Grow Your Portfolio the Intelligent Way

December 2006 Issue

By Richard C. Young

Your Fatty Brain…

Did you know that your brain is composed primarily of fat? It’s true. Your brain and, in fact, your entire body function at an optimal level with
the proper balance of the two families of essential fatty acids. Fatty acids are the molecular building blocks of fats and oils. Omega-6 and Omega-3,
the only fatty acids essential to health, cannot be manufactured within our bodies. They must come from our diet. Scientists know that some fatty
acids can actually promote cancer growth as well as increase the potential for heart attacks. Furthermore, the scientific community is now aware that
an imbalance of essential fatty acids can promote the onset of a vast array of deadly diseases and conditions, including insulin resistance, diabetes,
arthritis, depression, Alzheimer’s, and strokes.

Omega-3/Omega-6 Balance

I first became interested in the correct balance of Omega-3 and Omega-6 through The Country Hen in Hubbardston, Massachusetts (countryhen.com),
suppliers of the first Omega-3 eggs. It was by reading George S. Bass’ letters that I learned of the groundbreaking research of Artemis P. Simopoulos,
M.D. In 1985, Dr. S. helped organize the first international conference devoted to essential fatty acids.

Slash Cancer Deaths

It’s hard to maintain the proper balance in anything, whether it’s your diet, with the correct balance of Omega-3 and Omega-6, or your investments.
We all know this. Proper balance requires a mix of diligent research and perspective as well as the patience to achieve your end goal. On the diet front,
I’ve gained perspective from my readings on the proper balance for Omega-3 and Omega-6, especially through careful study of Dr. Simopoulos’ excellent
book The Omega Diet. Forget the word diet in the book’s name. Publishers insist on compromising basic research with hype in order to sell
books. No matter the inclusion of the word diet, the intelligence provided on the proper balance of Omega-3 and Omega-6 in your diet is fascinating.
The book explains that the men of Crete, whose diet is rich in Omega-3, have half the cancer-related deaths and one-twentieth the death rate from coronary
artery disease of American men.

Retirement Compounders Power

Over the years, investmentwise, I have achieved balance for a common stock portfolio via simple counterbalancing. I write often about my Simple is
Sophisticated theme. In Young Research’s Retirement Compounders program, we develop a standard portfolio of exactly 32 stocks—not one
more or one less. Investors looking to achieve portfolio diversification intuitively recognize that by owning two stocks from different industry groups,
diversification doubles from owning just one stock. By moving to four stocks and then eight stocks, diversification doubles twice more. Most investors
have no trouble dealing with an eight-stock portfolio. The next doubling takes a portfolio to 16 stocks. The diversification is statistically supportable
and necessary, but beyond the scope of many individual investors, which is where registered investment advisors, mutual funds, and ETFs come in. The
final doubling, at least for me, is to a 32-stock portfolio. With 32 stocks, I get more than 90% of the diversification of owning all of the stocks
on the NYSE, which is ample diversification.

64 Stocks Too Many

The next doubling—to 64 stocks—actually does little to improve diversification, but forces a portfolio manager (perhaps you) to delve regularly
into the bowels of 64 10Ks and 10Qs, which, for my money, cannot be justified on any front. The reason most mutual funds have so many stocks is liquidity—pure
and simple. Funds cannot become hugely profitable behemoths for management companies without blowing up the portfolio to accommodate sizable cash inflows.
In fact, long term, a portfolio of just eight stocks from uncorrelated industries will offer the bulk of diversification required. Where finances and
manpower are in place to craft a portfolio of exactly 32 names, empirical statistical evidence is supportive.

