Gene Marcial has been writing the legendary column "Inside Wall Street" for Businessweek for the past 26 years. Gene has taken the collective wisdom and knowledge he has accumulated over the decades and written a brilliant book titled Gene Marcial's 7 Commandments of Stock Investing.

Gene brings the same sense of calm and logic to his book as he does to his weekly column. Having known Gene for a few years, the one characteristic that has always impressed me is his ability to separate the news from the noise. Gene doesn't go with the flow, in fact, as he aptly states in his book, it's when an investor goes contrary to the flow is when the best buying opportunities present themselves.

Gene has spoken with thousands of Wall Street insiders over the decades and has taken the very best of the many he respects. Gene's book is an easy read and full of real world experiences and examples. Investors can relate to real stories versus "theoretical "concepts that begin with company ABC.

in 2007, special purpose acquisition companies, or blank-checks, made up 23% of the total number of IPOs. In other words, nearly a quarter of IPOs this year have been for businesses with no business. A blank check IPO exists to raise money, and then seeks to use that money to acquire another company.

For instance, Endeavor Acquisition went public as a blank-check IPO and then acquired American Apparel. Now the company trades as American Apparel (AMEX: APP), and Kevin Kelly wrote about why he thinks that company is a buy here.

Sometimes companies that go public through this process can be good investments, but there's something investors need to keep in mind: A company that has been acquired by a SPAC has just been put up for sale and is therefore unlikely to be undervalued. If the sellers could have gotten more for it, they would have sold it to someone else.

A piece in the Wall Street Journal discusses (subscription required) blank checks and some of their pitfalls. American Apparel is definitely one of the better/most interesting companies to go public this way (the CEO's alleged perversions aside) in recent years but, in general, I think blank checks are something for investors to avoid.

During the course of 2007, I read on many occasions that we were in a "Goldilocks" stock market, meaning that while some stocks might be too hot and some too cold, most in the overall market were just right. The overall market had a great run from early winter to mid-summer before it took a big dive.

We saw some recovery from those low points until the credit markets tightened up and billions of dollars in losses and write-downs occurred, bringing down any stocks related to banking, lending, housing, construction and the like. Now consumer debt and consumer spending are frightening the market in the midst of the holiday shopping season.

I started to think about all the fear and doubt forming like dark clouds, speculating on a possible recession in 2008, though I am not convinced of that outcome. I happen to believe that even in the worst markets there are good stocks to buy, maybe even more of them. So I offer up a new metaphor for our current market --- the "fluff & fold" market, when almost nothing is just right.

Want to save for college, but not sure what type of account to use? State-sponsored 529 plans should definitely be your first choice. You don't have to pick one from your own state, but tax incentives might encourage you to do so. If your state doesn't off good tax incentives for colleges savings, then look for the plan with the lowest fees. Kiplinger's gives you an excellent overview of your options, as well as a state by state run down.

These state-sponsored plans can give you shelter from both federal and state income taxes, as well as give your child's grandparents a good way to chip in for their grandchild's education. In fact a grandparent can contribute up to $12,000 a year without having to worry about federal gift taxes (a couple can contribute up to $24,000 without gift taxes). If one grandchild decides not to go to college, just switch the account into the name of another child that wants to go. The money in the fund grows tax-deferred and as long as you only use it for qualified educational expenses you don't ever have to pay taxes on the gains.

You also don't have to worry about saving too much. The federal financial-aid formula assesses parent-owned accounts at 5.6%, while student savings can be assessed a whopping 20%. But, if you want to avoid taxes you must use the funds for qualified education expenses, so you don't want to save more than you think your child will need for college.

If you follow growth and value investing gurus, you've probably heard of Legg Mason's Bill Miller. After 15 years of beating the S&P 500 index, the value investing champ is now in a two-year rut of trailing the index. What happened? All great things come to a change, so with another not-so-good trend under way, Mason is re-tooling some things to get back on track.

