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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