He spent days sitting through free seminars to become a super trader. Lesson number one: It’ll cost you.

Admit it: You’ve been tempted. You’ve seen the infomercials for trading systems that will teach you how to master the markets. Sign up for a free seminar in your area and you’re on your way to wealth and freedom. Ordinary people just like you are earning thousands each month. Why not join the club?

With visions of early retirement dancing in my head, I decided to take the plunge, or at least the initial part of it. I would attend the free seminars of three big trading-education outfits: Online Trading Academy, BetterTrades and Profit Strategies. I wanted to see whether these outfits delivered on their promises to help people become successful traders. Here’s what I found.

“Respect your capital”

The first rule you learn at the Online Trading Academy (OTA) is not to trust Wall Street with your money. “Wall Street has trained us to be buy-and-hold investors,” the instructor, Chris, told me and the two other students attending the Power Trading Workshop at the company’s offices in Vienna, Va., a suburb of Washington, D.C. (OTA also has offices in the United Kingdom, Singapore and Dubai, as well as in 29 other cities in the U.S. and Canada.) This is a bad thing, Chris said, because the market goes up, down and sideways. And when it heads south, as it did during the 2007-09 bear market, buy-and-hold investors get crushed. OTA’s mission was to teach the likes of me how to make money regardless of what the market does.

How, you ask? Through the power of technical analysis. Technical analysts study past data — primarily a security’s price and trading volume — to predict the future. They look for patterns to find reliable signals of when to buy or sell financial instruments, such as stocks, options, futures and foreign currencies. The process involves studying a menagerie of indicators, such as candlestick charts, Bollinger bands and something called the stochastic oscillator. Technicians care little, if at all, about fundamental analysis — the examination of, say, a company’s earnings and balance sheet or of general economic conditions.

Technical analysis has both passionate critics and ardent adherents. For example, an October 2009 study by New Zealand’s Massey University found that of more than 5,000 strategies that employ technical analysis, none produced returns in the 49 countries where researchers tested the strategies beyond what you’d expect by chance. However, scores of traders, including billionaire Paul Tudor Jones, say the discipline helped them amass great fortunes. So I tried to keep an open mind.

But a debate about technical analysis was not part of the program at OTA. Instead, the seminar quickly evolved from a round of Wall Street bashing to a pitch to enroll in the company’s $4,990 Pro-Trader class. The seven-day course would show “how to treat your capital with respect,” Chris said. He added that some of the academy’s students had doubled their money in three months after taking the Pro-Trader class. Once I paid tuition, I could retake the course as often as I wanted. And if I used one of the six discount brokers that partnered with OTA, I would earn rebates on commissions up to the cost of the classes I took.

Overall, I left my free OTA seminar less than satisfied. I wanted to learn how to trade and all I got was a sales pitch. It was time to hit the road.

“Who likes money?”

I drove to the Hilton Airport Hotel in Norfolk, Va., to attend the Financial Freedom Expo, sponsored by BetterTrades. About 30 would-be zillionaires, mostly baby-boomers, sat in a cavernous ballroom. Men outnumbered women two to one.

BetterTrades’ presentation was the most lavish of the three seminars I attended. At the front of the room a large projection screen was draped in velvety purple curtains. Tables displaying neat rows of BetterTrades DVD box sets surrounded the screen. I felt like a contestant on The Price Is Right, especially after I met the expo leader, Steve, who was tall, tan and likable — just like the game show’s Bob Barker. Steve fired up the crowd with questions such as “Who likes money?” and “Who would like to make more?”

For Steve, successful trading was a matter of identifying support and resistance levels for a security. Look at a stock chart. If you draw a line that hits multiple points where the stock price bounces back from a low point, it is known as a support level. The line drawn on the chart that hits multiple points where the price peaks is known as a resistance level. Under technical analysis, a stock trader wants to buy at support (low) and sell at resistance (high). Sounds easy, but it’s difficult to know where the support and resistance levels are until after the fact.

