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Wednesday, July 19, 2006

Portable Alpha for Do-It-Yourself Investors

Many private investors, for a variety of reasons, analyze the market and invest on their own rather than employ professional asset managers. Although suitable for some, this approach can be daunting for most. Oftentimes, human emotion results in ill-advised buying or selling of securities. There are a variety of investment methods available, but being a successful investor requires discipline and strategy. Alpha Advisor Service, LLC subscribers benefit from professional technical analysis, not subjective opinion, which is a key component of a disciplined investment strategy.

The first step begins with both an honest assessment of the risk you’re willing to accept and the development of a disciplined investment strategy. Click here for a Risk Profile Questionnaire which will help determine individual risk-tolerance and investment objectives. Once completed, AAS recommends that our subscribers develop a personal asset allocation strategy that coincides with individual risk-tolerance and investment objectives. For further guidance developing an asset allocation strategy, AAS recommends that its subscribers visit the Asset Allocator provided by SmartMoney.com.

Do-It-Yourself Investors need to decide upon a “Top-Down” or “Bottom-Up” investment approach. Top-Down investors start with broad market analysis followed by industry and sector analysis. They decide to purchase individual stocks or funds within those sectors and industries that are performing best. Bottom-Up investors focus analysis on individual stocks or funds initially to determine which sectors and industries are performing the best. Once determined, they usually purchase funds that mimic certain sectors or indices.

As a Top-Down investor, begin with the Market Overview page to see the AAS Rating Score and Status for the Major Markets, Style Box Investments and Sectors. Also pay attention to the Technical, Fundamental and Sentiment indicators to gauge the health and direction of the market. Another possible strategy is for the Top-Down investor to use the Portfolio Builder page to determine which market segments and sectors have performed the best over the last week, month and year. Each sector and market has a link which, when clicked, shows the investor the highest AAS rated equities within that sector or market.

A Bottom-Up investor would start with the Top Ten page to determine the AAS Rating Score and Recommendations for the stocks, funds and ETF’s included on those pages. If there is a common sector or industry out-performing, consider selecting an index or fund representing it. An easier method would again deal with the Portfolio Builder page, which can be used to determine which market segments and sectors are outperforming currently.

Building a custom diversified portfolio in relation to the investment objective, risk tolerance and strategy is quit easy with AAS. Obviously, private investors should understand that different securities provide various returns and investment risks. As with any investment decision, AAS urges investors to read and understand the investment prospectus prior to commitment. Because AAS includes sector and market analysis in addition to stock, fund and ETF analysis, investors have the ability to build and manage a complete, diversified, long-term portfolio and then augment the return by implementing portable alpha into their daily investment strategy.

Once the portfolio is established, private investors should keep an eye on the AAS Rating Score, the “AAS Recommendation” and the Sell-Limit Watch for each position. Pay special attention to any securities that have a steadily declining AAS Rating Score. If a security currently owned no longer has an “AAS Buy Recommendation,” but the Last CP is greater than the Sell Limit Watch, this is considered a recommendation to “hold” the security. Subscribers have discretion over when to sell based on individual risk tolerances and investment objectives. For guidance, AAS includes “Sell” recommendations when the security violates any of the indicators used in the analysis. Finally, AAS recommends that investors periodically re-balance their portfolio based on their own objectives and investment outlook.

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