Steve Pomeranz is the principle advisor and president of Steven L. Pomeranz Financial Management, a wealth management and advisement firm in Boca Raton, FL, formed just shy of 30 years ago. Steve is also the host of an NPR associated talk show called On The Money!, airing on member station WXEL here in South Florida twice a week. The show is refreshingly diverse; Steve regularly invites investment professionals and money experts from all corners of the financial services industry, and beyond.

I’ve listened to Steve’s show for quite some time now, and even attended a Table Talk discussion event he held last year at the WXEL station. It was an interesting experience; I was the only 25 year old in a room of retirees, and they all had the same thing to say. “What will I do about retirement?” “When will the stock market come back?” “Should I dump all of my AIG shares?”

Steve sat at the head of the large oak table, legs folded, fingers interlocks and knuckles on the table. He was there to answer questions, and answer every single question he did. I immediately got the feeling he had done this before – after the energy crisis meltdown of the late 70’s and ensuing sky-high unemployment, inflation (13.5% according to Wikipedia.org in 1980), and with prime interest rates hitting 20%, he was counseling those clients at his Table Talk.

Steve likely didn’t have to do much crisis counseling between 1991 and 1998.

I could only image the Table Talk after the Dot-com bubble burst of 2000-2001. “My retirement was in Enron stock, what do I do now?” “Who is next to go bankrupt?” While not as severe or sparking widespread economic disaster with the same magnitude as the inflation of the 80’s or sub-prime meltdown of 2008, the victims of the bubble-burst needed those consultations.

So perhaps 30 years as a registered financial advisor, talk show host, regular contributor on CNBC and other nationally syndicated financial programs, and after being selected by Worth Magazine as one of the nation’s Top 100 Wealth Advisors (there are something like 50,000 Certified Financial Planners in the U.S. alone), I figured Steve would be the go-to guy for unbiased, financially-sound, tested, true, and trite advice for weathering the sea-sick feelings myself and other investors been living with over the stock market’s volatility and despicable 2010 performance.

“A lot can be accomplished by giving people context” Steve tells me, on the long-held process he uses to determining how much risk an investor or client can take, “everybody wants safety, everybody wants bonds, nobody wants stocks. Well, it wasn’t too long ago that people only wanted to own stocks, and you were crazy if you wanted bonds. You know what happened to that thinking.”

We spoke for a little while longer on the herd mentality that retail investors find themselves incapable of escaping. We can get so wrapped up in trying to beat markets and earning double-digits that often we jump into trades and investments without the effort or diligence of collecting all of the information that may or may not be immediately available to us. And while investment information is only a Google search away, the information that is chosen for distribution is chosen based on what product or products will be or is intended to be sold by the author, firm, or organization behind that information.

The real problem is that financial information is never free, whether it be from a penny-stock newsletter, a CNBC correspondent, or a stockbroker. Perhaps it’s free in the sense that you did not write a check to whoever your information is coming from, but, for example, say you made an investment in a tech stock just before it tanked 25%. What that information really free, or did you pay a 25% premium for a lesson learned? Maybe your stockbroker just talked you into investing in the newest and hottest index or mutual fund, and his commissions are drawn for your principle. Was that really “free”?

I’ve long been a fierce proponent of unbiased, fact-based information, and so has Steve. So much so, in fact, he’s built his career around offering fee-only based advising and his radio show is organized as a non-profit whose goal is to distribute the whole economic and financial planning story, good and bad, then allowing you to make the decisions.

Here’s Steve on the subject. “All the information for how to play golf is out there, but how many people can take that information and go win a tournament?” The point is that information is free (and biased), but taking that information and churning out wisdom is a skill and a profession as valuable as the need for a physician, an accountant, or a lawyer, and therefore, can never really be free.

Professionals help us find our way, and that’s exactly what the Pomeranz office does. The firm charges only for advice and the team lives and dies by the advice they give. After 30 years, I can safely assume Steve knows what he’s talking about, so I dished out some questions for him.

BW: Just how uncertain is the stock market landscape and prospects going forward this year?

SP: A couple of weeks ago I spoke the former Federal Reserve Bank of Dallas President Dr. Bob McTeer, and he was fantastic. We basically had a fireside chat about what he thought about the banks and what he thought was going on today. I was amazed; he was talking about how it’s not that the banks are bad, they are just scared to lend money and are only lending to their best customers. The banks would rather keep their money in reserves because of all the uncertainty. I said that sounds like almost everybody. People have their money in money markets and 1% CD’s because they’re scared to death, and it’s really insane. Bob says, “I’ve got most of my money sitting in a zero percent checking account as we speak” and I’m thinking, do you really want to tell me that? Aren’t you supposed to be smarter than the rest of us?

BW: A former fed governor with no confidence in our markets, staying all cash – pretty amazing.

SP: Bob probably has more knowledge, more contacts, and more experience, but nonetheless in the face of uncertainty, he’s just as clueless as the rest of us.