With the class wrapping up, Steve had a special offer for me. For just $3,995, if I acted now, I could attend the two-day Market Essentials seminar coming to Norfolk. The first five people to sign up would get free bonus training materials. Steve said I had nothing to lose because if BetterTrades’ strategies did not earn me three times what I spent on tuition within six months, the company would refund my tuition or train me free of charge for up to a year until I mastered the program. (His offer did not take into account how much capital I would put up.)

Despite the guarantee, I wanted to know more about what I was going to learn in the class and what kind of return I could realistically expect to earn. Profit Strategies gave me a glimpse of what to expect.

“Work your tail off”

Profit Strategies (PS) takes the total-immersion approach to education, kind of like throwing you into the pool to force you to learn how to swim. That’s how I felt during PS’s free Active Investor Methods class at the Hilton Miami Airport. The two-day course, which had about 40 students, mixed beginners with trading veterans. We skipped the introductory material and jumped right into trading strategies.

The instructors, Mike and Jay, detailed several complicated systems. One moment we were discussing how to use a spike in a stock’s one-day trading volume to predict whether the price would rise. The next moment we were reviewing how to construct an “iron condor,” a strategy of buying and holding four different options with different strike prices. Between the presentations, Mike and Jay flogged PS’s eight-week courses on various trading systems, each of which cost $3,495. Students in the course would meet with the instructor online once a week for class and to review trades. “Only a limited number of seats left,” Jay said.

The audience had the opportunity to pepper Mike and Jay with questions. A newcomer asked them what kind of return one should expect to earn from trading. Mike said that a 5% monthly return sounded reasonable. That works out to 80% annualized.

All the seminars I attended were quick to point out that individual results will vary. And there’s the rub. Because the performance of individual traders is not public, you have no way of knowing how well these trading programs work. Sure, the seminars present testimonials from their top earners, but you don’t know how well the average student does. Studies show how tough it is to succeed at trading. In 1999, for example, at the height of the day-trading craze, the North American Securities Administrators Association studied the accounts of day traders. Only 11% consistently generated profits, and 70% sustained losses that wiped out their accounts. None of the seminar com-panies monitors the success rate of all their graduates. Says Judy Hackett, BetterTrades’ marketing chief: “We can only track the satisfaction of our customers, and we have lots of very happy customers.”

Students who have succeeded with these systems swear by them. Jeffery Kronenberg, a 30-year-old former life-insurance salesman, says he is able to support himself in New York City using the skills he learned at OTA. He has been a full-time trader since October 2009 after taking a class last May. “You have to work your tail off,” says Kronenberg, who typically gets up at 6:30 a.m. on trading days and works until the markets close at 4 p.m. “They will teach you, but you’ve got to really want it,” says Abba Genes, 26, of Mount Vernon, N.Y. He adds that the skills he acquired from BetterTrades allow him to earn about $1,000 a month to supplement his income as a concierge. Genes, who trades three hours a day in the morning, plans to become a full-time trader after he completes college. He says it took months before he learned how to generate trading profits. Meanwhile, big early losses nearly wiped out his account.

The seminar instructors I met said they made a good living from trading. But it’s impossible to know whether they are successful traders or just great salesmen. The trading-education industry does not have a good track record when it comes to sales practices. Seminar promoter Teach Me to Trade shut down in the U.S. after the Securities and Exchange Commission filed a 2008 complaint against two of its salespeople. The SEC alleged that in Teach Me to Trade seminars the pair claimed to be successful traders, but they actually earned their millions from commissions selling seminars rather than from trading. In December 2009, Investools paid $3 million to settle an SEC complaint that two of its salesmen misrepresented themselves at seminars as expert traders.

As I completed my journey, I couldn’t help but wonder why those who possess the magic formulas for successful trading would give away their secrets — even if they did earn $4,000 or so per customer. After all, if you can earn 80% a year, why would you run the risk of seeing the effectiveness of your strategy diminish as more and more people started using it (a common occurrence in investing)? That aside, what’s clear is that if you decide to learn how to trade from any of these companies, you will need to have faith that your instructors know what they are doing and that you can convert their knowledge into winning moves. The odds will be against you.