Dividends a Must

OK then, proper counterbalancing for Young Research’s Retirement Compounders starts with 32 stocks. As you can see, considerable discipline is
introduced right out of the starting blocks. The next serious discipline is a dividend mandate. Not only must each name in our Retirement Compounders
pay a dividend, the Retirement Compounders as a group must have a yield higher than that of the Dow 30 or S&P 500. And when referring to the 30-
and 500-stock indices, it’s important that you look at Chart #49 in your enclosed Economic Analysis. As you can clearly see, over extended periods,
the Dow and S&P 500 track closely. Why then is it necessary to study 500 names when a rigorous monitoring of just 30 names is proven to provide about
the same end result? The answer, of course, is that there is never a need to monitor such an unwieldy group of names.

I use Young Research’s RCs list to make the recommendations I bring to you each month. Not surprisingly, my family investment management company
also relies exclusively on Young Research’s RCs program to craft individual stock portfolios for discerning private clients. I never go outside
Young Research’s work to bring you dividend-paying stocks in these letters. Young Research does not rely on outside research, especially brokerage
firm research. We do 100% of our work in-house, and you are the direct recipient of our total independence.

Since its inception, Young Research’s Retirement Compounders have developed a record of comfort and consistency. The results have been beyond
what I might have hoped for.

Just this year alone, Young Research’s Retirement Compounders are up by over 17% (unaudited). That’s about 70% better than the S&P 500
and approaching triple the NASDAQ’s gain. Three of the reasons it has been such a pleasant year for the RCs are the recent spectacular advances
in Harley-Davidson (NYSE: HOG), Wrigley (NYSE: WWY), and Yankee Candle (NYSE: YCC). Included are price charts for each. I have hammered
away at the group, and you may have scored big on all three in a very short time.

Harley’s Stock Rockets

Harley-Davidson (NYSE: HOG). If you have been with me over the last decade, you know that no one in the independent advisor industry writes more
about Harley than I do. And you know that both Debbie and I ride Harleys and rack up a load of miles each year. As I’m writing to you, I have on
my desk the October 1956 issue of Cycle magazine featuring the Harley Sportster. I got my first Harley not long after that fall ’56 issue
of Cycle. Harley is simply my favorite company in the world and one of the finest manufacturing companies in the world as well. How many union-organized
manufacturing companies earn 19% on revenues?

Emotionalism & Harley

Harley has one of the best brand names in the world. If I didn’t ride a Harley, I wouldn’t ride. When Debbie got her first Harley (a Superglide)
back in 1992, we bought a terrific book by Rafael Francisco Carmona, The Iron Stallion. In his book, RFC profiled dozens of Harley riders, asking
why they ride a Harley. The answers offer perspective as to why Harley shares the brand image it does with riders worldwide. Here’s a sample of
what riders told Carmona. “Harley-Davidson is not only a motorcycle, it’s a tradition and a way of life … My Harley, well, I live
on it. It’s part of my soul, we’re one … Harley-Davidson is what America is all about … Today, my closest friends all own
Harleys, and it’s great to get together and talk about bikes and forget about all the other nonsense that wears you down … When I was a
young kid, my buddies and I were into Harleys. Today, 25 years later, they’re still a part of my life … I’m riding a piece of history.
It’s the state of the art for the origin of motorcycles … Harleys today are basically not that far removed from the early 1900s. I feel
like I’m riding history … There’s a mystique to Harleys. You get people from all walks of life on these machines. The friendships
and good times that have come to us through motorcycling are priceless.”

Attack and Fall Back

I think you can get a feel for what’s behind the love affair bikers have with Harley-Davidson. As should be obvious with such a totally unique
and popular brand, there is a ton of emotion operating here, not just with the classic Harley-Davidson motorcycles, but with the stock as well. Unlike
my basic buy-and-hold strategy during the two-decade period when Harley could not produce enough iron to meet demand, I’m now quite flexible. Shorter-term
events today govern my Harley strategy. The name Harley-Davidson is so huge and the track record since 1980 so terrific that investors flock to Harley’s
stock like migrating geese. As such, over the last half-dozen years, I’ve carefully picked my spots to attack and then pull back to await another
day. If you have been with me, your results have been just terrific. You’ve scored over and over again.