BW: Talk to me about starting out as a municipal bond salesman in your twenties. What did you learn about the need for sound, unbiased financial information and its availability?

SP: When I first walked into my job, I told them I’ll be honest – I know nothing about municipal bonds. But they said I already knew 99% about these bonds than most people. So I realized you have to just get on the phone and sell these bonds. It took me a good four to five years before I really understood what it is that needed to be done in order to successfully guide people into making money. I also found out early on that it’s a “sale” business – not an advisory business. The brokerage firm is filled with high-quality people with knowledgeable advice, but the bottom line is that it’s all about sales. I eventually got really tired or that and decided that I didn’t want to devote my whole life to lining my pockets but rather give people something good, something of value. We live in a society where investments are sold, and that’s why I chose to open a fee-only office all those years ago.

BW: Give me the story of a bad investment you made early on as a first-time investor.

SP: Back in the 80’s, non-publically traded real-estate limited partnerships were a huge thing because there were tax incentives prior to 1986. If you were a passive investor, for every $1 you invested, you could get $2-$4 in tax deductions. I put my own money into one of these things, and it required me to make commitment year after year. The amount I ended up putting overall was about $50,000, and long story short, if I got back $30,000, that was a lot. If I had put that money into S&P 500 funds, or had I bought Berkshire Hathaway or J&J, or just stop trying to be so cute and smart about it and instead just stuck to what was boring, I would have made so much more money for myself in that investment. An opportunity lost is an expensive lesson learned. In reality, learning on your own can cost you much more than simply following the advice of someone who’s experienced it. The loss on the investment in my example was the difference between about $50,000 and $30,000, but the opportunity loss was probably more like half a million dollars.

BW: I hear you talk a lot on your show about those long held, some would say boring, investment strategies: diversification, save your money, understand the fees associated with your investment. It’s obvious that investors are losing sight of these Buffet-like principles. Is this slip from what’s been considered normal for 50+ years a bad thing in your eyes?

SP: We’ve had ten years where the S&P 500 has done literally nothing in terms of point-to-point. There have also been other times in history where the lost decade has happened, and it’s around these times when investors attempt to “outwit” the markets to beat the average performance of a stock. This is a great opportunity for salespeople to come in and create these hedge fund-like products and arbitrage products that seem to cater to this desire that also happen to come with a lot of fees. The investment industry is not interested in providing the basics that investors need. I’m sorry to say that yes, there are times when you can make moves that take advantage of markets moving in either direction, but there also comes a time when the stock market just won’t be a great investment and we don’t know that until after the fact. We have to be humble in the face of unlimited uncertainty.

I read all the time about technical analysis and how it drives (by tremendous measures, actually) how and what a trader trades in any particular day. We see a flashy E*Trade commercial, and the most emphasized feature is always some new, glamorized technical gadget – a “world-indexed heat map”, for example – that probably no one really needs. But there is a darker side to technical analysis we haven’t fully yet felt, although I think we were recently brushed by its massive capabilities.

With the advent and explosive proliferation of the Internet and it’s widespread ability, coupled with the government’s deregulation of brokerage and security firm’s commission fees that gave birth to the discount broker, it seems like everyone is a stock-trading guru. I’m pretty sure my grandfather trades Ford stock from his kitchen table every morning, and I can’t do a YouTube search for the words “stock”, “market”, or a combination of both without returning at least 985 trillion hits of user-generated videos of nerds explaining how they trade $76 worth of some cheap penny stock.

I’m a big advocate of the free market system and free speech, but does everyone have to be entitled to those virtues? And since the answer is presumably “yes” (I’m an equal-opportunity learner, after all) can we at least recognize our weakness and limitations?

High-frequency trading was developed in the early 2000’s by a team of computer software programmers and mathematicians. The goal was to be able to shave off a fraction of a second (and at the same time, add to the price a fraction of a penny) to an electronic market order for a stock that was either being bought or sold by a retail investor using his online brokerage account, and then do repeat the transaction millions of times a day. Since then, high-frequency trading has come under direct assault from the Securities and Exchange Commission, advocacy groups, and finance journals like Money Magazine in full-spread feature articles and cover stories.

But we still haven’t got it yet. The controversy is based on the existence of an uneven playing field; that high-frequency traders have unparallel access to market inefficiencies and expose pricing vulnerabilities in a profoundly successful manipulation of liquidity.

As a result, it’s the retail investors that think just because they’ve made a few hundred bucks since they’ve started “day-trading” that they are indestructible experts. This dangerous mentality is so far from reality that maybe the only way we will all learn from the dangers in allowing the gap between the investment haves and have not’s is to actually experience them.

