EVERYONE’S AN “EXPERT” IN JANUARY!

Take a quick stroll through the magazine section in your favorite bookstore or even some large grocery stores, and you will see numerous magazines touting their mutual fund picks for the new year. Almost invariably, they show you the “hottest” performers over the last year and, in some cases, for other selected ranking periods. The problem is, the latest list-topping, “hot” mutual funds rarely manage to stay among the top performers over longer periods of time. And these magazines tend to change their top picks frequently as hot funds fall out of favor.

So this week, I have a question for you: Would you rather try to invest in mutual funds based on hyped and ever-changing advice in investment magazines and newsletters, or would you rather invest with professionals who have proven themselves over time? In this issue, we will compare the performance results of the professionals I recommended to you in 2003 versus the kind of advice you tend to get in so-called “investment” magazines.

In early 2003 (and since) I urged readers of this E-Letter to look at two very successful professional money management firms that I recommend to my clients: Niemann Capital Management for stock mutual funds and Capital Management Group for high-yield bonds. Each firm has two different investment programs that I recommend, as shown below. Here are their ACTUAL results for 2003 and the three and five year averages (net of all fees and expenses), along with the S&P 500 Index and Lehman Brothers T-Bond Index for comparison.

NIEMANN CAPITAL	2003	3-Year*	5-Year
“DYNAMIC” Program	47.5%	11.3%	24.7%
“RISK-MANAGED” Program	30.6%	7.9%	15.5%
S&P 500 Index	28.7%	-4.1%	-0.6%

CAPITAL MANAGEMENT	2003	3-Year	5-Year
“LEVERAGED” Program	42.9%	19.8%	14.8%
“MANAGED” Program	26.8%	14.8%	11.7%
Lehman Bros. T-Bond Index	2.5%	7.7%	6.6%

Your eyes aren’t fooling you (nor am I)! These are ACTUAL performance results in real accounts managed by these Advisors, after all fees and expenses were deducted. Past performance is not necessarily indicative of future results. The programs shown above are not suitable for all investors. See “Important Disclosures” below.

Obviously, Niemann had another outstanding year in 2003. They handily beat the S&P 500 Index in every period shown. They even made very respectable returns during the bear market in 2000-2002 when they averaged over 8% annually during that very difficult period.

As shown above, Niemann has two different equity mutual fund programs that we recommend. Both are based on the same proprietary fund selection system. Niemann’s “DYNAMIC” program is normally fully invested in selected mutual funds and moves among funds in various market sectors (“sector rotation”). Niemann’s “RISK-MANAGED” program is virtually identical to the Dynamic program, except that Risk-Managed will move partially or fully to the safety of a money market fund if the system signals that overall market conditions are too risky.

As you can see above, Niemann’s upside returns have been very impressive, especially as compared to the market averages. Equally impressive is Niemann’s ability to reduce losses during difficult market periods. In the “Risk-Managed” program, Niemann’s worst-ever losing period was –17.2%; in the “Dynamic” program, the worst-ever loss was –20.4%. These compare to the S&P 500’s worst losing period of -44.7% and -77.1% in the Nasdaq.

Niemann invests in various large, well-known mutual funds including Fidelity funds, and Fidelity is where client accounts are established and held. The annual management fee is 2.3%. The minimum account is $100,000. (We have other successful equity Advisors who accept smaller accounts, some as low as $25,000.)

I wish more readers had taken advantage of this excellent program early last year. It’s still not too late, though; Niemann is already off to a strong start this year as well. (See “Important Disclosures” below.)

As we entered 2003, I was convinced that the economy would rebound, perhaps strongly. My best sources agreed. History has shown that long-term bonds usually suffer during economic recoveries. Yet investors were herding into Treasury bonds and related mutual funds in the first half of 2003. I warned repeatedly in the first half of 2003 to lighten up on bonds, especially Treasuries. Instead, I recommended that investors consider high-yield bond funds. High-yield bonds historically do well during economic recoveries.

I specifically advised that readers seriously consider Capital Management Group (CMG), our recommended bond fund manager. CMG specializes in large, diversified high-yield bond funds offered by several well-known mutual fund families and has done so very successfully. As noted above, CMG has two different high-yield bond programs we recommend. One is called their “MANAGED” program, and the other is their “LEVERAGED” program. The Leveraged program is the more aggressive of the two. Both programs use the same proprietary fund selection system. Both can move partially or fully to the safety of a money market fund if the system signals that market conditions are too risky.