Your Quick 33% Profit

My last re-buy was on 18 July at about $54/share. Harley is now $72/share. You have a 33% profit in just a little over three months. A 1,000-share position
would have netted you about $18,000 fast. It’s now a good point in Harley’s trading cycle to tie down your profit. As you know, I prefer
to hold an investment for years rather than to move in and out. In Harley’s case, the stock has become such a crowd favorite. And more often than
you might believe likely, Harley’s stock is emotionally bid up by institutional investors for reasons that miss me.

Without looking up the numbers, I could not tell you what Harley earned last year. And I don’t make any forecast for you on this or next year’s
number. It’s not that I don’t care about Harley’s numbers, because I’m keenly interested in Harley’s model-by-model production
numbers and cash flow numbers. I’m especially interested in how much Harley is paying out to you in dividends and reducing its number of shares
outstanding to your benefit. I like to see highly disciplined cash flow management where more money is paid out in dividends and used for share buybacks
than is used for capital expenditures. In the initial three quarters of its current fiscal year, Harley generated $1.2 billion in cash from operations
and spent only $122 million on capital expenditures. That left a nice $124 million for dividends and over $1 billion for stock repurchases. Cash deployment
in recent quarters has been to my liking, and Harley’s directors have regularly authorized dividend increases and additional share repurchases.

Sell Harley

So, why an interim sell on Harley? We’ve been watching the recent insider trading activity with concern. There has been a pattern of stock sales
by top officers and directors that raises a warning flag. I’ve found that more often than not, when I see such a pattern, it’s wise to stand
aside for awhile to determine what’s up. There are various reasons, of course, why insider sales should cause no alarm, but more often it’s
the reverse that is true. So, as my chart indicates, I have another interim sale on Harley at $72/share. I wrote about a year ago of my view that $72/share
was a fair intermediate-term target for Harley. And with Harley hitting $72/share in November, I think it is a good time to sell. But I want to revisit
and attack this price again from a level below the current $72/share. More next month.

Yankee Candle Score

Yankee Candle (NYSE: YCC). In each of my last two letters, I have listed Yankee #6 on my Top 10 Countdown and have cited Yankee Candle as a takeover
candidate. Well, on 25 October, Yankee Candle announced that it was entering into a merger agreement under which an affiliate of Madison Dearborn Partners,
a private equity investment firm, would acquire all the outstanding Yankee shares for approximately $1.4 billion in cash. In the merger, Yankee shareholders
(I hope you) will receive $34.75 in cash for each share. That represents a premium of more than 57% to the closing price of the stock on 25 July 2006,
the last trading day prior to the company’s announcement regarding its review of strategic alternatives.

A $25,000 investment at that point would have netted a quick $14,000 profit for you—a situation similar, I hope, to your recent good fortune with
Harley. Just since midsummer, this is your second stupendous hit. I hope you didn’t miss the boat.

Scoring Big with Wrigley

Wrigley (NYSE: WWY). In what I refer to as my George Tomsco and the Firebirds issue of October 2006, I, for the first time, introduced
you to my Simple is Sophisticated program keyed to Young Research’s four-chart set on stock price activity. We use this basic chart set
to help us gauge a stock’s near-term investment suitability. A company may be the best in the world with glowing prospects. And it may have a Fort
Knox-like balance sheet. But if we are unhappy with the look of the stock’s short-term price action, we’ll simply sit patiently on the sideline
and wait. Patience and rigid discipline are keys to the success of Young Research’s Retirement Compounders program. No matter how great the fundamentals,
some stocks just don’t want to go up. You end up with dead money. There has to be some life in the corpse. In my Fireballs issue, I wrote
to you about Andy M., one of Boston’s most successful stockbrokers at the time and a real nice guy to boot. Andy M. had a strikingly simple stock
investment strategy. When asked what he was buying, he simply said that he was “buying the ones that were going up and selling the ones that were
going down.” Think about it. Simple is Sophisticated indeed. And Andy M. made a lot more money and had a much bigger book of business than
did a lot of the Harvard Business School hotshots who, while they all much liked Andy, figured that the erudite approach to picking stocks was the approved
methodology. Andy proved that there was more than one way to win the battle for investment survival. What Young Research has accomplished is to quantify
Andy M.’s concept with a set of charts that allows a needed and thorough perspective on the trading pulse of any publicly traded stock—a
true program of rigid discipline and patience.