In early May of 2010, the Dow Jones Industrial Average plummeted nearly 1,000 points in one of the most gut-busting, nerve wrecking fifteen minutes in the history of financial markets. The event became known as the “flash crash”. The initial reaction reported in the press was that the drop had been an accident of the proverbial “fat-fingered trade”, a typo in the marketing orders that are placed by NYSE floor traders using electronic terminals. “Perhaps someone simply pushed ‘B’ for billion, when they meant to push ‘M’ for million” they printed. I immediately put up a blog post on Bullworthy’s homepage that warned the drop was more likely an unknown effect of the pervasive high-frequency traders and dark pools in which they operate.

A few weeks later, the Wall Street Journal ran an article essentially confirming exactly what I have been suspecting. You can find the Bullworthy Flash Crash article threads and compare the dates.

The investor playing field has been tampered and recalculated by smart, powerful, and resourceful traders who will always be employing new systems to make bucks off of gullible retail investors who think they can beat markets. For one, I would have to say that I’m not going to challenge these guys. While I don’t feel conformable making predictions, I’ve got a feeling we haven’t seen the end of the high-frequency trading poison seeping into the bloodstream of our worldwide economic and financial markets, and I’ll prefer to keep my distance.

Bullworthy Media is a specialty content generation, contribution, and management service, offering blog posts, website content, and journalistic articles to companies who understand the value behind engaging their Web visitors in new branded, social media outlets. Having a blog on your website helps to maximize your company’s image, interest in engaging with customers, and search engine optimization, or SEO.

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Bullworthy was founded by Tom Copeland, a University of Florida student studying finance with a concentration in investment banking. Bullworthy was first created as a blog to present financial fundamentals and guidelines to first-time investors, and has since taken on a new vision and mission: deliver engaging content to businesses of all sizes, at prices anyone can afford. To contact Tom, please do so at Tom@bullworthy, on Skype@tommycopeland, or AIM@tommycopeland. Visit Bullworthy.com and the Bullworthy New Medium page to learn more.

Towering credit card debt levels and low credit scores are an important barometer when measuring your personal financial stability among creditors, employers, and many others who may be evaluating your credentials. Prolonging bottomed-out and undesirable credit score levels can affect your life in so many obvious and sometimes not-so-obvious ways.

You may hear many synonyms or phrases that all mean the same thing in the realm of the available credit repair articles and publications put out by companies like ours. For the sake of our and others writings, “bad credit” is interchangeable with “low credit” or “blemished credit”. However you want to address it, the bottom line is bad credit can plague your personal and professional life for many, many years. Credit scores and credit reports are the primary measurement in how “loanable” you are, and everyone has one whether they realize it or not. The scores themselves range anywhere from 300 to 850 basis points, and there are three major companies that determine your creditworthiness using these scores – Equifax, Transunion, and Experian – and for the most part, your three scores are right around the same number for all three, plus or minus some points.

How is your credit worthiness judged? Lenders and creditors need to be able to figure out a system to benchmark your current and previous accountability with credit, and to do so they use what we refer to as your “credit reputation”. Your credit reputation is based on your credit score and your credit report. These are two separate entities; your credit score is simply a number, while your credit report is a explanation of your history with borrowing money.

First, let’s talk about your credit report. It’s one part of the umbrella under which we refer to as credit reputation, and arguably, the most important part. Just what exactly is in your credit history? What qualities of a transaction command reporting to a credit bureau? Here are the different sections your entire report is comprised of.

• Personal identity information: all of your personal data including names, current and previous addresses, social security number, birth date, current and previous employers, and other personal contact information like your telephone number.

• Public records: publically available information that includes tax liens you may have against you, bankruptcies and court judgments.

• Credit history: here is the bread and butter of your report. Your history will go back as long as you have been borrowing, and will show bills you have previously and are currently paying to banks, retail stores, finance companies, and others who have given you credit. There’s detailed information on the type of credit accounts you had with each creditor, the amount of credit available, outstanding, and what your monthly payments are. The history also shows accounts and loans that have been paid off, were or are currently delinquent, and even monthly payments that were missed but perhaps had been paid off later.

• Report inquires: this section will list all of the creditors, banks, and companies that you have applied for credit with. For example, the auto dealership that you have been considering a loan with will be listed. These institutions use the information on the credit report to match against its own standards to see if you qualify. Did you ever receive a direct-mailer offer letter exclaiming that you’ve been pre-approved for some fancy credit card? They use this section to find you.

• Disputes: The last section contains any previous or current disputes you have with credit card companies or institutions. There is a detailed report on how the situation came about and the resolution (or most updated information that has been made available).

For an example of what a real credit report looks like, click here.

Let’s talk about what doesn’t appear on your credit report, with any of the three major credit card bureaus. Your bank account numbers and balances do not appear on the report, and neither does your personal attributes like race or religion. Also excluded is your income or sources of income and personal driving record, criminal background, or history of arrest. Lastly, your medical history is not on your report, although you should beware that unpaid medical bills certainly would be.

