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Ten New Investment Concepts, The Time Has Come
By: Steve Selengut
There’s a rumor going around that the Mutual Funds are broken and just can’t
work anymore, for a multitude of reasons. They’ve tried index funds, but these,
too, have been less than impressive since they hit the street a few years back,
and are now being enhanced... what does that say? Here are some new and/or
forgotten ideas that can get your investment program back on track:
1. Abandon the popular averages: Over the past six years, all of the major
averages are grossly negative or just beginning to get back toward their best
past levels. At the same time, the NYSE advance/decline line has been extremely
positive. Additionally, the last time the averages were up, issue breadth was
totally negative.
2. And the basics of investing, again, are what? Most investors confuse Quality
with analyst expectations and think that Diversification means getting one of
every product type that’s out there. In fact, they are basic risk minimization
tools that every investor needs to use.
3. Appreciate the power of income: Base Income just has to grow every year,
period, for a person to have any hope of keeping up with inflation. That’s
right, growing Market Value is inflationary… particularly with respect to hat
size, and income paves the road to retirement income.
4. Buy low (within reason), sell higher: Profitable company stock prices
fluctuate just like unprofitable ones. The difference is that the former are
much more likely to move back up again. Buy quality at lower prices (just like
any other form of shopping), big BUT, set a reasonable (10% or so) profit-taking
target… and pull the trigger. Re-load, and do it again.
5. Embrace The Working Capital Model: For both portfolio Asset Allocation and
Performance Evaluation, use the cost basis of your holdings as opposed to their
Market Value. This is the only way to use short time periods (a year being the
shortest for anything at all meaningful) for any kind of analysis. Also, as a
bonus, you’ll never make another fixed income mistake.
6. Fall in love with Volatility, not with securities of any kind: Market
volatility is one of the few things (if there are any at all) that you can be
certain about. Use it wisely and it will shorten your road to investment
success. All too often, unrealized gains on the loved ones become realized
losses on the tax return.
7. Remember Peak-to-Peak and Trough-to-Trough: There was a time when tests like
these (and variations like P to T, or T to P) where the only valid (Market
Value) tests of a manager’s ability. They still are. I have never found a
correlation between the calendar year and any market, interest rate, or economic
cycle.
8. Corrections are every bit as lovable as rallies: In truth, profit taking is
more fun, and much easier decision-making than buying stocks while in the throes
of a falling Equity Market. But one is just the flip side of the other, and you
need to learn the lyrics to Every Day just as you knew Peggy Sue.
9. Understand The Investor’s Creed: How did trading get a bad rep? What is a
stock exchange? Buy and hold just doesn’t fit. The key is timing (not market
timing) and selectivity. In a rising market you should be selling more than
buying, resulting in a growing cash position. This is a good thing. In a falling
market you should be buying more than selling, resulting in a smaller cash
position… also a good thing. If you run out of cash while the market is still
falling, you are doing it right. By the same token, if you feel stupid having
taken your profits and the market is still foaming, your brilliance will not be
your only reward.
10. Investing is not a competitive event: It’s all about you: your money, your
risk tolerance, your goals, and your objectives. It doesn’t matter what the
others are doing, why and how. Think about this. There is no average, index, or
benchmark that can be compared to the Market Value changes of a properly
diversified portfolio. Nadda.
11. Establish Rules and Apply Discipline… a bonus idea. Just do it.
From: "The Brainwashing of the American Investor: The Book that Wall Street Does
Not Want YOU to Read"
About the Author:
Steve Selengut, sanserve@aol.com, steve@sancoservices.com, 800-245-0494,
Professional Investment Portfolio Manager since 1979. BA Business, Gettysburg
College; MBA Professional Management, Pace U. 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”
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