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Daily
Newsletter. 8
July 2009
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Before Wall Street and the media combined to make investors think of calendar
quarters as "short-term" and single years as "long-term", market cycles were
used as true tests of investment strategies over the long haul. Bor-ing.
There were four types of standard analysis used by most financial institutions,
Peak-to-Peak, and Peak-to-Trough being the most common found in annual reports.
There were also basic differences in purpose and perspective in the old days,
and a focus on results vs. reasonable expectations for actual portfolios.
Even more boring, and not nearly as profitable for "the wizards" as today's
super Trifecta, instant gratification, speculative, mentality.
Portfolio performance analysis was intended to be a test of management style and
overall methodology, not a calendar year horse race with one of the popular
averages. The DJIA was (I believe) originally conceived as an economic
indicator, not as a market-performance measuring device.
No real-life, personalized, portfolio should ever be a mirror image of any
other, or comparable to any particular market index. Analysis should be of
process, content, and operating strategy; the objective should be fine-tuning of
either the philosophy or the discipline.
If the portfolio market value, in a Peak-to-Trough scenario, fell by a greater
percent than the benchmark(s) being used, the overall approach would be looked
at for reasons why. Was there excess speculation? Did interim profits go
unrealized? Was an issue or a sector overweighted?
Theoretically, portfolios with 30% or more committed to income securities would
fall less in market value than 100% equity portfolios --- they would also be
expected to rise less than their more speculative brethren in a Peak-to-Peak
analysis. Formulating valid expectations are important for long-term investment
success, and sanity.
November 1999 to Mid-March 2009 would have been the ideal analytical period for
a Peak-to-Trough review of WCM (Working Capital Model) portfolios, but the
November to May time period illustrates the cyclical approach to market value
performance evaluation just as well--- and the data was easier to obtain.
Here are seven tests you can use to determine how your investment portfolios (or
your clients' portfolios) have fared since the stock market peaked toward the
end of 1999, using a 60% Equity/40% Income, WCM asset allocation as an
expectation producing benchmark.
One: The percent fall in the S & P 500 average was about 33%. Your portfolio
market value should be up by around the same number.
Two: "Smart cash" should have been huge toward the end of 1999 and on the rise
again through the middle of 2007, reflecting much too high IGVSI stock prices.
Then, portfolio smart cash should have been shrinking (while equity prices
tanked) to nearly zero until the second quarter of 2009.
Three: Planned disbursements for expenses should have continued unabated
throughout the entire ten year period without ever the need to sell any
securities, or to reduce payment amounts--- except in (client) emergency
circumstances.
Four: Portfolio market values should have rebounded to a greater extent (closer
to the most recent all time high) than the gain in the S & P average relative to
its latest ATH--- after both the dotcom bubble debacle and the latest financial
meltdown.
Actually, the dotcom fiasco was pretty much of a non-event for WCM portfolios
because of disciplined operating rules boiled down to: "no IPOs, no NASDAQ, no
Mutual Funds, no problem". This time around, the "problem" was a stake in the
heart of what once were some of the best of the best financial institutions.
Five: Portfolio "working capital" should be higher than it was at its peak in
2007, adjusted for net additions and withdrawals, and possibly about twice the
level of May 1999.
Six: Total portfolio "base income" should be slightly higher than it was in
mid-2007, again adjusted for net portfolio additions and withdrawals (and
drastic asset allocation changes)--- but the 2007 base income level would have
been significantly above that in 1999.
Seven: Finally, there should not have been any major profits left on the table,
on any security, of any kind, in any portfolio throughout the ten-year period.
Here's to a return to the boring investment portfolio!
Note: To understand these "indicators", it would be helpful if you knew the WCM
definitions of: "base income", "working capital", "smart cash" and "major
profits". I'll provide a free copy of the "Brainwashing" book to the first ten
people who can define all four--- in a private email please.
Steve Selengut
http://www.kiawahgolfinvestmentseminars.com/InvestmentWorkshopWebinars.htm
Author of: "The Brainwashing of the American Investor: The Book that Wall Street
Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
PGA Village Golf Outing - Seminar October 2009
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Understanding the Investment Environment
Sign up here before 11:00 AM tomorrow and get any other group workshop for free:
http://www.kiawahgolfinvestmentseminars.com/InvestmentWorkshopWebinars.htm
This is an interactive experience with ABSOLUTELY NO PRODUCT SALES; questions
are welcomed, AND your next workshop is free!