$17,000 a Year Spent on Your Behalf

As I’ve mentioned, while my Simple is Sophisticated strategy is indeed quite simple for the end user to benefit from with impunity, it
is far from either simple or inexpensive to construct. Young Research spends over $17,000 per year on the databases alone in order to have the raw material
to grind out the neat end-product we provide weekly.

Simple Is Sophisticated

The first stock I gave you from our Simple is Sophisticated program was the world’s #1 chewing gum purveyor, Wrigley. At the time, the
stock was $46.37/share. Well, Wrigley is now $53/share. You have made a 15% score in just a matter of weeks. Shortly after my inclusion of Wrigley as
my first Simple is Sophisticated stock, Wrigley announced earnings that were better than Wall Street analysts had projected. Wrigley also announced
that William Perez would come over from Nike to become CEO and take some of the load off Bill Wrigley. Mr. Wrigley, who had been acting as chairman,
CEO, and chief operating officer, clearly needed some additional muscle to move the company forward in line with the company’s storied past.

Stay with Wrigley, and stay with Yankee Candle until your cash payout. As for Harley, you’ll be back—maybe next month, maybe next quarter.
It’s nice to have a great company like Harley that the Street finds so easy to run up ahead of itself. It allows an attack-and-fall-back strategy
that doesn’t work for many stocks. What is needed for such a strategy is plain old emotionalism and lots of it.

Time to Reload

I had not intended to deliver another Simple is Sophisticated stock this quickly, but with a major shot fired by Wrigley in place, I’ve
decided to end the year with stock #2 on the Simple is Sophisticated list. My next stock is America’s premier firearms company, Sturm,
Ruger (NYSE: RGR). I say premier in terms of the company’s products, not its management and recent operating efficiency. My four-chart set
shows you just how Sturm, Ruger qualifies in terms of the stock’s price suitability.

(1) As you can see, the stock is down over 30% from its recent peak. My first rule in terms of price suitability is that a stock must have taken a nasty
hit. But it also must look to be regaining its footing. (2) Relative strength versus the S&P 1500 must be improving after a period of sour relative
performance. (3) I want to have seen downside momentum so strong that two standard deviations on the downside have been approached or even hit. Sturm,
Ruger has been in a major league slump and has now rebounded off a nasty low. Checkpoint #3 is in place. (4) Finally, I want to see a stock price that
is below trend. Basing is not required, but I do want to see a gap below trend for a relative margin of safety. All four tests have been met. We can
now move on to fundamentals and any immediate catalyst for change. There’s nothing like a catalyst to help make a compelling stock story.

First, I’ve never been keen on Sturm, Ruger’s management team. And my view has become more jaundiced in recent years. Second, the company’s
manufacturing and financial performance have become increasingly shaky. In fact, the company’s interim CEO started off his 2005 annual report with “2005
was another disappointing year.” How very nice. I think I might have come up with another way to soften the blow of the company’s poor management
performance than to boldly admit it in the introductory line of the company’s annual report. It’s true. Sturm, Ruger, along with the firearms
industry in general, has been disgracefully punished by nuisance lawsuits allowed by liberal activist judges. The most casual reading of the Second Amendment
is clear on the rights of all Americans to own firearms. One more originalist judge on the Supreme Court, and I think the books will be closed on these
nuisance firearms industry lawsuits forever.

