The stock market is a dynamic place where investors can consistently make reasonable returns on their capital if they comply with the basic principles of the endeavor and if they don't measure their progress too frequently against irrelevant indices.
The income securities market is most often a less dynamic place where investors can consistently make reasonable returns on their capital if they understand the basic principles of the endeavor and if they focus steadfastly on the income produced by their holdings.
Securities markets are truly fascinating--- replete with promise, mystery, and unscripted daily drama. But individual investors are even more interesting. We've become media driven creatures that must have reasons, predictability, blame, scapegoats, instant gratification, and an imaginary sprite called certainty.
We are becoming a culture of hindsightful speculators, attempting to replace the raw beauty of unpredictable market and economic cycles with an upward only mythology superimposed on a vast casino-like landscape. Most would-be investors are simply keyboard-skilled gamblers, impatient, lazy, and unfamiliar with the nature of the securities they bet upon--- in either direction.
Wall Street provides chips, tables, odds, croupiers, and atmosphere. There are no controls on speculation, and (obviously) no oversight to prevent product creativity from undermining the very foundations of capitalism. Big brother picks up the pieces and imposes more controls and safeguards on the innocent--- while we re-elect the guilty.
Yet the beacons of simplicity burn brightly at the end of the always-under-construction tunnel between The Battery and Capital Hill. If investors could focus on them (unemotionally) through a cycle or two, the sanctity of stocks and bonds would be re-affirmed and the rationale for derivative drug abuse all but eliminated.
The classic investment strategy that worked so well prior to the development of the multi-level derivatives is so simple, and so trite, that it just begs to be ignored. B-o-r-i-n-g! Surely, the investment Holy Grail will never be found by individual issue buyers and coupon clippers.
Investors willing to identify the realities of our wonderful marketplaces, to recognize and embrace the opportunities with an understanding that goes beyond media hype and blog threads, will survive and prosper. They just need to look back, to rediscover the principles of investment success that can shelter their futures--- but without futures.
The Investor's Creed is a pillar of the Working Capital Model, the operating system for Market Cycle Investment Management, a methodology I developed in the 1970s. It synthesizes basic asset allocation principles, an IGVSI trading strategy, and market psychology into five principles of portfolio operation that transcend market cycles, administrations, and global temperature changes.
Remember, this is a summary and it should raise questions--- limited explanation is provided:
One: "My intention is to be fully invested in accordance with my planned equity/fixed income asset allocation." There must always be a "planned asset allocation" using cost basis instead of market value for calculations. Always be looking for buying opportunities that meet your quality, diversification, and income (QDI) standards.
Two: "Every security I own is for sale, and every security I own generates some form of cash flow that cannot be reinvested immediately." It is important that a profit-taking target is assigned to every security; it is essential that you pull the trigger when or before the target is achieved. The words "I do not need the income" cannot be thought, much less uttered.
Three: "I am happy when my smart-cash position is nearly 0% because all of my money is then working as hard as it possibly can to meet my objectives." Smart Cash is compounding capital, created by portfolio dividends, interest, and profits. If it remains uninvested while new investment opportunities exist, it loses IQ points rapidly. Long corrections can make you too happy.
Four: "I am ecstatic when my smart cash position approaches 100% because that means I've sold everything at a profit, and---" This condition should occur whenever there is a serious rally going on in IGVSI equities and you have no income asset allocation in the portfolio. In that case, it's a good time to re-assess your asset allocation plan.
Five: "--- that I am in a position to take advantage of any new investment opportunities (that fit my guidelines) as soon as I become aware of them." Unless the equity market is at an all time high level, it is likely that there are new buying opportunities out there. But never relax your QDI standards, or rush into overpriced securities.
Simply put, The Investor's Creed keeps you buying investment grade securities when prices are low, and selling them at a relatively easy to achieve profit-taking target. Investment grade companies are most likely to survive major financial havoc, are generally in the forefront of cyclical advances, and are always kind enough to provide regular cash flow for portfolio building or grocery shopping.
If you've ever turned an unrealized gain into a realized loss; if you've ever sold mutual fund shares to deal with monthly expenses; if you've ever been unable to take advantage of low prices for lack of income, Market Cycle Investment Management is is an approach you need to consider. It won't work without well thought out QDI rules and a disciplined mouse.
Can anyone tell me why this approach is impossible with conventional mutual funds? with ETFs?