Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investment Performance Expectations: Fine Tuning Working Capital Model

Stock-Markets / Learning to Invest Feb 13, 2009 - 06:48 AM GMT

By: Steve_Selengut

Stock-Markets Best Financial Markets Analysis ArticleContrary to popular belief and Wall Street propaganda, investing is not a competitive event. Rather, it is a uniquely personal, goal-directed activity that individuals must organize and control for themselves. Too few appreciate that it is a long-term enterprise and only a handful, at best, have discovered that DJIA and S & P 500 numbers are only useful at their extremes.


You need to be buying when the doom and gloom is thick enough to cut with a knife, and selling at reasonable profit targets when the averages seem like they can only go up.

As much as you love (or loathe) to hear about quarterly market value numbers and comparisons with one of the averages over short-term blinks of the investment eye, you will not be accommodated here. Rather, we're going to talk about investing, and some more meaningful numbers that should allow you to fine-tune your "market value" performance expectations.

Why is market value in quotes? Because the relevance of a market-value-only focus is, itself, suspect. Isn't it the type of thinking that has, since November of 2007, thrown the financial markets into a death spiral? Years ago, lenders sought as much collateral as possible to secure their loans; to some, defaults were welcome. Interest rates charged were commensurate with the risks assumed.

The less worthy (financially) a borrower was, the more collateral the lender required--- and the higher the interest rate charged. Still, the fact that a secured loan could become under-collateralized due to market forces was a given--- part of the lending business, and the reason for insisting on reasonable down payments, or equity.

The fact that the loan is greater than the current market value of the jewelry, car, boat, refrigerator, bungalow, or shopping center does not make them worthless--- just cyclically uncomfortable for the lenders. The payments keep rolling in, most of the time.

Similarly, how many of us are going to stop making payments on our toys and necessities just because we can't sell them for more than some fool loaned us for the purchase? This is simply the way commerce is done. If you are "underwater", it happens, you'll get over it. If your collateral is less valuable than you thought, help the debtor make the payments.

From either direction, the stuff just can't be considered valueless--- unless big dumb brother makes it so. Abandon "mark-to-market", disarm all derivative time bombs (yes, there are more) and get back to business as usual--- and plain vanilla stocks and bonds. Amen

Generally speaking, the analysis of calendar period numbers accomplishes little while generating transactions that often damage the long-term viability of investment programs. Investors are encouraged to sell things that move lower in price and to buy those that become most pricey--- the unofficial cycle of fear, greed, and bubble.

How can I get you to stop fixating on monthly market values and to focus on the purpose of the securities within the portfolio? Most of us are trained to deal with seasons, fashion trends, biological changes, waning sports dynasties, sunspots, etc. Instinctively, we expect, and prepare for change effectively--- but not when it comes to investing, where planning and preparation is only talked about.

Steps one through three in the fine-tuning process are these: 1) Understanding that all investing involves some form of risk--- risk that can be minimized by diversifying properly among investment grade, income-paying securities. Each level of "derivativization" compounds all risk.

2) A security's price, or market value, is a function of far too many variables, and cycles, to be either predictable or meaningful in the short term. Most often, the price is determined more by investor emotions and speculator's bets than it is by security fundamentals.

But, 3) most high quality income securities can be expected to continue producing income regardless of their market price and most investment grade equity securities purchased at relatively low prices will eventually provide an opportunity for a reasonable profit. However, both will constantly repeat their cycles.

With this understanding alone, investors at all levels (most of us are not fat cats) could spend less time avoiding profits and bargains and pay more attention to the purpose of the securities we own. Income securities are acquired for cash flow. If they fall in price, buying more reduces average cost and increases yield. A rise in price to a reasonable profit level must be jumped upon with a huge smile.

Equity securities are much more complex, but IGVSI securities in a WCM portfolio may be added to at lower prices to assure a more easily attainable, and profitable, exit point. No reasonable profit should ever go unrealized.

With these parameters branded on your investment portfolio forehead, there are just three numbers you need to track in order to form valid value expectations for your equity positions:

One: Issue Breadth statistics are the single most reliable indicator of what is going on in the stock market. Clearly, if more issues are going up in price than down, for a meaningful period of time, so should the equity bucket of the portfolio--- and vice versa.

Two: 52-Week High/Low data compare the number of issues establishing new 52-week high ground with the number sinking to new 52-week lows. Superficial analysis is very straightforward--- there should be more highs in an upward trending market and more lows during a correction.

Three: The IGVSI bargain level monitor reports on the number of investment grade value stocks that are at and near acceptable purchase levels. The longer the list, the more likely your market value numbers are lower than you would like.

So what about the thirty percent or more of your portfolio that should always be invested in income producers? There are fewer things to consider, but never even think the words: "I don't need the income, I'm just investing for growth", it exposes your amateur status.

Get a feel for the aptly acronymed IRE (Interest Rate Expectations) in the market place--- and a feel is really all that is necessary. If expectations are for lower rates, prices should move higher. If they haven't, make sure you understand why--- like the 2008 credit crisis, for example, and its impact on income CEFs.

The other is to get the income job done years in advance of retirement by using a cost-based asset allocation plan--- The Working Capital Model.

So, if you asset allocate properly for your objectives, and stick to your plan throughout the many cycles that will roller coaster your emotions and market values, you will find that your income constantly rises--- and so will your productive invested capital.

Whoa, that's the way it's supposed to be.

By Steve Selengut
800-245-0494
http://www.sancoservices.com
http://www.investmentmanagemen tbooks.com
Professional Portfolio Management since 1979
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"

Disclaimer : Anything presented here is simply the opinion of Steve Selengut and should not be construed as anything else. One of the fascinating things about investing is that there are so many differing approaches, theories, and strategies. We encourage you to do your homework.

Steve Selengut Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in