Now, let’s discuss the other half of your credit reputation. Your credit score is computed by a complex mathematical model that is designed to evaluate all of the records on your personal credit file. It’s a risk model – the credit score was specifically designed to gauge just how much of a risk you are to any particular lender and the likeliness that you’ll pay off a high ticket loan or service over the next few years. Say you’re applying for a credit card or a car loan. The lender (or credit card company) will pull your credit report, review and evaluate your past credit history, and make a decision on whether the company will a) deny your application, or b) barely approve your application, often at a higher interest rate to make up for the credit risk you pose to them.

Fair Issac and Company developed the systematic formula that the three big credit bureaus use today. It’s important for you to understand that in 2001, with Congress under heavy pressure from consumer protection groups that included the Federal Communications Commission (FCC) a law was passed that required on a yearly basis making your credit score viewable via a designated website. But consumer, beware! There are tons of websites out there that claim to provide you a free credit report and/or score by first allowing you to see it, and then automatically locking you into a $14.95 a month service that “monitors” your information. Freecreditreport.com recently posted a disclaimer at the top of the homepage after the FCC went on a highly publicized siege against these kinds of “free service” companies and their misleading pitch ads.

To view your credit report truly for free, you can do so once a year at annualcreditreport.com. For a free and confidential consultation on further repairing your credit reputation, talk a reputable and competent debt settlement company today.

Understanding your credit reputation is as important for being a financially literate and smart consumer and investor as knowing how to buy your first stock is.

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“What’s with the huge attraction to tech stocks?” this first-time investor once asked. One would figure that in the embarrassing aftermath of the big technology stock bubble pop of 2000-2001, we as investors would have learned that while advancing science and research to the point where we can create microscopic microchips is sexy and exciting, it’s not necessarily something we know and understand well enough to invest in. And yet we do; by the billions, in fact.

The technology sector, a large market cornerstone of the global economy to which technology companies belong and are categorized, is as diverse as any other sector and comprises of more industries than the basic materials and utilities sectors. How many total companies make up the entire technology sector is anyone’s guess, but the number has to almost surely be on the larger end of the hundred’s. Trillions of dollars in revenues and expenditures, cash and profits flow in and out of these behemoth firms every year, and they’re all apart of it: every brand and product from Apple and their iPhones to the companies that make the guts of the device; from the personal navigation systems sold by Garmin to the companies that design and build the sophisticated satellite communication systems floating around our atmosphere the GPS handheld depends on to function; even the healthcare industry has a present and powerful position in the tech sector with Cerner Coproation, a billion-dollar market capitalized medical device manufacturer.

So how on Earth could anyone (much less the first-timer) ever even begin to decide what companies and stocks to target when he or she decides to get in on the tech game? Well, as always, it depends on your investment objectives and strategies. If you’re looking for a quick buck, simply print out a list of all the publically-traded tech companies you can think of, tape them to the wall in your living room, take 7-8 steps back, and throw darts. Whatever stock the dart lands on is the one you go buy. You’ll probably have better luck that way than ever tying to time a technology company using flaccid ”buy” or “sell” technical indications but out by amateur internet stock gurus inundating Google advertisements.

If your serious about buying a company that has great prospects for growth and consistent profits in the long-term, then read on. I didn’t want to just do a list of tech companies and draw on about how great each of them are, so I decided to just pick one company, and even more interestingly, a company that is not in tech, but uses tech. A company that after years of research and development into their own proprietary technology, are finally on track to become the company loyal shareholders have been waiting for them to become.

Imax Corporation (ticker IMAX) The IMAX film format uses technology that increases the visual impact of a film or film media. The company uses expansively larger screens and a projection system that displays films much wider than the theatre industry standard. There is a long history of film producers and theatre owners to fulfill the movie-goers desire to be amazed and bedazzled, and many companies tried and failed to provide new products – until IMAX came along and secured patents to increase a films resolution and create screen that was much larger in size than their competitors. In 1967, the first IMAX film was shown at a film convention in Japan that demonstrated a screens ability to be so large that it actually covered a viewer’s total field of vision when looking forward. The technical patents IMAX owns are very complicated. Producing the high-quality resolution films we see today involves running the film horizontally through an IMAX camera to achieve a larger film frame. A special bulb which pressurizes the Xenon gas that is used in the projectors also contributes creating the brilliant detail and colors that wash the screen in an IMAX theater.

The company serves commercial multiplex, commercial destination, and institutional customers, including science and natural history museums, zoos, and aquaria and other educational and cultural centers. They also sell or lease its theater systems to theme parks, tourist destination sites, fairs, and expositions. As of December 31, 2009, its IMAX theater network comprised 430 theater systems, including 309 commercial and 121 institutional systems.

Today, IMAX held their quarterly results for investors. The highlights are impressive (again, after the last two quarter results were much better than anticipated as well) with total revenues increasing 38% to $55 million dollars; operating cash flow increases to $29 million dollars; increased theatre system installation outlook to be 25% more than previously stated; and a net income of $2.6 million dollars, or $.05 per diluted share.

