The forces of dynamic chaos rule the financial markets. Understanding dynamic chaos helps us understand the financial markets.

People are running around today making investments and losing money without the slightest idea why the markets are doing what they are doing. They are like tourists on a beach watching the waves roll in, wishing they could be professional surfers. Then they ask some trusted advisor; "Should I go surfing today, or will tomorrow be better?" The advisor replies: "We have a special today! Let me sell you a surfboard!" He should be asking: "Do you have any idea what you are about to do? Do you even know how to swim?"

New York, NY -- November 22, 2002 -- Instead of learning about the whole system people buy the board, jump in, and hope for the best. Every once in a while someone gets a perfect ride, but most end up with sand in their noses.

The investor should ask himself a few questions.

1. Just how well do I know this beach?
2. Where are the rocks?
3. What are the conditions that generate perfect waves, and a perfect ride?
4. What are the conditions are that cause accidents?
5. Where are the sharks?
6. How's the weather?
7. Why is this guy so eager to sell me a surfboard?

Investor training and education will be the wave of the future. In other words, offer swimming lessons, maps that show danger zones, and teach the basics of wave dynamics. Help people make sound decisions by themselves and for themselves. Teach people to follow their own best advice, and then encourage them to have the guts to do it.

In the old days", a blue chip was a common stock of a nationally known company that has had a long record of profit and growth and dividend payments and a reputation for quality management, products, and services.

In a more current and relevant term we like to distinguish stocks by speaking of small-caps and large-caps. Small-cap stocks usually have a market capitalization (number of shares outstanding multiplied by the stock price) of $ 500 million or less. Since they are less established, small-cap stocks are usually more volatile than large-caps. Large-cap stocks usually have a larger capitalization (number of shares outstanding times the price of the shares = typically at least $5 billion in outstanding Market Value).

As is often the case during the initial stages of an economic recovery, small-caps have had a run of outperformance; small-cap shares outperformed large-caps and the broader market during the stock market rise that followed the September 2001 lows. Since the market high of March 19, 2002, leadership has rotated among equity styles, with small-caps performing slightly better than large-caps. Similar to small-caps, the outperformance of value, and particularly small-cap value, since the bubble burst in March 2000 has lifted the prices of many traditional value stocks to the point where they no longer represent value relative to earnings and earnings growth expectations.

At the same time, the prospects for earnings growth have become cloudy for many companies that were considered growth companies during the last economic cycle. The confluence of these two forces has blurred the line between growth and value.

The U.S. economic recovery is now firmly on its way, with gross domestic product expanding in each of the last four quarters, but a strong earnings recovery has yet to fully materialize. However, considerable risks remain, such as how strong the earnings recovery will be and how the market will value those earnings.

The S&P 500 stock index had a 12.94% average annual return through December 31, 2001. If you missed the best 10, 20, and 30 trading days during this entire ten-year period, however, the return dropped to 8%, less than 5%, and less than 2%, respectively. Another disadvantage of market timing is increased investment expenses (e.g., brokerage fees) and capital gains taxes.

In all fairness, I will acknowledge that there are still one or two stocks that deserve the term blue chip" in its old-fashioned, traditional meaning.

There are three main reasons why investor training is the wave of the future:

1. Most so called experts, investment advisors, and fund managers have burned their clients in the recent three-year bear market, loosing billions of dollars entrusted to them (in his column in the Milwaukee Journal Sentential, Avrum Lank reported that about $ 7 trillion dollars in equity has had disappeared in the recent stock market gyrations. Since much of that equity was paper equity" we have to wait and see what the certifiable concluded numbers will be. I feel it is fair to reduce the amount to an unspecified billions" for now). Thus we can expect investors to flee the old mainstays of the investment community. The big mutual fund companies are loosing disaffected customers by the hour. It is now public knowledge that the "experts" did not get it right, so people know they need to be more self directed in their investment strategies. This creates an emerging market for investor training.

2. Sudden volatility defines the market today. This makes old "buy and hold" strategies painfully irrelevant. This also makes investor psychology more important than ever. How do people act in panic situations? How does the dynamic of fear affect the markets? How do people discipline themselves to hold to their personal strategy in the face of sudden losses OR in the face of sudden profits? Do we sell, or do we hold? How exactly do we decide?

3. We are entering the age of sudden wealth, as baby boomers receive inheritances from their parents, life insurance policies, lump sum retirement payouts, and so forth. This floods our market with novice investors hitting
the beaches eager to catch that perfect wave, but likely to wipe out.

Alexander C. Brosda through his international enterprise was selected by the Ewing Marion Kauffmann Foundation to accelerate entrepreneurship in America by teaching first-hand knowledge about running an entrepreneurial venture through their Kauffmann Entrepreneur Internship Program. He has been included among others in Marquis Whos Who in Finance and Industry since 1997 and has been bestowed many community, civil and international awards for excellence in business. He was nominated for Entrepreneur of the Year Award by Ernst & Young LLP and USA TODAY.