Why it’s hard to trade and win

High costs. Most trading programs charge more than $4,000 for their workshops and tutoring packages. In addition, trading generates a lot of commissions, usually $5 to $9 per stock trade at the typical discount broker.

Too much time. It can take years of practice to earn trading profits consistently. Even if you are not trading on a daily basis, you will have to dedicate several hours a week to studying charts and related data.

Potential losses. Trading can lead to huge investment losses. This isn’t for widows, orphans and those with weak stomachs.

Tough competition. Financial firms have better trading tools than you do. High-frequency trading systems utilized by professionals make it harder for individual traders to succeed.

From Kiplinger’s Personal Finance magazine, March 2010

A deluge of e-mail come-ons puts gullible investors at risk while the government does little to stop it.

Promoters of penny stocks typically pitch these high-risk investments as if they were valuable real estate, like oceanfront property. With little money down, you can make a quick-and-easy profit. But in reality, penny stocks are more like swampland. And now, thanks to spam, the muck is spreading at an alarming rate, and efforts to stop it have so far been as effective as ordering the tide not to come in.

You probably trashed an e-mail message last December touting Goldmark Industries. A spam campaign predicted that investors would earn spectacular returns. One e-mail, which forecast the stock would gain 1,077%, said, “Watch GDKI [Goldmark's symbol] soar on Wednesday, Dec. 20!”

Maybe you didn’t bite, but many others did. On December 19, the day before the spam campaign began, Goldmark closed at 17 cents a share. Nine days later, when the spam barrage ended, the stock closed at 35 cents. Those who held the stock before the e-mail campaign doubled their money. Investors who bought at the top lost their shirts. The stock closed at 6 cents in mid April.

If you think we’re talking about chump change, think again. The Securities and Exchange Commission says spam campaigns promoting Goldmark and 34 other stocks that the agency recently suspended from trading for ten days robbed investors of tens of millions of dollars. And those 35 are just a few acres of the swamp. The SEC estimates that 100 million stock-spam messages are sent daily. Postini, an e-mail-security company, says the volume of spam that hypes stocks has grown 120% in the past six months, and that about one-fifth of all spam is stock-related. (On April 13, the SEC suspended trading on three more penny stocks that it suspected were being manipulated through spam campaigns.)

Spam attacks

Spammers never let facts get in the way. Take an e-mail about Goldmark sent last October, before the campaign cited by the SEC. The note claimed that Goldmark, which says it produces and distributes hip-hop music, films and TV shows, had struck a deal with rap impresario Sean “Diddy” Combs. A Combs representative says the claim was fiction. None of the firms whose stocks were suspended, including Goldmark, acknowledge involvement in the spam campaigns.

People behind those campaigns have a big edge over those who buy on the hype: They know when the spam will end. A well-executed spam attack can produce triple-digit gains in a matter of days. Because of a December spam campaign, for example, the stock of Apparel Manufacturing Associates rose from 6 cents to 45 cents in just five days. It was among the stocks later suspended by the SEC.

Almost all stock spam is illegal. That’s because these e-mails violate the Securities Act of 1933, which, among other things, bars paid promoters from touting stocks without disclosing the details of their compensation. Spam that doesn’t allow you to opt out of the e-mail list (and most stock spam does not) also violates the 2003 CAN-SPAM Act, as well as state anti-spam laws.

You may have noticed that your spam blocker is letting more stock touts through. That’s because spammers have become more sophisticated. The e-mails you open look ordinary, but many messages are in the form of digital images that spam filters can’t read. And spammers avoid detection by using computer viruses to infect vast networks of computers, which then disseminate millions of e-mails.

Stock spam would wither without a healthy supply of junk-company shares, of which there is no shortage in the U.S. Most of these low-priced, thinly traded stocks are found on the Pink Sheets and the OTC Bulletin Board. NASD, the self-regulatory body of the brokerage industry, runs the OTCBB, and stocks quoted by this service must register with the SEC. That cuts down — but doesn’t eliminate — the number of stocks that can be manipulated. The Pink Sheets, a private company, permits stocks that don’t file with the SEC to be listed on its service.