As you can see in the actual performance results above, CMG had another outstanding year in 2003, at the very same time when many investors were suffering in Treasury funds. Because of CMG’s active management, their returns have rivaled those of stock mutual funds over the years. Perhaps “rivaled” is not the proper word, since CMG’s average returns shown above beat the S&P 500 Index handily over the last several years.

But even more impressive than CMG’s returns on the upside is their remarkable ability to limit downside risk. In CMG’s “Managed” program, the worst-ever losing period (drawdown) was only -3.3%. In the “Leveraged” program, the worst-ever loss was only -7.3%. Again, these are the worst periods in CMG’s history of managing these programs.

Treasury bonds have exhibited far greater volatility than CMG. The worst-ever losing period in the Lehman Brothers Treasury Bond Index was -19.2% in 1980/81, along with losses of -11.7% in 1994 and -13.7% in 1987. While not devastating, these significantly greater losses must be weighed against the disappointing returns in T-bonds in recent years.

It is rare to find upside returns like CMG’s (+11.7% and +14.8% average over the last five years) in a bond program. It is even more unusual to find a bond program with such limited losing periods. In fact, we’ve never seen another one like it.

Yet despite CMG’s outstanding performance record, many investors are still hesitant to invest in high-yield bonds, also known as “junk bonds.” Even though CMG invests in large, highly diversified and well-known mutual funds, some investors won’t consider them seriously. It is true that high-yield bond funds have greater risks than certain other mutual funds and are therefore not appropriate for all investors. But for investors who understand the risks (and are suitable), CMG can add some real octane to their investment portfolios.

Finally, it is not too late to get started with CMG, even after the outstanding year they had in 2003. The economy is still growing and as a result, high-yield bond funds should still have upside potential. CMG is off to another strong start this year, with nice gains so far in January.

CMG accounts are held at Trust Company of America. The annual management fee is 2.25%. The minimum account is $25,000. (See “Important Disclosures” below.)

I have lots of problems with the so-called “investment” magazines that are apparently very popular. Every year in January, they include cover stories devoted to telling you how you should invest in mutual funds. Most of these articles are designed to draw your attention to the hottest performing funds over the last year. They often refer to the red-hot funds (in hindsight, of course) and ask, Did your funds perform this well last year? The inference is that their latest list of “hot” funds will give you eye-popping results in the coming year. Never mind that their picks usually change every year or even more frequently!

As I will discuss below, there are several reasons why you don’t want to jump into last year’s hottest performing mutual funds. But before we go there, you need to understand one thing about these magazines. They can all pick last year’s winners from the various mutual fund databases. Almost anyone can do that – it’s not rocket science. What they typically do NOT do is tell you how their picks worked out in years past. How convenient!

No doubt there are some people who read these magazines, look at the list of top performing funds over the last year, and think… Wow, those are the funds I need to be in! This is usually a dangerous mistake. Why? The funds that are the top performers over the last 12 months are not likely to be among the top performers in the next three years or five years.

This point becomes abundantly clear when we look at the top performing stock mutual funds in 2003, as compared to the top performers over the last three years and the last five years . For this comparison, I used the latest performance data from Lipper Analytical Services, a well-known mutual fund ranking service. Here’s the clincher:

Of the top 10 stock funds in 2003, only ONE was among the top 10 over the last three years or the last five years. Of the top 20 stock funds in 2003, only TWO were among the top 20 over the last three years or the last five years.

[Which were the two funds, you ask? One is a gold/precious metals fund. The other is a self-described “Ultra-Small Company” fund which is no longer open to new investors.]

The point is, the top performers in any one year are NOT likely to repeat that hot performance in subsequent years and in most cases, they are also very volatile. They may also be among the biggest losers in a bear market.

For over a decade, studies have shown that most investors in mutual funds experience very disappointing performance results. The studies show over and over that most investors don’t even make what the market averages make in their stock and bond mutual funds. In fact, they make much less than the market averages (source: Dalbar, Inc., among others).

Why does this happen? The answer is that most investors switch from fund to fund, often at the worst possible times. The reason: there are several, but chief among them is the fact that we are overloaded with investment information. When you can find a half-dozen or more investment magazines at the grocery store, that’s overload. Add to that the hundreds of so-called investment newsletters out there. And add to that the many financial programs now on cable TV that offer investment advice 24/7. That’s OVERLOAD!

It is no wonder that most investors are continually disappointed with their results.