While I am a huge fan of growth investing and index funds, from international and emerging markets to REITs to small caps, I also pay attention to value funds and markets. With various industries and sectors, loading too much in one risks the potential for losing timing in another. Case in point: Miller's Legg Mason Value Trust (NASDAQ: LMVTX) was overweight in telecom and tech, and underweight in the energy sector in the last year or so, and that explains not beating the S&P 500.

How could such a seasoned manager miss the boat here? Like many of you, I've missed plenty of boats, and the man is only human. One of Miller's top 10 holdings is Amazon.com (NASDAQ: AMZN), which has seen a great rally this year, but still is overvalued once you consider the fundamentals of the company's financials.

Federal Reserve Chairman Ben Bernanke doesn't see himself as Wall Street's sugar daddy. That point is abundantly clear from a speech he made Monday in New York.

Although the Federal Reserve can seek to provide a more stable economic background that will benefit both investors and non-investors, the truth is that it can hardly insulate investors from risk, even if it wished to do so. Developments over the past few months reinforce this point. Those who made bad investment decisions lost money. In particular, investors in subprime mortgages have sustained significant losses, and many of the mortgage companies that made those loans have failed. Moreover, market participants are learning and adjusting--for example, by insisting on better mortgage underwriting and by performing better due diligence on structured credit products. Rather than becoming more crisis-prone, the financial system is likely to emerge from this episode healthier and more stable than before.

That sound like tough love, doesn't it? Bernanke certainly seems to be sympathetic to the plight of average people and said the Fed will take action "as needed." There may not been a need for the Fed to do anything at its upcoming meeting. September retail sales were pretty strong and data indicates that consumers are weathering the economic uncertainty.

Bernanke doesn't mince words. He said "further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year." But does that mean that more interest rate cuts are coming? I am not sure.

People shouldn't expect Bernanke to deliver them a rose garden of continued interest rate cuts which he clearly has no interest in promising.

BusinessWeek reports that the value of private equity deals tumbled 68% from the second quarter to the third as a liquidity crisis slashed the availibility of credit that makes such deals possible. While the absence of deals from the business headlines has been obvious, the extent of the damage is now clear.

The statistics are startling. Worldwide, there were just three buyouts of $1 billion or more during September, 10% of the 30 such deals reported in May. The trend was global, although it was most severe in the U.S. Global M&A in the third quarter slowed to $992.1 billion, down 43%, from $1.7 trillion a year earlier. The third quarter this year was still 24% higher than the volume of $799.5 billion during the third quarter of 2006. U.S. deal volume in fell nearly 50% during the third quarter, to $308 billion, down from $606 billion in the second quarter. But U.S. deal volume for the quarter was up 13%, from $274.1 billion a year earlier.

What's next? If the credit markets can find a way to reprice risk that's acceptable to private equity firms, acquisition targets, and investors in private equity loans then the deal business could revive. The recent closing of KKR's acquisition of First Data suggests that this is possible. Most likely, only the most conservatively structured deals will make it through this tighter credit sieve.

That means deal volume will not return to where it was and that investment banks -- which have invested so heavily in serving private equity firms -- will need to find new ways to make money.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

You currently don't have to ask too many Americans about economic conditions in order to get the impression that at least here at home a majority of people sense that economic upheaval is quite underway. The word recession is becoming a bit too commonplace for my taste and I have come across more than a couple references to "the coming pandemic." I myself wouldn't go so far as to predict widespread economic collapse, but I have called the current economic environment a "realignment" and I hold with that assessment.

In light of our volatile economic times I thought it might be a good thing to do a quick piece about risk assessment. I have suggested that now is the time to cut risk to the bone; I still hold to that. The theory is that the greater risk you take the more you should be rewarded for taking that risk. My position is that currently our high risk economic environment will not, except in a few scattered cases, provide adequate return for the risks involved. In my opinion the risk curve is temporarily broken and I suggest holding the bulk of your money away from high risk play.

