, first trades were around $60, peaked at $150 intraday, and ended the day near $125 for more than a 350% increase.

Investors who have bought the stock later in the day stand to lose quite a lot of money. I predict the stock will be under $100 by the end of the year.

The excitement over this company reminds me of the late 1990s when any internet stock was valued regardless of their business. Baidu.com is profitable, unlike many of the companies in the late '90s, but the company is not worth $???.

The company released just over 4,000,000 shares of stock to trade. On it's IPO day 22,500,000 shares were traded. That is an average of each share being traded 5.5 times. The total shares owned is 32,000,000, which gives the company a $4,000,000,000 valuation, even though they only had revenue of about $8,000,000.

Many people have said that this Baidu.com will be the Google of China. But very few have pointed out that Google will be one of their main competitors, along with other search powerhouses such as Yahoo.com and Microsoft. All three of these companies have significantly more money and resources to compete with Baidu.com in China.

Twenty percent of Baidu.com traffic is for MP3 searches. This is not necessarily a problem, but if China tells them to stop indexing MP3s, then they will lose a significant amount of their site hits.