Disclaimer: I don’t hold a position in IMAX stock, however I have owned shares in the past and anticipate buying into IMAX again soon, but not until I see the stock rebound a bit from an ugly plunge the price took during July 2010.

To Bullworthy on this piece, please go to the contact us page, or leave your comment below!

Here are some interesting links from PureSafe Water Systems:

• Water Purification Overview – from the website
• The Water Crisis Wiki – from the website
• Hottest Commodity to Invest In – from the website
• Water: Cycle of Life – PDF research from Leavitt Capital Management

Disclaimer I have not been compensated or paid by Puresafe Water Systems or their affiliates in stock, cash, or by any other means. Further, the author of this post nor his affiliates own stock or interest in this featured company.

For comments or questions please contact Tom Copeland from the contact page.

Check back often over the next couple of weeks as new services, offers, and products will be available.

As always, direct you comments and feedback to Tom@bullworthy.com. Enjoy!

Within the oil industry, there is a market that a small South Florida company with a proven technology is perusing called “produced water”. For every one barrel of oil extracted and produced from underground wells here in the U.S., up to ten barrels of water is extracted. This water needs to be treated and purified of its contaminants before it is released back into the environment. Just how much water needs to be separated and then produced by these oil explorers? To answer that, you’ll need to consider that more water is produced in one year from oil companies than the amount of water that spills over the Niagara Falls in nine straight days.

Researching companies that are positioned for results in the gulf spill disaster zone there are a few opportunistic publically-traded companies that highlight the skills needed. But the problem, from the day the Deepwater Horizon rig exploded in late April to today has been a severe lack in efficiency – getting more done with less.

Enviro Voraxial is one of the companies meeting the need for efficiency. When I spoke with the company’s chief operating officer John A. DiBella, he was in the Gulf Panhandle meeting with local communities, authorities, and oil spill clean-up officials to discuss their technology and demonstrate the oily-water separator his family and him had built an entire company around called The Voraxial Separator. The separation machinery comes in a series of scalable sizes that are all designed to treat a range of wastewater flow rates and volumes; the Voraxial is arguably the world’s most efficient technology for high volume, bulk separation of fluids such as oil and water.

It’s clear that BP was not equipped to handle this kind of spill, but Mr. DiBella is happy to offer up that the oil company has been responsive in their efforts to locate, test, approve and acquire technologies that can help manage the enormous clean-up effort that lies ahead. In our conversation, Mr. DiBella did confirm that BP is reviewing the Voraxial separators and that Enviro was now one of 60K original clean-up assistance applicants, and then whittled them down to 250-500 closely considered candidates the oil company would be in discussions with.

And that’s the theme Mr.DiBella and I agreed should be emphasized: efficiency. The Voraxial is a proven technology that has generated revenue for the company as a diversified machine coming in four sizes: the Voraxial 1000, the Voraxial 2000, Voraxial 4000, and Voraxial 8000, all designed to handle different volumes of fluid efficiently and cost-effectively while using less space and energy than other technologies. Customers include the U.S. Navy and the State of Alaska (both have issued Letters of Endorsement to Enviro Voraxial that can be found on the company’s website here), and other major, worldwide energy exploration and oil and gas drilling companies.

I asked Mr. DiBella to compare the Voraxial technology to some other high-profile competitors. One of them is a company called Ocean Therapy Solutions that offers an oil and water separator centrifuge developed with financial backing from actor and enviro-activist Kevin Costner. Politely, Mr. DiBella began by acknowledging that any separation technology that can be used should be used because this Gulf oil spill is such a grand disaster.

“It’s great that everyone is trying” he said, before going on to explain that Ocean Therapies separator maxes out at around 150-200 gallons per minute of separating power (about 5,500 barrels per day), while the Voraxial 4000 does over two and a half times the volume of Costner’s machine at fraction of the cost (about 40% the cost), weight, energy, and space. Finally, the Voraxial 8000 does about 25 times the volume of Ocean Therapies largest unit at about 3 times the cost.

Mr. DiBella was confident in the company’s discussions with BP and other Gulf officials in the benefits that the Voraxial technology can bring to all parties involved in the clean-up effort. “BP has been responsive” he said, before going on to explain how Enviro is positioned to not only properly deploy its units in a timely manner and contribute to the Gulf clean-up effort but at the same time maintain as a small company whose technology can be used in a multitude of other functions. The company is currently pursuing many projects in the refinery, tar sands and produced water industries.

Mr. DiBella has also forwarded on to me a letter he received from a fuel division manager from the U.S. Navy. Although the material was confidential and quotes were not available at the time of this publishing, it was well within the manager’s opinion that deployment of the Voraxial would reduce, by large margins the damage done t the Gulf and recover a far greater amount of hydrocarbons that have been released in the Gulf. The letter also went on to praise the technologies efficiency and conceded that the machine is so powerful, spills of any magnitude could be dealt with in the future.

