Risk Minimization, The Essence of Market Cycle Investment Management |
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Submitted by Steve Selengut
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The MCIM methodology is not a market timing device. Rather, it is a set of disciplines that force managers to add equities to portfolios more during corrections and to take profits enthusiastically during rallies. As a natural (and planned) effect, portfolio "smart cash" levels will increase during upward cycles, and decrease as buying opportunities increase during downward cycles.
Absolutely no attempt is made to pick bottoms or tops, and strict rules apply to both buying and selling disciplines. NOTE: these rules are covered in minute detail in "The Brainwashing of the American Investor" (click the Amazon.com purchase banner above, to the right), and won't be repeated here.
Managing an MCIM portfolio requires disciplined attention to rules that are designed to minimize the risks of investing. Stocks are selected from a small, easy to manage, universe of Investment Grade Value Stocks. The companies are mostly large capitalization, multi-national, profitable, dividend paying, NYSE companies.
Income securities are, for the most part, actively managed, closed-end funds, investing in corporate and government fixed income securities, income paying real estate, energy royalties, tax exempt securities, etc. Multi level, and speculation heavy funds are avoided, and most will have consistent long term distribution histories.
No open end Mutual Funds, index derivatives, hedge funds, or futures betting mechanisms are allowed inside any MCIM portfolio we undrstand Modern Portfolio and reject it for the pure speculation that it encourages in the name of scientifid analysis. Investment management, for certain, is more art than science.
All securities must generate some form of regular income to qualify for inclusion in portfolios, and no security is ever permitted to become too large of a holding. Diversification is a major concern on an industry, or sector, level, but global diversication is a given with IGVSI companies.
Risk Minimization, The Essence of Market Cycle Investment Management
Risk is compounded by ignorance, multiplied by gimmickry, and exacerbated by emotion. It is halved with education, ameliorated with cost-based asset allocation, and managed with disciplined: selection quality, diversification, and income rules--- The QDI.
Risk minimization requires the identification of what's inside a portfolio. Risk control requires decision-making by the owner of the investment assets. Risk management requires a selection process from a universe of securities that meet a known set of qualitative standards.
The Market Cycle Investment Management methodology helps to minimize your financial risk in several ways:
- It creates an intellectual "fire wall" that precludes you from investing in excessively speculative products and processes.
- It focuses your decision making with clear rules for security selection, purchase price criteria, and profit-taking guidelines.
- Its cost based, Working Capital Model asset allocation operating system, assures you of constantly monitoring asset allocation while increasing your base income.
- It helps assure that poor diversification will not creep into your portfolio and that unproductive assets will be eliminated in a rational manner.
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