A Takeover Buy

I like Sturm, Ruger as a winner on any of three counts: (1) improved financial and manufacturing management performance, (2) a long-term resolution
to a condition that allows activist judges to compromise our Constitution, and (3) a likely takeover.

The stock is now in the $10/share range. We believe a takeover would bring $12 to $18/share. For patient investors, the downside would appear limited.
Just the elimination of corporate overhead and some selling expense would significantly add to earnings. And that’s not even factoring in any manufacturing
synergies from a merger.

Sturm, Ruger pays no dividend, so the shares are suitable only for aggressive, patient investors willing to wait out the vagaries of a company in transition.
The compelling story here is that Sturm, Ruger is a potential “takeover plum,” which is why I sent you a Breaking News update on November
3, telling you to buy RGR.

Bikes, Guns, Candles and Gum

OK, motorcycles, chewing gum, candles and guns. Anyone confused about what any of these four companies are about? Young Research’s Retirement
Compounders program concentrates on companies that are pretty darn easy to understand. And when we get away from the basic bikes, gum, candles and guns
sort of theme, our concentration is on a specific management style that is based on common sense. General Electric (NYSE: GE) and Illinois
Tool Works (NYSE: ITW) are examples of complex companies we like, but companies with extreme focus at the top and a long pedigree of management ability.

Your Time Warner Score

With Time Warner (NYSE: TWX) now on the 52-week-high list, you’ve made a good score since August. Time Warner is on a little roll—the
shares have jumped to $20/share, from $15/share earlier this summer. The cable business is going well, as are revenues from the company’s new AOL
revenue-building program. There’s more value here, but I wouldn’t add to positions over $20/share.

Back to North Florida

St. Joe (NYSE: JOE). Hurricane season is just about over. Time to get back into the stock of Florida’s #1 private land holder. The stock
is now $51.67/share and, after actually hitting two standard deviations on the downside earlier in the year, it looks OK on our four-chart set. For my
money, the initial Federal Aviation Administration-approved larger Panama City airport needs to happen in order for St. Joe to realize its full value.
If the airport gets derailed for some reason, it’s a bummer for St. Joe. Buy.

CAT Pounded

Caterpillar (NYSE: CAT) has been pounded in its worst decline since Black Monday, 19 October 1987. The reason? Management scaled back 2006 projected
revenues to $41 billion from $41.8 billion and earnings to $5.05 to $5.30/share from the earlier forecast of $5.25 to $5.50/share. For 2007, the company
projects that earnings and revenues may be flat. Stay with the stock. You’re looking at a P/E of only 12 versus the Dow’s P/E of 22. And
while you wait for a turn to the upside, you are getting a 2% yield. CAT looks lousy on our four-chart set, so I don’t want you adding to positions
here. Have patience. You may be thinking that if CAT looks so lousy, why not sell and come back later? If the company were of lesser quality, had no
yield, and a P/E well above 12, I’d suggest just that, but that’s not the case.

Canada’s Halloween Surprise

Turns out that flip-flopping isn’t the sole province of U.S. politicians. After repeatedly pledging not to tax Canadian income trusts, Jim Flaherty,
Canada’s financial minister, blindsided investors on Halloween by announcing plans to tax Canadian income trusts in line with corporations. For
existing trusts, the new tax plan takes effect in 2011. Under the new plan, U.S. investors will effectively be taxed at 41.5%.

Penn West Energy and Enerplus

Sell Penn West Energy (NYSE: PWE) and Enerplus (NYSE: ERF). The new taxes not only lessen the amount of after-tax income that can
be distributed, but also make these securities much less attractive. Each is a high-cost producer, and it is going to be increasingly difficult to replace
reserves since these companies won’t be able to outbid conventional oil and gas producers. Exploring for new oil is an option, but it isn’t
suited to high-dividend payouts.