I had also asked about the conditions of the fundamental capital structure of the company – specifically, cash flow and long-term debt. “You have a small company with new technologies working with some of the largest companies in the world with a clean balance sheet and at a time when our product is needed so desperately” Mr. DiBella said, “we moved this company to a debt-free position and we believe the shareholders will be rewarded”.

The debt-load he is talking about shedding is the largest long-term liability on the balance sheet, accrued salaries to executives, which was converted into stock options in the beginning of June. “The officers are not here to draw a salary” Mr. DiBella concluded just before he had to hang up, “we’re here to build a business and in doing so, benefit from the appreciation of our share price”.

As always, feel free to contact me with questions, comments, or concerns, or suggest another CEO or company to interview at Tom@bullworthy.com.

DISCLAIMER: I have not been compensated in any way, shape, or form by Enviro Voraxial, John DiBella, or any of their affiliates or third-parties.

Apple makes personal computers and mobile communications devices that are on the leading edge of invasive technology. Valero Energy is a major oil refining and marketing group that drills, processes, and sells gas to drivers all around the continent. And Coach makes, well, purses.

But there are many companies who operate in complex, obscure, and hard-to-understand industries that could potentially make shareholders very rich in the long-term…if that shareholder was able to understand what the hell is going on behind the scenes. This article’s case-in-point: biopharmaceuticals and drug development companies are difficult to understand, so I brought in some help to explain it all to us first-time investors.

Biopharmaceutical companies come in all shapes and sizes since gaining massive investor appeal in the 1980s when scientists and doctors began to discover that medical drugs could be produced by deriving proteins and synthesized DNA from other sources rather than a purely biological source. The first of such drugs was a blockbuster hit – biosynthetic insulin called Humulin, developed by a drug development company called Genentech and licensed to Eli Lilly, one of the largest drug manufacturers in the world. If you were a shareholder early enough in Genentech, I promise you were rewarded handsomely for your loyalty.

In 1985, the first year of sales for Genentech, the company logged $5.2 million in revenue. In 1986, the company logged an astounding $43.6 million and from there, forget about it. Check out this timeline:

What about the stock price? That record is quite impressive too, in fact, climbing from $15.00 a share in 1988 to over $90.00 in ten years time – a six-fold increase by 1999. Another interesting point is the way in which the stock price of a biopharmaceutical or drug development company reacts to macroeconomic movements or turbulence. During the financial crisis of September 2008, the company’s stock price was off only 11% or so, from an average of $90.00 a share to $80.00 a share during those panicked months. Compare those minimal losses with massive worldwide stock market average declines of 60-70% until the bottom of the Dow Jones Industrial Average Index finally brought the American economy to its bitter lows in March 2009.

I suspect the reason has to do with the nature of the business. These companies produce products, drugs to be exact, that save people’s lives. The biggest hurdles for these drug developers are actually quite simple to understand: investable capital to pay for expensive drug trials and overhead operations and landing Federal Drug Administration approval and clearance. Its how the drugs actually work that’s intensely confusing (eager to understand it all? Be prepared to enroll in medical school then – that’s about the only way to truly comprehend everything you’ll need to know to be an expert on any given biopharm company). If these companies can gain that FDA approval, then the next step is to land a partnership with a drug manufacturer because companies like Genentech and Bionovo are not in the business of actually marketing and selling the drugs; they simply discover the benefits and sell the rights to the discovery, profiting tremendously off the back-end sales.

Unfortunately for individual retail investors like you and I (not to mention first-time investors with little in any experience in researching these companies) biopharm and drug development companies are much, much more complicated to analyze in terms of share price valuation.

So let’s keep it simple for this articles sake: an inventor discovers a DNA or protein strand that can help treat particular types of cancers or diseases. The firm the inventor works for then patents, pays for, and tests their discoveries in controlled government experiments; if FDA approval and clearance is earned, they then partner up with large drug manufacturers and everyone involved (including shareholders of both partners) becomes instantly wealthy.

Of course, for most of these companies (and there are dozens in the U.S. and hundred in the world) the entire process from A-Z is like trying to wash a car in a sandstorm. The FDA trials alone can take anywhere from 3-5 years and cost millions of dollars. Sometimes those trials don’t include human testing, which can cost additional hundreds of millions but is almost always necessary because no drug partner would ever agree to manufacturer the drug without that kind of insurance and the same goes for the angel investors. The day-to-day operations are expensive, complicated, and full of setbacks that threaten to eliminate the existence of an entire firm and all of its work.

I wanted to know more. I got on the phone with Thomas Chesterman, the vice president and chief financial officer of the early-stage drug development company Bionovo, Inc. Bionovo currently has 6 developing drugs in its products pipeline, one of which is finally entering Stage III clinical trial, sort of like the equivalent of a baseball player getting stuck on third base. He says most drugs available on the market today to treat female menopausal symptoms are based on a foundation that has become irrelevant and outdated– by using chemistry instead of biochemistry – and essentially, biopharmaceutical based therapeutics are much more effective these days.