Here's the agenda:
Understanding the Investment Environment: a) Learning how to recognize and to
deal with three (long-term) cycles that impact investment portfolios; b)
Formulating realistic expectations about investment securities--- by class and
by type; c) Dealing with short term events, disruptions and dislocations; d)
Identifying and minimizing the true risks inherent in individual Investment
Securities;
Steve Selengut
sanserve (at) aol.com
800-245-0494
Search Kiawah Golf Investment Seminars
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ups&Email=Investments_for_Peace_and_Justice@yahoogroups.com .
Investment markets got you down, Bunkie? Been blown away by derivative stun
guns? When will portfolio market values move back to 2007 levels--- and then
what will you do about it?
It's time to overthrow the evil Masters of the Universe and deactivate their
weapons of financial destruction. Let's outlaw the brainwashing that has changed
how average investors look at and value their investment portfolios.
It's time to exorcize the Wall Street demons and return to stocks and bonds---
and to QDI, "the Force" for long-term investment portfolio security.
Speculating is complicated, even for financial rocket scientists. What most of
us want (or would certainly settle for) is simplicity, stability, and reasonable
growth in our productive working capital.
A return to plain vanilla investing strategies with operating procedures that
minimize risk and encourage understanding of the financial markets needs to
become part of our financial force field.
As bad as things have been since this black hole appeared, investment models
true to fundamental concepts, simple strategies, and disciplined operating rules
have probably bettered the market numbers in at least six important ways:
One - Higher lows during market downturns: Equity portfolios managed using basic
principles of quality, diversification, and income (the QDI) and disciplined
profit taking rules should not fall as much in market value as most mutual funds
or poorly diversified portfolios.
Constant cash flow, even if not reinvested, places a floor under market values,
and investors feel better when their values fall less than the market averages.
In soundly managed programs, buying activity slows as prices rise--- increasing
"smart cash" for buying at lower levels later.
Two - Moves to cash or other sectors before bubbles burst: Disciplined profit
taking automatically moves dollars from overheated sectors to cash or
undervalued sectors during rising markets. This process creates capital that can
be used to lower the average cost of remaining positions or to take advantage of
new opportunities.
Investors feel better when no profits have been left on the table.
Three - Maintenance of planned income streams during financial crises: Most
financial plans focus so strongly on growing market values that they lose touch
with the need for planning a dependable retirement income. They rely on selling
equity fund units or inflated indices for cash flow, instead of generating
stable income with less exciting cash producing staples.
Steadily increasing annual income can be placed on "cruise control" through the
use of the cost basis asset allocation methods contained in the WCM (Working
Capital Model). How many would-be retirees are searching for jobs because of
improper income planning?
Four - Faster movement to new all time market value highs: When investors have a
reasonable understanding of the various cycles impacting their investment
portfolios, they develop valid expectations about the market value "performance"
of their portfolios.
They are less likely to initiate knee-jerk or panic driven transactions and more
likely to take advantage of the new opportunities that lower security prices
always create. Additionally, higher quality securities invariably are in the
first group to regain popularity with investors as good news reports begin to
dominate.
Five - Steady growth in working capital in all market environments: Working
capital is measured in terms of cost basis instead of market price. As a result,
all income generated from interest, dividends, and realized gains grow working
capital regardless of the direction of market prices.
A treasury bond generates the same income at $85 as at $115. Most closed-end
municipal bond funds (CEFs) maintained their 5% to 7% tax-free cash flow
throughout the financial crisis--- in spite of their reduced market values.
Similarly, short-term profits on high quality securities have been growing
working capital since the current rally took hold in March.
Six - Annual growth in realized "base income" in standard portfolios: WCM
portfolios are income machines by design. No security is ever purchased if it
does not produce regular dividend or interest payments; at least 30% of all base
income should be reallocated to income-objective securities.
Similarly, every dollar of capital gains income, and net portfolio additions are
partially allocated to income producers--- and the use of a cost based asset
allocation formula insures annual income growth.
Few financial professionals begin their careers with any encouragement to become
comfortable with individual equity securities and the surprisingly large variety
of individual, relatively uncomplicated, and generally safe(r) income producers
available for their clients.