My email inbox is full these days with investors wanting to know how to manage these fickle and turbulent markets. It is true that, given the increasing complexity and sensationalism (mortgage defaults, Chinese dominance, global warming) plaguing the financial markets, it is easy to lose one's way.

In Invest Like a Fox . . . Not Like a Hedgehog, Robert C. Carlson, editor of the monthly newsletter Retirement Watch and managing member of Carlson Wealth Advisors, provides a clear-cut essential guide for enhancing any investor's financial prowess. Carlson's innovative approach to developing investment strategies eliminates the "noise" that frequently overwhelms investors.

Invest Like a Fox is the type of book I personally look for: A driver's manual for the investor looking to navigate today's financial markets. The book trains you how to avoid looking back at your mistakes or successes, but instead promotes keeping your eyes on the volatile and bumpy road ahead. Packed with expert advice and in-depth insight, this all-inclusive guide will enhance the way you think about investing and assist you in creating an investment strategy.

In the past couple of weeks, investors, traders and company managements have probably used a little different "F" word with the market volatility. The word I have used for over 20 years when we have encountered these types of markets is FUD.

FUD stands for fear--uncertainty and doubt. FUD makes the world--okay maybe not the world, but the markets go round. Typically, in stable markets investors like the status quo: earnings come in as expected, stock nudges up and everyone sleeps well. Life is good, markets are good. Just when you least expect it--here comes FUD!!

The fear is will we ever see profits again? Will my stocks make their earnings expectations or will guidance go way down crushing their valuations? Will the Federal Reserve wake up and absolve us of all past sins?

Uncertainty is can this market really go up again? Can companies make numbers and be optimistic? Should I be in US Treasury securities because they are guaranteed by the full faith and credit of the US Government? Will other major world markets follow our lead and continue melting as well?

It's been five years since the current bull market began. Given the way things are going lately, it may be time for a brief refresher course on the ins and outs of bear market trading.

Yesterday's wide range and violent late-day turnaround illustrates one difference between the two kinds of markets. When the bears are in control, fear, rather than greed, is the dominant emotion. That means traders and investors often shoot first and ask questions later, triggering abrupt swings in both directions.

Because rumors, spin, and cheerleading tend to fill the void created by anxiety and doubt, market participants are easily drawn into responding -- and overreacting -- to all sorts of noise, whether relevant or not.

These lemming-like rushes are exacerbated by various technical factors. For one thing, bear markets always see diminished liquidity, as dealers and investors become extra cautious about throwing precious capital around. In addition, market depth suffers because traders are unwilling to hang tough when jobs, bonuses, and nest eggs are increasingly at risk.

Margin calls and other forms of forced selling (e.g., traders being forced by risk managers to cut their books) can also cause prices to jump from one big figure to the next -- and the next -- without stopping in between.

In such an environment, emotional detachment is key. Investors need to be more disciplined than ever. For example, rather than chasing whipsaw moves and getting caught up in all the insanity, try setting entry and exit points that capitalize on the volatility.

Of course, dangerous emotions such as hope and denial must be avoided at all cost. When it comes to dealing with mistakes and losses, the first cut is usually the cheapest.

Inside of investing there is a culture known as 'arbitrageurs.' While there's many different types of arbitrage, merger arbitrage has become an increasingly-used strategy amongst traders and investors during the last few years. The primary reason: the private equity boom.

Merger arbitrageurs try to purchase stocks after a buyout has been announced but before it has been completed. For example, if a stock is being taken out for $22 per share and is currently trading for $20 per share, the 'arbs' might buy the stock betting that the deal is completed and they can keep their 10% assumed rate of return. Understandably, the increased private equity activity during the last few years has helped to fuel a boom in this strategy.

