Hello friends. Is everybody ready for the weekend? I know I am. Geez what a frustrating week. The market went up and the market went down, but when all was said and done the indices finished the week pretty much where they started it. Worse, the indices ended the week still trapped squarely in between a rock and a hard place. Gotta be honest though... I still sense more downside ahead than upside. We'll explain why below, but first I want to wrap up the discussion we started on Wednesday with a deep drill-down into the reality of the investment newsletter business. I know the last couple of chats have been a bit depressing, pointing out the ugly stuff of the financial publishing business, and explaining how so many publishers get it wrong. Today we're going to switch gears and look at how it's done right. I'll also confess I'm hesitant to share some of these ideas, as I feel like I'm giving away some good stuff I'd prefer not to divulge. Some of these ideas are also things I've been hashing out as parts of a book I've been working on forever. But, we've always made a point of giving away as much value as possible, so I'll go ahead and share some of my hard-earned insight. With that as the backdrop, here are four things we think every investing newsletter -- and every book, and every advisor, every media venue as well -- should understand and verbalize with subscribers. If they're doing at least these four things, they "get it." Even if you're not a fan of financial newsletters though, these are still great lessons to keep in mind. 1. Finding the right sector(s) is almost half the battle. Did you know the average difference between the market's top-performing and bottom-performing sector for any twelve month period is in excess of 20%? That's a big disparity, and if you can get in most of the right ones and steer clear of the wrong ones, you might be shocked how much better your portfolio performs. The counterargument is, of course, nobody can predict with sectors are going to lead or lag at any point in time, so diversifying into all of them is just prudent. I respectfully disagree. I've found my sector analysis tools to be very helpful in spotting budding leaders and laggards. It can be done. Here's the relevant statistic: 40% of an individual stock's movement is attributable to the sector or industry it's in. 2. It's better to buy a mediocre stock in a great market than a great stock in a mediocre market. This is a tough one for some people (pros and amateurs alike), since there's this mentality that there's never a point in time when you shouldn't be invested. Here's a little reality that may change your mind about that mindset though - on any given day, three out of four stocks are moving in the same direction as the market whether they deserve it or not. That's not to say you should sell all your stocks when the market is in a clear downtrend... for any timeframe. It is to say, however, you don't want to be adding new positions in a bearish environment, and if the bigger trend is bearish, you should be hedging your long-term trades one way or another. 3. Define your timeframe before you enter a trade. After being in this business for nearly two decades I can say with absolute certainty this is the number one stumbling block for most investors. That is, they let a long-term investment turn into a short-term trade, and vice versa. In investors' defense, it's not their fault. It's the media's fault. I'll pick on Neil Cavuto to make my point, as I know many of you have likely heard him hypothetically ask "What do investors need to do today with this information?"... with an emphasis on "today." The right answer the VAST majority of the time is nothing. There's rarely anything anyone has to do today with any piece of information. Merely asking the question makes it seem as if action is always merited. Here's my rule of thumb: Use quarterly information to make decisions for yearly timeframes. Use monthly data to make decisions for quarterly timeframes. Use weekly data to make decisions about monthly timeframes. If your newsletter isn't thinking in those terms, it's misguided. 4. Charts tell you when to buy (or sell) a stock. I know it's taboo for a lot of people to even think about looking at a chart. Stocks are investments in a company's results, and that's got nothing to do with a chart. Maybe that was the reality 30 years ago. Fact is, however, owning a stock isn't just an investment in that company's results any longer. It's also a bet on how the market will feel about a company's results at a certain point in time in the future. Remember, when you buy a stock, you're not giving that money to the company to invest in its business. That money is going to another investor. One of you will be wrong about that stock's future. Sure, corporate results tell you where that stock should be priced in the future. In the meantime though, charts tell you how the market's opinion of those results is changing... and opinions can actually be pretty predictable. Now, I'm not saying every newsletter you ever read should tackle those four things every single edition; we sure don't do it every day. It should be pretty clear, however, that the publisher/stock-picker understands these ideas. That's it. Hopefully you're at least a little better armed to go out there and really judge the usefulness of the myriad of newsletter choices out there. And like we said on Wednesday and Thursday, this is all building up to something big we're going to unveil on Monday. Stay tuned. As for the market today.... ugh. Take a look at the daily chart of the S&P 500 below. Yesterday's intraday reversal effort looked like it was going to take hold, but once the index got to the now-converged 20-day and 50-day moving average lines at 2062, that was it. The bulls were out of gas and started to peel back. You'll also notice there wasn't a lot of volume behind today's gain. Maybe it was just the pre-weekend blues. Maybe it's just the typical May blahs. Whatever it is, we're stuck on the fence, though fighting an uphill battle now that the 20-day line has crossed below the 50-day moving average line and the VIX's 20-day moving average line has crossed above its 50-day moving average line. This is one we'll just have to let play out a little more. Everyone have a great weekend.