NASD won’t venture a guess at the number of OTCBB stocks involved in penny-stock spam. Cromwell Coulson, chief executive of the Pink Sheets, estimates that 10% of the more than 4,800 stocks that trade on his service are easy marks for spammers because the companies provide little or no financial information. The Pink Sheets has stopped quoting prices for the 35 stocks the SEC suspended as well as shares of more than 300 companies about which the company has received spam-related complaints from investors.

Draining the swamp

Suspending trading may help drain the swamp — although how effective the tactic is remains to be seen. Other methods of dealing with the surfeit of stock spam are shutting down or prosecuting promoters, educating investors, and flagging stocks that are ripe for manipulation.

Although illegal e-mail touts are generally untraceable, other markets have developed ways of stopping criminals from pumping up share prices. For example, the free-wheeling Vancouver Stock Exchange was long home to many penny stocks that were subject to “pump and dump” schemes. But in the late 1990s, Canadian regulators began requiring executives and promoters of small-company stocks to register their promotional activities and submit to background checks.

As a result, Canada eliminated the most egregious penny-stock scams, says Martin Eady, director of corporate finance at the British Columbia Securities Commission. Regulators crack down hard against those who violate the rules. In November 2005, for example, the commission suspended Ray Dabney, president of Xraymedia, after he admitted to sending out 22 false news releases about the company. Several Xraymedia directors serve on Goldmark’s board, and the two companies share the same Vancouver address, according to filings with the Pink Sheets. Xraymedia was the subject of a 2003 spam campaign, according to Spamnation.info, a Web site that tracks penny-stock spam. Shares of Xraymedia are quoted on the Pink Sheets. Although barred from the Pink Sheets, Goldmark shares may still trade if a broker is willing to sell them to investors (few are).

Because markets north of the border are unfriendly to stock scammers, they focus their efforts on Canadian companies that trade in the U.S., where they face fewer restrictions, says the Pink Sheets’ Coulson. Eady estimates that more than 660 companies from British Columbia are quoted on the OTCBB and the Pink Sheets but don’t trade on a Canadian exchange. Canadian regulators are considering even tougher measures to restrain their home-grown stock scammers, Eady says, even though most investors ripped off by their spam live in the U.S.

Not all spam involves Canadian companies. Coulson believes that groups of scammers based in Florida, Nevada and Texas hype many U.S.-based companies that are the subjects of pump-and-dump campaigns.

As a practical matter, prosecuting spammers isn’t easy. For a promoter’s claims to run afoul of the SEC, the law states that a “reasonable” person would have to believe a touter’s claims are true, says Donald Langevoort, a Georgetown University law professor and a former SEC special counsel. But because most reasonable people would not believe the claims, the law doesn’t view many of these assertions as illegal, he says. The SEC says it knows who orchestrated the spam campaigns behind some of the 35 stocks it briefly suspended. But as of mid April, the commission hadn’t lodged complaints against any of the perpetrators.

What’s needed next

The best way to protect investors is to keep reminding them of the dangers of acting on e-mail touts. Over the past three years, NASD has issued six alerts about stock spam on its Web site, but the gullible continue to be taken in. “Only investor education can have a real effect,” says Langevoort.

There may be a better solution than education: identifying stocks that are ripe for manipulation. Coulson plans to label Pink Sheets stocks suspected of being involved in pump-and-dump schemes with a skull-and-crossbones on the Pink Sheets Web site. He has also proposed that the SEC require more information about promoters who legally tout stocks. An SEC spokesman says the agency is reviewing Coulson’s proposal but adds that the commission doesn’t have the power to impose Canadian-style rules without congressional action. Congress hasn’t considered any legislation to limit penny-stock spam or restrict stock promoters.

Meanwhile, stock spammers mock efforts to impede them. On March 11, only three days after the SEC announced its crackdown, a flood of spam touted United Environmental Energy (UTEV) as a “HOT NEW SEC APPROVED STOCK FOR YOUR ATTENTION!” The spam asserted that United was not a “Pump&Dump” stock. Over the next four days, the shares rose from 5 cents to 40 cents, then quickly fell to 10 cents. The Fort Lauderdale, Fla., company, which does not file financial statements with the SEC, says it was not involved in the spam campaign.