But the Wall Street Journal's "Heard on the Street" column is reporting [subscription required] that many arbitrageurs are pairing back their exposure to the merger arbitrage space due to losses amounting to more than 2.5% already this month. What's the reason for the weak performance? Simply put, the increased borrowing costs for private equity funds have made many deals unlikely to be completed because they make less sense for private equity investors.

I don't think I can count how many times I have heard in my career "you can always count on Coca-Cola, no matter what condition the economy is in." It's as true today as ever. With the markets reacting in a volatile manner, globally, Coca-Cola Co. (NYSE: KO) is as solid as a rock. This $125 billion market capitalization company is only $2 off of its 52-week high of $56.71. The dividend yield is a solid 2.5% and Coca-Cola has a nice history of raising the payout.

Coca-Cola is one of the world's most recognizable brands. Coca-Cola was a global company before most of us knew what "globalization" meant. It is one of the United States most important exports. Besides the flagship product of Coke, the company also markets consumer favorites like Diet Coke, Fanta and Sprite. Latley, the company has expanded its product offerings to include bottled water as health-conscious consumers have gravitated to this sector of the beverage industry. Coke has successfully diversified its revenue and earnings base by expanding to this valuable part of the industry.

The amazing aspect to the Coca-Cola story is how professional portfolio managers view this company. The revenue and earnings growth rates are only about 10%, but yet Coca-Cola sports a hefty price-earnings multiple of 24 times. Portfolio managers have such confidence in the quarterly performance of Coca-Cola and the absolute consistency of its numbers that many refer to Coca-Cola as "the sleep well stock." This means they do not have to worry quarter-in and quarter-out about Coca-Cola achieving stated expectations: it's virtually automatic.

If you need the money you've invested in stocks within the next five years, you should consider selling your stocks and parking the proceeds in a money market fund that invests solely in U.S. Treasury instruments. If you can wait for that money for more than five years, you will need a strong stomach as the markets correct. But eventually, markets will recover.

To decide whether you should sell your stocks now, you need the following information:

• The price at which you bought the stock(s)
• The current market value
• The tax rate you'll pay if there's a capital gain
• An assumption about how far down your stocks will go in the next five years
• An estimate of the after tax rate of return you can earn in a money market fund

If you have this information, you can do a quick calculation of whether you should sell now or hold on for the painful ride. Here's an example:

George C. Lane developed the Stochastic Oscillator in the late 1950s, according to Stock Charts. You can view their page for the extensive, mathematical calculations behind the indicator because they can explain it much more simply than I can. However, here's the important thing: I've found that this indicator has predictive value in helping me spot overbought or oversold situations.

I never buy stocks simply because they are overbought -- the stock needs to be displaying the strength needed to stage a rebound or "bounce." For example, in the two situations I highlighted in a recent technically focused article, both of the stocks were oversold (one of them according to stochastics, the other from price action) and both were showing strength.

This is important because, in my experience, stocks can remain overbought or oversold for a very long time. While you might argue that, if this is the case, then why should someone even spend their time looking at the indicator? In my opinion, the same could be said about judging a stock's value -- a stock can remain over or undervalued for a long time before the true value is reached. That doesn't mean performing such measures is a waste of time.


As you can see from the chart, Stochastics certainly aren't a "holy grail" for market timing, if employed with the proper mindset, they do hold predictive value, in my opinion. While I'm sure efficient market theorists are going to attack me for that statement, I think the chart speaks for itself.

You can see that the first time the stock was "oversold" (bottom of oscillator), as soon as the stock began to rally, the rally continued for 10%+.

However, as you see, it is not flawless. For the stock's run from $23-$33, the indicator would have had you selling after just a small percentage of that move. But that's understandable in my opinion, because the market was playing catch-up in Microsoft as people realized that a low double digit earnings multiple was extraordinarily irrational for such an incredibly profitable company.

Through this post I've tried to explain how I use the Stochastic Oscillator so you can better understand what it means if you see it inside charts in my post. Feel free to comment with any questions!