Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19
Betting on Next British Prime Minister Tory Leadership Betfair Markets Forecast - 10th June 19
How Can Stock Market Go Up When We’re Headed Towards a Recession? - 10th June 19
If You Invest in Dividend Stocks, Do This to Double Your Returns - 10th June 19
Reasons for the Success of the Dating Market - 10th June 19
Gold Price Trend Analysis - Video - 10th June 19
US Stock Markets Rally Hard – Could Another Big Upside Leg Begin? - 10th June 19
Stock Market Huge Cosmic Cluster Ahead: Buckle Up! - 10th June 19
Stock Market Higher To Go? - 10th June 19
The Gold Price Golden Neckline… - 10th June 19
Gold Price Seasonal Trend Analysis - 9th June 19
The Fed Stops Pretending - 9th June 19
Fed Rate Cuts Soon; Bitcoin Enthusiasts Join Wall Street in Bashing Gold - 9th June 19
1990s vs. 2010s - Which Expansion Will be Better for Gold? - 9th June 19
Gold Price Trend Analysis, MACD, Trend Channels, Support / Resistance - 8th June 19
Gold Surges Near Breakout - 8th June 19
Could Gold Rally Above $3750 Before December 2019? - 8th June 19
5 Big Lies About Precious Metals Investing Exposed - 8th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

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

6 Critical Money Making Rules