TimberWest Forest Corp. (TORONTO: TWF.UN) actually a stapled security, so, as of yet, it is not included under the new plan. The shares
have sold off, but not nearly as much as have the trusts. Hold and look to add to positions once the dust settles.

Fording Canadian Coal (NYSE: FDG) is a trust but it does not suffer from the same problems as the two oil and gas producers. The company already
owns all of its coal, and it is conceivable it could convert to a corporation or sell its interest in Elk Valley to Teck Cominco, the other owner, since
the trust structure is no longer advantageous. Hold.

Coca-Cola (NYSE: KO) recently reported its best soda sales since 2000. Hot performance was recorded in both China and Brazil. The company is
finally taking the wraps off a global marketing effort. The stock is way below trend on our charts and has rebounded off a two standard-deviation low.
Buy.

McDonald’s (NYSE: MCD). Have you seen the company’s new “Forever Young”–themed restaurants? Most of McDonald’s
13,000 U.S. restaurants will get overhauled. New layouts feature three distinct seating sections: (1) a fast zone with stools and tall counters for customers
who want to “dine” alone, (2) a social section for the family featuring big tables and leather booths, (3) linger zones with armchairs and
sofas for the zonked out or Xbox or computer geek. I like the concept, as well as the company’s new-found effort to upgrade the chain from K-rations-quality
to premium coffee and what the company refers to as great salads. McDonald’s has posted 41 consecutive months of sales growth. Last quarter revenues
increased by a solid 10%, a great number for a company McDonald’s size. Breakfast sales are leading the way. And the company’s new Asian
salads and chicken Snack Wraps are jumping. Over half of domestic sales is from motorists, so the company is working hard to beef up its drive-through
capacity. I like the direction McDonald’s is heading, and I especially like the power position the company has with its 13,000 U.S. well-positioned
locations. Buy.

United Technologies (NYSE: UTX) is heading into the final months of the year with some nice power. In the third quarter, year-over-year revenues
rose by 12%. Management continues to feel that 10% trend-earnings growth can be met, and it has raised its target for full-year 2006. Buy.

Microsoft (NASDAQ: MSFT). Are you familiar with the Saturday morning cartoon called Viva Piñata? What happens here is that colorful piñatas
compete to be chosen for children’s birthday parties. This holiday season, Microsoft will release Viva Piñata’s Xbox 360 video game.
This is Microsoft’s first effort to market the Xbox to children in the 6- to 11-year-old age group. Microsoft increased revenues by 11% year-over-year
last quarter and is about to launch its biggest barrage of new products in its history. Management hopes to ship 10 million Xbox 360 consoles by year
end and between 13 million and 15 million by the company’s fiscal year end. Microsoft continues as a buy.

Boeing (NYSE: BA). Dubai’s Emirates Airline (a real nice airline) recently informed Airbus that it could stick the 10 Airbus planes Emirates
had on order. Airbus is imploding. Airbus is an inefficient, government-subsidized manufacturing company with a featherbedded workforce. And Boeing is
taking advantage of Airbus’ weakness today, and racking up big-time sales for its 777s and 787s. Buy Boeing.

General Electric (NYSE: GE). I love GE’s worldwide scope. BusinessWeek reports that since CEO Jeffrey Immelt took over, he has bought
and sold businesses worth $100 billion. And shockingly, GE’s stock is today worth less than when Immelt took over—a little surprising given
that during the period GE has grown by 65% and doubled earnings. It is likely that next year nearly half of GE’s revenues will come from outside
the U.S. This projection compares to 40% in international revenues just five years ago. GE is into desalination, LightSpeed VCT scanners that capture
astonishing images of the human heart in just five heartbeats; offshore wind turbines that can generate enough electricity to power up to 2,500 homes
each; cleaner coal technology; and a great new hybrid locomotive that harnesses energy created by its own breaking power. There’s no shortage of
cash-generating opportunities at GE or massive worldwide markets for these products. Buy GE.

