Risk Minimization, The Essence of Market Cycle Investment Management |
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Submitted by The Investment Shadow
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The Market Cycle Investment Management (MCIM) methodology is the sum of all the strategies, procedures, controls, and guidelines explained and illustrated in the "The Brainwashing of the American Investor" --- the Greatest Investment Story Never Told.
<< Retirement Income Ready, Risk Minimized, Self Directed 401k Friendly >>
Most investors, and many investment professionals, choose their securities, run their portfolios, and base their decisions on the emotional energy they pick up on the Internet, in media sound bytes, and through the product offerings of Wall Street institutions. They move cyclically from fear to greed and back again, most often gyrating in precisely the wrong direction, at or near precisely the wrong time.
MCIM combines risk minimization, asset allocation, equity trading, investment grade value stock investing, and "base income" generation in an environment which recognizes and embraces the reality of cycles. It attempts to take advantage of both "fear and greed" decision-making by others, using a disciplined, patient, and common sense process.
This methodology thrives on the cyclical nature of markets, interest rates, and economies --- and the political, social, and natural events that trigger changes in cyclical direction. Little weight is given to the short-term movement of market indices and averages, or to the idea that the calendar year is the playing field for the investment "game".
Interestingly, the cycles themselves prove the irrelevance of calendar year analysis, and a little extra volatility throws Modern Portfolio Theory into a tailspin. No market index or average can reflect the content of YOUR unique portfolio of securities.
The MCIM methodology is not a market timing device, but its disciplines will force managers to add equities during corrections and to take profits enthusiastically during rallies. As a natural (and planned) affect, equity bucket "smart cash" levels will increase during upward cycles, and decrease as buying opportunities increase during downward cycles.
MCIM managers make no attempt to pick market bottoms or tops, and strict rules apply to both buying and selling disciplines.
NOTE: these rules are covered in detail in "The Brainwashing of the American Investor" .
Managing an MCIM portfolio requires disciplined attention to rules that minimize the risks of investing. Stocks are selected from a universe of Investment Grade Value Stocks... under 400 that are mostly large cap, multi-national, profitable, dividend paying, NYSE companies.
Income securities (at least 30% of portfolios), include actively managed, closed-end funds (CEFs), 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 have long term distribution histories.
No open end Mutual Funds, index derivatives, hedge funds, or futures betting mechanisms are allowed inside any MCIM portfolio.
All securities must generate regular income to qualify, 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 diversification 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 daily decision-making. Risk management requires security selection from a universe of securities that meet a known set of qualitative standards.
The Market Cycle Investment Management methodology helps to minimize financial risk:
- 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 asset allocation keeps you goal focused while constantly increasing your base income.
- It assures that poor diversification will not creep into your portfolio and that unproductive assets will be eliminated in a rational manner.
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