Tom gave me a timeline of how biochemistry and biopharmaceuticals have come about in the women’s health niche the company focuses on. Currently, women’s postmenopausal hormone therapies are effective but come with substantial side effects that include cancer and disease, recently causing the FDA to issue black box warnings. One of the companies early scientific advisors, Jan Ake Gustaffson, discovered a series of estrogen receptors (aptly named “beta” and “alpha”) were causing these abnormalities when activated by these drugs that flood the market (Tom made mention this discovery was so monumental he wouldn’t be surprised if Gustaffson received the Nobel Peace Prize). Menerba, the company’s first product in the pipeline, could become the remedy since the drug is selective in which estrogen receptors it activates, thus eliminating those newly discovered inherent risks. You can read Jan Ake Gustaffson’s biography at this link.

Tom and I talked at length about the evolution drug development companies take as society, consumers, and the government begins to discover the dangers and side effects of therapies that were developed years ago are actually much more dangerous than the new treatments and discoveries we’re making now as technology improves. Essentially, as Tom says, “most of our competitors are putting the same salt in different salt shakers”.

If you’re looking at drug development companies to buy stock in, make sure that company meets this basic criterion:

Take a deep look at the company’s pipeline.

Are there many different products in the making, or is there just one or two? Remember, with these small start-ups one product can make or break the entire company. Bionovo has three different drugs in or entering Phase trials with the FDA. There are also three additional discoveries the company has recently made that will sustain the long-term growth of the company. Remember, these drugs may take years and years of investment and incubation before even getting FDA approval, much less actually coming to consumer markets. Make sure those drugs in the pipeline are spaced out in equal intervals of time so that the company your looking at is not wholly dependent on one drug not being ready for sale for an unreasonably long time in the future (“It’s coming along great!” I can hear some clueless CEO trying to convince shareholders during a meeting, “Only twelve more years to go!”).

Make sure the company is actually meeting a high-demand need.

A company that promises to cure athlete’s feet is probably not one you should be betting the farm on. Bionovo has been in development of a orally-administered drug that has promising breast cancer treatment capabilities that so far the company has indicated as being a safer, more accurate, and more efficient treatment when compared with traditional therapeutics including chemotherapy.

Make sure the right team is being the company.

Having experienced and knowledgeable officers in the executive ranks and a powerful and deeply-connected board of directors is much more important than many investors realize. I call it “insider confidence” and I value it. When I buy a stock, I want to know that people who run the company have enjoyed success and they have an interest in the success. Insider confidence I believe is particularly essential in biopharmaceutical companies where cash is tight, the odds against success are high, and smart, dynamic leaders need to be steering the wheel.

For questions, comments, or concerns, contact me at Tom@bullworthy.com. To suggest a CEO or company you would like to see me interview, drop the suggestion in a comment below.

DISCLAIMER: I have not been compensated in any way, shape, or form by Bionovo, Tom Chesterman, or any of their affiliates or third-parties.

As always – follow it! Tom@bullworthy.com, Twitter@Financialbull, and Facebook@bullworthy.

Unemployment – Beware of Unfounded Optimism

“Unemployment is the lowest in eleven months” is the message conveyed by today’s job report. Not so fast, a look at broader measures shows this is not the case. In fact, there is reason to be seriously concerned about the jobs report and the outlook for stocks.

How do investors get ensnared or misled? They believe in never before seen and probably nonexistent phenomenon like a “jobless recovery.”

Like a baker presuming he can make a cake without flour, investors thought rising employment wasn’t an ingredient needed for an economic recovery. Well, the cake didn’t rise and about two months ago the stock market started to agree.

Following the April 26 highs, the Dow Jones (DJI: ^DJI), S&P 500 (SNP: ^GSPC), and Nasdaq (Nasdaq: ^IXIC) tumbled as much as 15% in 22 trading days. The release of the April unemployment data (released on May 7) was eclipsed by the May 6 “flash crash.”

As of yesterday, the S&P had fallen 17% from its April 26 high – a 20% drop is considered a bear market. Nevertheless, investors still feel that the market is stable.

The Real Numbers

The numbers released by the Bureau of Labor Statistics show that unadjusted unemployment numbers dropped from last month’s 9.7% to 9.5%. The seasonally adjusted unemployment rate rose from 9.3% to 9.6%. What is concerning, is that the real unemployment is still at 16.7%. Yes, 16.7%! This is the official number reported by the Bureau of Labor Statistics (BLS).

The BLS publishes different sets of data on a regular basis. The main focus tends to be on the unrealistic U-3 unemployment rate (currently 9.5%, seasonally adjusted).