ConAgra (NYSE: CAG). The home of my long-favored “vitamin- and mineral-packed” Slim Jims, America’s favorite late night snack.
Management has done a good job of getting out of commodity-oriented businesses to concentrate on its packaged-goods businesses. Buy.

American Express (NYSE: AXP) revenues climbed 12% year-over-year last quarter, a solid number for a company of this size. In just a single quarter,
the company added more than two million cards and, over the past year, 7.5+ million, and now American Express is getting into China. Spending among American
Express’s high-end cardholder group increased by an impressive 15%. Buy.

Funds

If you are retired and are looking to put together a package of investments that will help you finance your regular shopping trips to Whole Foods, True
Value Ace, and your local family-oriented pharmacy, your first place to start is at Black Rock with any of the four Black Rock closed-end funds listed
for you in my Monster Master List. Black Rock Dividend Achievers Trust (BDV) recently has been on the 52-week-high list, and I’ve been featuring
this fund regularly for many quarters. It’s made up of dividend-paying blue-chips. Both Black Rock’s Enhanced Dividend Achievers Trust (BDJ)
and Global Opportunities Equity Trust (BOE) boost yields by writing covered calls on the fund’s portfolio. With your enhanced higher yield
comes a reduced level of potential capital gains. If you are seeking cash today or investing in an IRA where you can compound your enhanced cash flow
on a tax-deferred basis, these two funds are primo choices. Add both to your list immediately.

We’re on the Same Team

As I’ve been writing, I project that the ETF industry will, over time, hollow out the mutual fund industry. The math in favor of ETFs is just
too compelling. Most mutual funds (seven of 10 largest equities funds) come with debilitating front-end sales charges, 12-b1 back-end marketing scabs,
and brutish expense ratios. Portfolio turnover is also white hot for the majority of funds. Who do you think gets the bill for all the unneeded trading
costs? Stick exclusively with the names on my Monster Master List. I invest only in the names on my list, and my family invests in a similar fashion.
We cannot make money unless you make money. We are all on the same team. 2006 has been a truly fabulous year for me and should have been for you and
your family as well. Among my personal largest holdings are (1) Vanguard Precious Metals & Mining (VGPMX) +29%, (2) Franklin Mutual Series
Shares (MUTHX) +13%, (3) Third Avenue Value (TAVFX) +10%, (4) Vanguard Equity Income (VEIPX) +16%, (5) Third Avenue Real Estate (TAREX)
+24%, and (6) T. Rowe Price New Era (PRNEX) +11%. Add to all.

My Blue-and-Gold Theme

I’ve been writing to you about my Blue-and-Gold theme. On the blue-chip front, an ETF that makes a lot of sense is Dow Diamonds Trust (DIA).
The expense ratio is only 0.18, and, of course, you pay no front-end sales lard or frightening rear-end 12-b1 marketing scab. BusinessWeek ran
an interesting piece on ETFs in October and noted the expense ratio on the average equities mutual fund was a whopping 1.42%. Why an investor would hold
such funds beats me. I’d sell these in a heartbeat. And investors are today confused by the various multiple-share listings, like alphabet shares.
Where you see such a mish-mash, prepare to be hosed. But investors don’t read fund prospectuses. The glory days of the mutual fund industry are
over. It will be some time, of course, before investors at large catch on. I will be writing increasingly more about today’s broad array of ETFs
and the new ETFs available to help you diversify and invest with success greater than most pros can. Young Research will be conducting a lot of proprietary
research, the results of which you’ll get nowhere else but in these letters. Be sure to start a position in Dow Diamonds Trust.