PAID TO TOUT

It’s legal, but so what?

Not all touting of penny stocks is illegal. Jonathan Lebed runs a legal tout business. On February 5, he signed a contract to promote the stock of mPhase Technologies, receiving 400,000 shares as compensation. In return, he sent out dozens of e-mail messages to his thousands of readers. A February 8 e-mail said mPhase stock “is going to the MOON and NOTHING will hold it back!!!!!!!!!!!!!!”

Hyperbolic e-mails of this sort essentially create a self-fulfilling prophecy. In this case, mPhase shares, which trade on the OTC Bulletin Board under the symbol XDSL.OB, rose from 16 cents at the start of the campaign to 27 cents in just 11 days. In mid April, the stock traded at 15 cents.

As a teenager, Lebed gained notoriety as the youngest person ever prosecuted by the Securities and Exchange Commission. The SEC accused him of racking up hundreds of thousands of dollars in profits by visiting Internet chat rooms and talking up “micro cap” stocks he owned. Lebed negotiated a settlement in which he did not admit wrongdoing but agreed to forfeit $285,000 in profits plus interest. Now 22, he says he wants to help good companies find investors. His service reaches 5,000 people who have signed up for his e-mails. Every e-mail discloses the stock and cash payments he receives on behalf of a “third party.” That’s all he needs to do to stay legal.

Calculated risk: A safe approach to penny stocks

Penny stocks get the greed glands going — with good reason. It’s a lot easier for a 10-cent stock to double or triple in no time than it is for a $100 stock, even though price, by itself, is not a measure of value. But penny stocks — defined by the Securities and Exchange Commission as those that don’t trade on Nasdaq or on an exchange and sell for less than $5 — are generally far riskier than higher-priced stocks. If you’re still tempted by low-priced stocks, here are some ways you can avoid being ripped off.

Look for the financials. Tiny companies don’t have to file audited financial reports with the SEC. If a company you’re interested in doesn’t file, stay away. Financial data for most penny stocks touted in e-mails is either crummy or nonexistent.

Check the market value. Not all low-priced stocks are small companies. If a company’s market value (share price times shares outstanding) is $50 million or more, chances are it’s legit. Among the stocks recently recommended by the Turnaround Letter, a newsletter with a superior stock-picking record, five traded in mid April for less than $5 but sported market capitalizations of $218 million and up. The best known: Gateway, the computer maker, with annual sales of $4 billion and a market value of $848 million. It traded at $2.23.

Don’t bet the ranch. Use only a small portion of your money to dabble in penny stocks and buy only if you can afford to lose 100% of your investment.

From Kiplinger’s Personal Finance magazine, June 2007

Full-page ads promoting this small retailer’s shares are running in major business magazines. Investors beware.

Guangzhou Global Telecom has made a big splash in its brief life as a U.S.-traded stock. Shares of the small Chinese retailer started trading here on May 15 with an opening share price of $1.75. In little more than two weeks, Guangzhou soared 51% to close at $2.65 on May 31. Is it the latest hot company from China? Or is its rapid rise just due to hot air? While you decide, we suggest you hold on to your wallet.

Full-page advertisements that appeared in BusinessWeek, Forbes and Fortune make Guangzhou Global Telecom (symbol GZGT, quoted on the OTC Bulletin Board) sound like a major player in the world’s most populous country. They say that Guangzhou has partnered with China Mobile, China Unicom and China Telecom, and that its “major carrier partnerships account for nearly $50 billion in revenues.” Readers are encouraged to buy Guangzhou’s stock because it will “fuel your portfolio for explosive growth.”

