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Old Fashioned Equity Investing - Building A Better Mousetrap |
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Submitted by Steve Selengut
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What if you could anticipate changes in market direction? What if you could minimize your financial risk while actively managing your portfolio? What if you could harness the power of market, economic, and interest rate cycles and use it to your financial advantage?
You can, while increasing your annual base income in the process --- finally, the better mousetrap.
The Market Cycle Investment Management (MCIM) methodology: develops your personal asset allocation/investment plan, minimizes your risk, works with market cycle realities, teaches disciplined trading procedures, and fine tunes valid performance expectations.
From mid-2007 through mid-October, 2010 the stock market has formed a classic Peak to Trough to Peak pattern. Comparing your portfolio numbers with a well-respected benchmark such as the S & P 500 Average should give you a fair idea of how your strategies compare with a trusted market measurement device. It should.
But a properly constructed portfolio should not be 100% invested in equities. Theoretically, a pure equity portfolio such as the S & P should do better in terms of market value performance than a portfolio with an asset allocation that includes a 30% exposure to income-purpose securities, either taxable or tax free. Again, it should.
The MCIM methodology insists upon at least a 30% income position, and limits equity investing to Investment Grade Value Stocks, as tracked by the IGVSI --- less risk than the S & P 500, for sure.
So why is this the proverbial "better mousetrap"? Let's look at the numbers, starting with 2010:
Through October 15th, MCIM (70/30) portfolios gained roughly 15% in market value while the S & P 500 rose less than 4%. The income purpose securities component (WCMSI) rose 11.4% while the IGVSI itself rose 9.2% --- both significantly better than the increase in the S & P 500.
So why did the actual portfolios using the methodology do 50% better than the MCIM indices?
From its Peak in September 2007, the S & P lost 56% of its market value over the next 18 months. Scary, as I'm sure you remember. During the same time period, the WCMSI index gave up 35% of its value and the IGVSI 47%. Not quite as scary.
The individual program portfolios? Well if you were taking profits during the rise, avoiding over priced IGVSI stocks, and collecting dividends and interest on all of your holdings --- what do you think? About one third of the index "draw down"...
Since the bottom of the financial crisis correction on March 9th 2009, the S & P 500 Average has risen 73%, but remains 23% below its September 2007 Peak. The MCIM Income Securities index has rebounded 64% to just 3 percentage points below its September level. The IGVSI has gained nearly 80%, and rests just 5% below the September 07 level.
So why have actual MCIM portfolios outperformed all three indices during this scary segment of financial market history? Well if you were reinvesting your cash during the correction in bargain priced IGVSI stocks, and collecting dividends and interest on all of your holdings --- what do you think? About one third better than the MCIM/Working Capital Model indices --- so far.
Since the level it achieved just prior to the bursting dot-com bubble in 2000, the S & P 500 Average (on October 15th 2010) had lost 17% of its market value. In the same time frame, portfolios managed start-to-finish using the Market Cycle Investment Management methodology have gained roughly 113%, in spite of the impact of the recent financial crisis.
So why have actual MCIM portfolios outperformed the popular averages through the "Dismal Decade"? How do you think they did 23 years ago, around the "crash" of 1987?
It's all in the name, and in "The Brainwashing of the American Investor:The Book That Wall Street Does Not Want YOU To Read"?
Click for Details --> See the Peak-Trough-Peak Chart <--
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