Fixed Income

Both Vanguard’s Short-Term Investment-Grade (VFSTX) and GNMA Funds (VFIIX) feature ultra-low expense ratios of 0.21%, short durations
(1.7 and 4.5 years), and yields just a scooch over 5%. In today’s low-interest rate environment, the management fee you pay must be examined under
a microscope. Listen up here. When it comes to fixed-income mutual funds, the name of the game is Vanguard, pure and simple. At our family investment
management company, we lean hard on Vanguard’s fixed-income group. #2 on our list is Dodge & Cox and the group’s Dodge & Cox
Income Fund (DODIX) All the above are profiled on my Monster Master List and are approved for your immediate purchase. Also on the fixed-income side,
I’ve long liked investment-grade blue-chip preferreds that trade on the NYSE. You can buy in 100-share lots just as you would GE. You’ll
know exactly the commission you pay, unlike a lot of fixed-income investments. Today, you can average over 6.4% with blue-chip preferreds. I like Morgan
Stanley Cap 6.60% to yield 6.55%. I’d also own the Bank of America issue (BACprC) to yield about 6.56%.

5% Yields Are Enticing

With the P/E on the Dow now 21.5X versus a long-term average of 15X, stocks are not cheap. And with the Dow yield at 2.1%, about half the historical
average, investors sure aren’t being paid a lot to hold stocks. If for no other reason the Dow’s long-term reference points nudge the conservative
and certainly the retired investor toward the fixed-income securities cited. When you can tie down a relatively risk-free 5%, you have cash to spend
or to compound in an IRA. I’m impressed. As to counterbalancing, one sector looks especially cheap to me—Japan and the yen. My Monster Master
List carries the T. Rowe Price Japan Fund (PRJPX). I’d put some money in Japan here. And make it a good month.

Warm regards,

Richard Young signature

Richard C. Young

P.S. As my lead indicates, I’m a big Omega-3 fan. I use Omega Man from Barleans. I’ve put up some additional Omega-3 info and some real
breaking news on the apparent life-extension benefits of resveratrol, a substance found in (hooray!) red wine, on my Young Research website. You can
register at www.youngresearch.com to get all my latest intelligence on terrorism, the Second Amendment, the budget, health breakthroughs, real
estate, and my monthly musical postings. And you’ll always find this month’s essential music listings.

P.P.S. My complete post-election day views on “Americans against terrorism,” including some surprises as well as neat 10 best and worst
lists looking ahead to 2007, will be the features for you next month.

P.P.P.S. Intelligence Report Breaking News is a new and important feature to your service. The Breaking News feature provides updates on our
Monster Master Lists’ companies and mutual funds between monthly issues—like the one I sent to you in early November about Sturm, Ruger. Go to
my website, , to register your email address, so that you don’t miss a single Intelligence Report Breaking News
update.

Richard C. Young’s Intelligence Report® (ISSN 0884-3031) is published monthly by Phillips Investment Resources, LLC, 9420 Key West Ave., Rockville, MD 20850. Please write or call if you have any questions. Phone: 301/424-3700 or 800/301-8968. E-mail: service@intelligencereport.com. Web address: . Editor: Richard C. Young; Group Publisher: Michael Bell; Chairman: Thomas L. Phillips; Associate Editor: Deborah L. Young; Marketing Manager: Jim Brinkhoff; President: John J. Coyle; Research Director: Jeremy Jones, CFA; Sr. Managing Editor: Shannon Miller; Business Manager: Thomas C. Burne; Research Associate: Rebecca L. Young; Editorial Assistant: Danielle Hart; Sr. Vice President: Christopher Marett; Subscriptions: $249 per year. © 2006 by Phillips Investment Resources, LLC, Founding Member of the Newsletter Publishers Association of America. Photocopying, reproduction or quotation strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure policy at /disclosure.php or call 800/219-8592 for a mailed copy. Periodicals postage rates paid at Rockville, MD, and at additional mailing offices. Postmaster: Send address changes to Richard C. Young’s Intelligence Report, Phillips Investment Resources, LLC, 2420A Gehman Lane, Lancaster, PA 17602.

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