Expect to see a lot more Guangzhou Global Telecom ads. Its advertising firm says similar ads are scheduled to run in upcoming issues of The Economist, Institutional Investor, Money and SmartMoney magazines, as well as other issues of BusinessWeek, Forbes and Fortune. We rejected the ad in Kiplinger’s Personal Finance and on Kiplinger.com because the claims made in the ad could not be substantiated and because our inquiries raised more questions than they answered. In fact, the more we looked at this new stock, the more our eyes burned.

How to hype a stock: As the promoter, you first order up the advertisements. In the ads, you refer people to a so-called third party to attest to the company’s virtues. To be that neutral party, you create an online newsletter. As its editor, you install someone whose existence as an actual person cannot be verified. Then you begin trading the stock, accompanied by almost daily press releases that create a drumbeat of optimism.

Many other penny-stock promoters have trod this path. It’s the audacity and intensity of the promotion of Guangzhou Global Telecom that sets it apart. John Pentony, publisher of StockGuru.com, says he has never seen stock promoters advertise in major national business magazines. The promotion also seems unusual to Cromwell Coulson, chief executive of the Pink Sheets, a quotation service that lists thousands of penny stocks. “Business magazine ad selling must be pretty soft if they are taking those ads,” he says.

NASD, which runs the OTC Bulletin Board, would not comment on the Guangzhou promotion, but says investors should be wary of stock promotion in general. “Investors have to use exceptional caution when investing in stocks advertised in magazines and fliers because they might not disclose all the material facts that would be important to the decision,” says Cameron Funkhouser, NASD’s senior vice-president of market regulation.

What we noticed in particular about the advertisement was that it refers readers to a Web site called GrowthStockGuru.com. And it quotes the publisher of Growth Stock Guru, Aharon Bronfman, as saying “Companies like GZGT will be discovered and their valuations will skyrocket.” Go to that Web site, however, and you discover that Guangzhou Global Telecom is the only stock it promotes — one reason being that the site went online only days before the stock began trading. The timing can make you suspicious about Bronfman’s claim that three other penny stocks had soared after being discovered by the Web site. (By the way, we searched numerous public and private databases for his name and came up with a blank, meaning that Bronfman has been invisible during the 15 years he claims to have been in the investment business.)

Then we come to learn that the buyer of this small fortune in advertising was not Guangzhou Global Telecom. Richard Yan, a Shanghai consultant who claims to speak for the company, denies it has any involvement in this ad offensive. Rather, the ad agency placing the ads, Mediabids, says the ads were paid for in advance by Growth Stock Guru. In addition to the magazine ads, Growth Stock Guru mailed an expensive glossy eight-page brochure prospecting for Guangzhou investors. Growth Stock Guru, in turn, says it was paid to promote the stock and place the ads by Eminiar VII LLC, which describes itself as a non-controlling shareholder of Guangzhou Global Telecom.

Aggressive promotion aside, is the company worth $2.65 a share? Guangzhou’s filings with the Securities and Exchange Commission show a small company that sells cell phones and accessories — not a national telecom titan as implied by Growth Stock Guru. Guangzhou earned less than half a penny per diluted share last year — $220,373 on $12.8 million in sales. What about those billions in sales from carrier partners? Well, the company apparently does sell China Mobile, China Unicom and China Telecom cell phones and accessories in its stores, and those companies do have billions in sales. But there are no billion-dollar deals between those big China telecom companies and Guangzhou mentioned in SEC filings or on the company’s own Web site.

Guangzhou Global Telecom has eight stores in the city of Guangzhou and 40 employees. Guangzhou plans to grow by expanding to other parts of China and offering more services, such as games and ring tones, Yan says.

Guangzhou Global Telecom stock is wildly expensive, and yet the hype behind this tiny company is creating a tsunami of trading. Of those 53 million shares, all but 13 million were held by insiders at last word. Yet on May 31, more than 9 million shares, or 70% of the “float,” changed hands, as the stock advanced 10.4%, to $2.65 a share, putting its price-earnings ratio based on 2006 earnings at more than 500. The company has the chutzpah to forecast its own profits for 2007, 2008 and 2009. Even if you took its 2009 forecast at face value, you’re still looking at a P/E of 90 two and a half years from now, based on those fully diluted shares.