Financial products are far more lucrative for their institutional employers and,
as a result, the incentives for brokers and advisors to sell products is pretty
much irresistible. Few pros can afford to be one with "The Force".
The Dark Side of investing beckons like a Siren's song, luring the majority of
professional advisors away from the safety and simplicity of QDI. Institutional
propaganda, projections, predictions, and hype have the same affect on
unsuspecting boatloads of speculators who most often become shipwrecked on the
derivative rocks.
Investors and their professionals need to re-evaluate their product orientation
and plot a global escape from the Dark Side of investing.
Contact the "Skywalker" foundation for emotional and financial support while
making the transition--- and may the force be with you.
Steve Selengut
http://www.kiawahgolfinvestmentseminars.com/InvestmentWorkshopWebinars.htm
Author of: "The Brainwashing of the American Investor: The Book that Wall Street
Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
PGA Village Golf Outing - Seminar October 2009
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unsubscribe from this mailing list please click here
http://www.fatcow.com/utils/UnSubscribeMe.bml?Name=moo.sancoserve&List=Yahoo_Gro\
ups&Email=Investments_for_Peace_and_Justice@yahoogroups.com .
تعتبر الدعاية والاعلانات في المواقع الناجحة من اهم الوسائل للتعريفبموقعك الحوار المتمدن مشروع غير ربحي ولكن من اجل ادامة المؤسسة وتوفير التمويل اللازم يقدم خدمة الاعلانات باسعار رمزية والتي من خلالها يمكنكم ايصال موقعكم لعدد كبير من المستخدمين في العالم حيث يعتبر موقع الحوار المتمدن الآن في مقدمة المواقع في العالم العربي
Kiawah Golf (or not) Investment Seminars Presents a one-hour web-workshop, July
9th at 11:00 AM, Eastern. For more information and sign up instructions go to:
http://www.kiawahgolfinvestmentseminars.com/InvestmentWorkshopWebinars.htm
Managing the Retirement Income Portfolio: a) Types of income securities; b)
Reasonable yield assumptions; c) Intellectual and emotional blinders; d) The
"total return" shell game. e) Keeping your eye on the ball--- spending money.
This is an interactive experience; questions are welcomed, AND your next
workshop is free if you send a paying friend.
Steve Selengut
sanserve (at) aol.com
800-245-0494
Search Kiawah Golf Investment Seminars
You have received this e-mail because you opted to do so. If you wish to
unsubscribe from this mailing list please click here
http://www.fatcow.com/utils/UnSubscribeMe.bml?Name=moo.sancoserve&List=Yahoo_Gro\
ups&Email=Investments_for_Peace_and_Justice@yahoogroups.com .
Kiawah Golf (or not) Investment Seminars Presents a one-hour web-workshop, July
7th at 11:00 AM, Eastern. For more information and sign up instructions go to:
http://www.kiawahgolfinvestmentseminars.com/InvestmentWorkshopWebinars.htm
This is an interactive experience with ABSOLUTELY NO PRODUCT SALES; questions
are welcomed, AND your next workshop is free if you send a paying friend.
Understanding the Investment Environment: a) Learning how to recognize and to
deal with three (long-term) cycles that impact investment portfolios; b)
Formulating realistic expectations about investment securities--- by class and
by type; c) Dealing with short term events, disruptions and dislocations; d)
Identifying and minimizing the true risks inherent in individual Investment
Securities;
Steve Selengut
sanserve (at) aol.com
800-245-0494
Search Kiawah Golf Investment Seminars
You have received this e-mail because you opted to do so. If you wish to
unsubscribe from this mailing list please click here
http://www.fatcow.com/utils/UnSubscribeMe.bml?Name=moo.sancoserve&List=Yahoo_Gro\
ups&Email=Investments_for_Peace_and_Justice@yahoogroups.com .
Get Paid for Shopping and Eating Out!
The Secret Finally Revealed --
"How You Can Get Paid $10 to $125 or more just to go to your favorite mall to
shop, eat at your favorite restaurant, golf at your favorite course, or enjoy a
movie at your local theater!"
Click here >>
http://microsoft-office-live.blogspot.com/2009/06/get-paid-for-shopping.html
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