When I first saw the investor studies noted above a decade ago, my immediate thought was: These people need professionals to manage their investments. I still believe that today, even more so. Unless you are a very sophisticated investor who can devote a great deal of time to the markets, I believe you would be better off using professional money managers to make those decisions for you – specifically, which mutual funds to be in and when to be in them.

You may agree that it is a good idea to be out of the market from time to time when the risks are high, or you may believe that it’s best to be fully invested at all times. Actually, it doesn’t matter – there are successful professionals that move out of the markets occasionally, and there are those who are always fully invested. Niemann, for example, does it BOTH ways, and very, very successfully as you saw in the actual performance numbers cited earlier.

I wish more readers of this E-Letter had taken my advice in early 2003 to invest with Niemann Capital Management and Capital Management Group . Those of you who did enjoyed some outstanding returns last year, and both firms are off to a very strong start in January as well. Let me emphasize that it’s not too late to get started. Unlike the latest “hot” mutual funds, Niemann and CMG have been delivering excellent overall results for a long time.

The case for professional mutual fund management remains very strong, especially in light of the outlook for the next couple of years. The economy looks to be on a solid growth path (barring any major negative surprises). Historically, that would suggest higher equity prices and more gains in high-yield bonds, but there are no guarantees. Also, both of these markets have moved significantly higher already, which means that the risks are higher now as well. All the more compelling, then, is the case for professional management.

Niemann and CMG just happen to be two Advisors among our stable of recommended money managers. We have other professional managers that have also delivered impressive results, including some who accept accounts as small as $25,000. For more information on Niemann, CMG or the other professional money managers we recommend, call us at 800-348-3601 or CLICK HERE to go directly to our website.

ProFutures Capital Management, Inc. (PCM) and the other advisory firms discussed above are Investment Advisors registered with the SEC and/or their respective states. Some Advisors are not available in all states, and this report does not constitute a solicitation to residents of such states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. This publication is not intended as personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. There is no foolproof way of selecting an Investment Advisor. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. PCM receives compensation from Niemann (NCM) and CMG in exchange for introducing client accounts. For more information on PCM or NCM or CMG, please consult PCM Form ADV II or NCM Form ADV II or CMG Form ADV II. Gary Halbert has accounts in each of the programs illustrated above, and other officers, employees, and/or affiliates of PCM may also have investments managed by the Advisors discussed herein or others.

Returns illustrated above are net of the maximum Advisor management fees, custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. Dividends are reinvested. Performance is based on actual accounts which are considered representative of the majority of client accounts with similar investment objectives. To the extent possible, PCM has attempted to verify the performance by examining selected customer account statements and/or independent custodian statements, and by comparing to the performance in Gary Halbert’s accounts with each Advisor. However, since only selected accounts were analyzed there can be no assurance that the performance in these accounts was consistent with all others. In all cases, performance histories reflect a limited time period and may not reflect results in different economic or market cycles.

Individual account results may vary based on each investor's unique situation. No adjustment has been made for income tax liability. Performance for other programs offered may differ materially (more or less) from the programs illustrated. Investment returns and principal will fluctuate so that an investor’s account, when closed, may be worth more or less than the original investment. Any investment in a mutual fund carries the risk of loss. Mutual funds carry their own expenses which are outlined in the fund’s prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors.

As a benchmark for comparison, the Standard & Poor’s 500 Stock Index (which includes dividends) and the Lehman Brothers Long Term Treasury Index represent an unmanaged, passive buy-and-hold approach. The volatility and investment characteristics of the S&P 500 or other benchmarks cited may differ materially (more or less) from that of the Advisors.

The individual account performance figures for Capital Management Group reflect the reinvestment of all dividends and capital gains, and are net of applicable commissions and/or transaction fees, CMG investment management fee, and any other account related expenses. In calculating account performance, CMG has relied on information provided by the account custodian. The CMG Risk Management Plan is a technically based strategy. The performance illustrations are based on actual account performance from 2000 to present (Trust Company of America client accounts), and the results from November 1992 to 2000 are based on actual trade signals applied to the funds. The above accurately reflects the blended results of an assumed investment in the funds when applying CMG’s actual trade dates for the period indicated and under the conditions stipulated when applying the risk management techniques to the actual price movements of the funds. The results shown are net of CMG’s 2.25% annual management fee.

CMG invests in various high yield bond funds. High yield bond funds have greater risks than many other mutual funds and are therefore not suitable for all investors. This illustration should not be construed as an indication of future performance which could be better or worse than the period illustrated.