We keep bringing up all 53 million shares for a reason. After all, why spend all this money to advertise in business publications? What’s in it for the advertiser, Growth Stock Guru, or Eminiar VII LLC? If this promotion plays out in the classic manner, more and more of those 40 million shares that are sitting on the sidelines will be parceled out to naive investors at higher and higher prices. The trading volume on May 31 suggests that this process is well under way. When all shares owned by the promoter have been sold, the stock will have no support, and then it’s bye-bye bubble. (See The Truth Behind Penny Stock Spam.)

In sum, this is a small company with a scant financial record, a massive advertising campaign and an expensive stock. For any serious investor, Guangzhou Global Telecom raises more red flags than a Communist Party parade.

From Kiplinger.com

College students supply many of the offbeat picks for a unique fund.

The first thing you notice in Peter Ricchiuti’s office is the stuffed alligator head, its mouth wide open. Ricchiuti, a finance professor at Tulane University, in New Orleans, bagged the gator while hunting in the bayou. A former stock analyst, he now trains his students to track more elusive prey: small companies with untapped growth potential. More specifically, students hunt for these companies — “stocks under rocks,” Ricchiuti calls them — in the nooks of the Deep South.

Ricchiuti’s program is a training ground for investment analysts and money managers. Each year, he picks 46 companies and assigns his students, both undergrads and MBA candidates working in groups of three or four, to research them thoroughly. Their output, called Burkenroad Reports, is available free at www.burkenroad.org.

Fund angle

The research was good enough to persuade a small Mississippi bank to launch a mutual fund that makes liberal use of the students’ picks. Over the past three years to July 1, Hancock Horizon Burkenroad delivered a respectable annualized return of 14%, precisely the same as the average gain of all funds that focus on small, undervalued companies. Burkenroad research is “a great starting point” for the $11-million fund’s picks, says manager David Lundgren Jr. Recently, the fund held 57 stocks, 27 of them covered by Burkenroad analysts.

The student analysts work in a glass-walled, high-tech headquarters worthy of any big research operation. Inside, a wall-to-wall ticker relays stock prices for the companies Burkenroad analysts follow. There are Bloomberg terminals and large-screen TVs tuned to CNBC.

But the Burkenroadies aren’t shut-ins. They’re encouraged to rack up face time with executives of the companies they follow. “We get to walk in and meet with the CEO of the company, talk to the CFO and get a tour,” says Rob Tatum, 25, a recent MBA grad. And despite the youthfulness of the analysts, company officials take them seriously. The students “don’t take shortcuts,” says Al Petrie, of Energy Partners Ltd., an exploration company headquartered in New Orleans.

Dixie picks

Burkenroad students follow companies that are obscure, to put it mildly. Few pros cover the stocks, and they typically have a market value below $500 million. All are based in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi or Texas.

One of Burkenroad’s biggest coups was a call on Hibbett Sporting Goods. In 2002, the students were among the first analysts to follow the Birmingham, Ala., retailer. Burkenroad rated the stock a buy and its shares have since soared from $11, adjusted for splits, to $36 in mid July. But the students didn’t get the story entirely right. Their most recent report, from November 2004, suggested that the stock was fully valued. At the time, the shares traded for just less than $25. Intrigued by Hancock Horizon Burkenroad (symbol HYBUX; 800-738-2625)? Its D shares levy no sales charge but carry above-average annual fees of 1.65%. Depending on your perspective, the fund is either a gimmick or a promising vehicle for cashing in on undiscovered stocks. And if you pick your own stocks, visit the Burkenroad Web site for ideas.

From Kiplinger’s Personal Finance magazine, September 2005

Promotion to developed-nation status gives its stocks added appeal.

From Kiplinger’s Personal Finance:

Never mind last year’s war with Hezbollah in Lebanon, incessant rocket attacks from the Gaza Strip and growing concern about the possibility of a nuclear-armed Iran. The Israeli stock market is on a roll. Over the past five years to October 15, the Tel Aviv 100-stock index gained a healthy 29% annualized.

Click here for the entire article.