2014 Portfolio Update: What’s In Your Wallet?

Analyzing life-cycles of the Market Cycle Investment portfolio

by Steve Selengut

Mr. Selengut is a private investor and a contributing editor to LIFE&Health Advisor. He is the author of the book ‘The Brainwashing of the American Investor: The book that Wall Street does not want you to read.’ He can be reached at [email protected]

So how come my MCIM portfolio hasn’t kept pace with the S & P 500 in 2013… although still light years ahead over the past 10, 15, and 30 years…..

Market Cycle Investment Management (MCIM) portfolios are not equity only portfolios, so it makes little sense to compare their performance to stock market indices. MCIM portfolios are designed to grow income producing Working Capital in a higher quality, lower risk, environment over the course of the investors “life cycle”.

Every security in every portfolio produces income… not so for the S & P

There are two distinctly different cycles at play within MCIM portfolios, all the time. Rarely do equity and interest-rate-expectation (IRE) sensitive security prices cycle together… as they did from October 2011 thru November 2012 (for tax exempt CEFs) and thru April 2013 (for taxable CEFs).

While equity prices have surged upwards (the S & P has hit 25 new all time highs since its first one in 6 years on February 19th) this year, IRE sensitive Closed End Funds (CEFs) have declined roughly 20% since their 11/30/2012 high.

Note that Investment Grade Value Stocks (measured by the IGVSI and the only equities allowed inside MCIM portfolios) have struck new all time highs 29 times since the February S & P high and 47 times since first breaking above 2007 levels early in 2011…  a whopping two years ahead of the major averages.

The IGVSI contains only the best and biggest (S & P safest rated, dividend paying, multinational companies). Ironically, the S & P 500 does not. Most MCIM portfolios have less than 60% of “Working Capital” allocated to equities, and some of the equities, particularly the high dividend producing CEFs, would be considered in many circles to be IRE sensitive securities.

The average IGVSI equity pays roughly 50% more in dividends than the average S & P company; the average MCIM Closed End Fund pays three to four times as much as the average S & P equity (roughly 6% to 8%, and mostly with a monthly payout).

All MCIM investors withdraw management fees, and a good portion withdraw monthly living expenses from their investment portfolios. Nothing is withdrawn from the S & P 500.

The S & P 500 is within an eyelash of another all time high. Investors who buy shares in S & P equities (actually, equities in general) will pay more per share today than anyone on the planet has ever paid for these shares in the history of mankind .... I think I said the same thing about gold a few months ago

The S & P 500 is within an eyelash of another all time high. Investors who buy shares in S & P equities (actually, equities in general) will pay more per share today than anyone on the planet has ever paid for these shares in the history of mankind …. I think I said the same thing about gold a few months ago.

Neither the S & P nor the DJIA (Dow Jones Industrial Average) ever take profits BUT they do take losses. The DOW eliminated its three biggest losers just a few months ago; I’m sure that the S & P has made similar “portfolio-politic” adjustments. MCIM portfolios have capitalized on every reasonable profit that has entered the target “cross hairs”, adding to portfolio working capital.

No ‘smart-cash’ allowed for a correction

Neither of the major market measures is “prepared” to take advantage of the inevitable market correction — there is no “smart cash” allowed in any such portfolios. All Mutual Fund managers and ETF Ouija boards will just watch and bleed as investors (and MPT speculators, respectively) rush to leave the bubble bursting equity markets.

On the other hand, with profit-taking opportunities rising once again, the drought in MCIM bargain shopping continues. On 10/15/13, only 8 of the limited IGVSI selection universe of 344 NYSE equities, were in MCIM manager “buying” range of down 20% from the 52-week high. MCIM buying powder is dry and ready to take advantage of lower prices as soon as the whites of their eyes become visible.

So even though it may appear that the S & P has performed better than an MCIM portfolio in 2013, the exact opposite is true.

No profits have been taken, no income stream has been imbedded, no additional working capital has been created, and no cash is available to take advantage of future opportunities. With every uptick in the S & P 500, your risk of actual loss increases because the vast majority of all equity purchases at these levels are being made by your 401k and IRA Mutual Fund managers and ETF speculators.

When the mob starts to sell, non MCIM investors will be the primary losers… as the money flows back (partially) into the safety of income CEFs (yes, raising their prices) and the rest into fearful hiding spaces to wait for reinvestment during the next financial market bubble.

Oh yeah, the other 40% or more of your portfolio that has lost 20% of its market value this year while maintaining about the same level of income. This anomaly is referred to in MCIM lingo as an incredible opportunity to squirrel away some more capital at tax free rates near 7% and taxable rates close to 8%….

I can count on one hand the number of times that investors have run to me during corrections in either market, ready to take advantage of the opportunities that are so clear to cyclical thinkers… go figure.