U-3 is the “official” unemployment rate and illustrates total unemployed persons as a percentage of the civilian labor force. Another category, U-4 – includes unemployed workers plus discouraged workers. A discouraged worker is someone who’s available to work but has stopped actively seeking work.

U-5 unemployment includes the number of unemployed workers, plus discouraged workers, plus marginally attached workers. A marginally attached worker is someone who is able and willing to work but is not actively seeking work.

U-6 is as close to the real unemployment figure as government reporting gets. This number includes unemployed workers, discouraged workers, marginally attached workers, plus workers that are forced to work part-time because they are not able to find a full-time job.

According to the Bureau of Labor Statistics, the number of non-adjusted U-6 unemployed workers rose from 16.1% to 16.7%.

Keep in mind that neither of the above categories encompasses “unemployed self-employed.” Your handyman or contractor next door, or small business owner who can’t secure clients are not included. Adding those to the mix would put the real unemployment number above 20%.

No One is Spared

Unfortunately, job cuts have affected every industry sector. Job cuts in the technology sector (NYSEArca: XLK) have reached the highest level in four years. Just last months, Hewlett-Packard announced that an additional 9,000 jobs are at risk of being eliminated.

After attempts at delaying pay raises and implementing furloughs didn’t work, New York Governor David Paterson indicated he will seek layoffs starting January 1st. Thousands in the state workforce will be affected to achieve the targeted $250 million in budget savings.

According to a report by global outplacement firm Challenger, Gray & Christmas, U.S. employers began the year 2010 by announcing 71,482 planned job cuts, the highest tally in five months. The report, however, said that the increase in layoffs should not be seen as a sign of “recession relapse.”

Recession Relapse?

How do you define a recession relapse? Exactly when did the recession end that we might relapse?

Up until April, there has been a huge disconnect between what’s happening on Wall Street and on Main Street. From March 2009 to April 2010, the stock market (NYSEArca: TMW) has been steadily rising, as has unemployment. You’d expect stock prices to go up and unemployment claims to go down, but that hasn’t been the case.

When trying to figure out what’s next for stocks, we must first understand the pieces of the puzzle that caused the relentless 13-month rally.

From October 2007 to March 2009, the Dow Jones (NYSEArca: DIA), S&P 500 (NYSEArca: SPY) and secondary indexes like the MidCap SPDRs (NYSEArca: MDY) and small caps (NYSEArca: IWM) have lost more than half their value. Financials (NYSEArca: XLF) lost over three quarters of the market capitalization.

It’s nearly forgotten now, but in March 2009, investor pessimism had reached an extreme of historic proportions. In fact, on March 9th, the Wall Street Journal made a case for Dow 5,000 and Goldman Sachs slashed earnings growth by over 37%.

I Want What I Want

It was this pent-up urge to buy that sent stocks higher. No bad news could prevent the market from rising. Investors simply wanted to own stocks again and recapture some of their hefty losses. Like a swimmer who had been under water for a couple of minutes, the stock market had to take a deep breath.

Just as extreme pessimism marked the bottom of the down-turn, newsletters predicted that extreme optimism would mark a top. Concerning that top, one stated on April 16, 2010 that “historically there’s rarely been a more pronounced sell signal. The pieces are in place for a major decline.”

The One Constant

On a daily basis, economic news (such us unemployment reports) comes and goes. Some will influence the market, others won’t. If you’ve been following news reports and corresponding stock prices you will have noticed that the correlation between good news and higher prices or bad news and lower prices, is less than obvious.

One example still fresh in investors’ minds is that the blockbuster Q1 2010 earnings season was followed by the worst May in decades. Will the Q2 correction morph into the Q3 bear market?

Let’s take a look at a pattern that has remained consistant for hundreds of years. Extreme sentiment readings always result in extreme reactions. Reflections of such extreme sentiment are the VIX (Chicago Options: ^VIX), which dropped to the lowest level since July 2007 about ten weeks ago, or investor bullishness which, in April/May, had risen to the highest level since either 2000 or 2007.

Crowd behavior of investors is largely driven by perception. The perception that stocks will continue to rise has given way to the sobering realization that stocks can and will move in both directions. Investors concerns about stock valuations did become a self-fulfilling prophecy in 2008.

Soon, investors will once again refocus on valuations to see if a stock is worth its price tag. It was the return to due diligence that pummeled stock prices throughout 2008. Just as no bad news could prevent the market from going up throughout most of 2009 and early 2010, no good news has kept the market from falling over the past few months. This trend is likely to continue.

The 2008 declines were preceded by extreme optimism and a feeling that stocks have nowhere to go but up. In 2007, the Merrill Lynch global economics team went on record to state “that the economy will continue to grow in 2007 – with no sign of a significant cyclical slowdown.” Merrill Lynch was too optimistic to see its own demise.

Despite the extreme optimism we have seen, stocks continue to be grossly overvalued and due for another major correction.

Read the original article published here on eftguide.com.