The Financial Crisis, and Other Life Changing Investment Lessons

Take a closer look at your gains

 

by Steve Selengut

Mr. Selengut is a regular contributor to LIFE&Health Advisor and L&HA e-newsLink. He is an investment advisor and the author of ‘The Brainwashing of the American Investor: The Book that Wall Street Does Not Want You to Read.’ You can contact him at [email protected]

 

On November 30th 2012, the S & P 500 (recognized benchmark for assessing the performance of investment managers of all shapes and sizes) was at its highest level in five years.

Shockingly to 401(k), IRA, Mutual Fund and ETF investors (and the Wall Street community as a whole) this translates into a loss of roughly 4% — and, hold on to your wallets, negative numbers since year end 1999 when reality was about to poke a hole in the dot-com bubble.

During the same five years, the Investment Grade Value Stock Index (IGVSI) achieved new All Time Highs (ATH) starting late in 2010, with a recent “peak” on November 30th — a solid 7.5% gain during what most experts agree has been the most difficult investment environment in, well, forever.

The IGVSI selection medium contains no NASDAQ companies — historically profitable, dividend paying companies only are invited. So there was no “dismal decade” (now 13 years) for the IGVSI — or for portfolios operated using only investment grade value stocks.

Adding insult to injury, the Working Capital Model Select Income CEF Index (WCMSI) also outperformed the stock-market-only S & P 500. The WCMSI tracks price performance of high quality, taxable and tax free income closed end funds paying roughly 7% per year in dividends.

No, the dividends have not been added back into the numbers; yes, the income was maintained at pretty much the same level throughout the financial crisis. (Yes, shocking as this may sound to Modern Portfolio Theory and passive ETF investment advocates, etc, it is just what it appears to be — if only their eyes would open as widely as their mouths must be right now.)

So what if these new-to-you indices aren’t prepared by Wall Street institutions or their flunkies, here’s what they tell us:

  • They tell us that there are independent, outside-the-mainstream-beltway, investment managers out there who have the courage to approach investing differently.
  • They tell us that Investment Grade Value Stock investing (totally different from “value stock” investing) just has to blow away the scientific correlating, analytical guesswork, and passive prophesies pushed by lower Manhattan’s cadre of armchair-experienced-only economic soothsayers.
  • They tell us that a portfolio comprised of IGVSI companies and high quality, managed, long track record, income CEFs certainly should outperform mutual fund, ETF, and other portfolio designs by a wide margin — even through one of the most devastating periods in financial market history.
  • They tell us that the average investor might be well served by the small number of financial professionals who are familiar with these numbers, these concepts, and the people who developed them — real world investors, without the pin stripes, that they can sit down and talk to, face-to-face over a milkshake…
as an investor during the huge 2006 to 2007 rally, what if your investment strategy, once again... made you take profits on your IGVSI holdings during the trip up and then insisted that you buy back in slowly, at ever lower prices on the way down, to a fully invested equity allocation at the bottom?

OK, back to the chart, but imagine a different set of dates, and the stock market investors of the 1987 Crash and later not-so-bad corrections through 1997. What if they had been:

… taking profits in a disciplined manner through the run-ups, hoarding “smart cash” until IGVSI company prices fell to the “ok to buy levels” of their management plan, fully invested at or before the ’87 bottom; close to the same during the next two? Hmmmm.

Back to the current chart, as an investor during the huge 2006 to 2007 rally, what if your investment strategy, once again… made you take profits on your IGVSI holdings during the trip up and then insisted that you buy back in slowly, at ever lower prices on the way down, to a fully invested equity allocation at the bottom?

Flashback to 1987, visualize your income securities, maintaining their payments throughout the fiasco, and barely a dividend hiccup among your IGVSI equities. More recently, during the financial crisis, think how you were able to add to your income CEF holdings, thus raising yields, reducing cost per share and setting the stage for obscene profit taking just a few months later.

Dot Com Bubble, you say. Well there was none in IGVSI stocks or in high quality income securities. Appreciate this — if my program manager implemented: no NASDAQ, no mutual funds, and no IPOs, I would be the happy faced guy on the hill, watching the Wall Street lemmings going over an earlier financial cliff.

One more slap in the face, sorry. Where did the “smart money” go after the bubble burst, or perhaps just before if you are a conspiracy theorist? Right. The flight to quality pushed Investment Grade Value Stock prices upward creating the 3nd largest profit taking binge in Market Cycle Investment Management (MCIM) history …

Send me an e-mail naming the other two to obtain a free “Brainwashing” e-book.

The various disciplines within MCIM allow investors (and certified MCIM investment managers) to embrace the changing directions of markets without straying from strict requirements of quality in selection, diversification in positions, and income generation from every holding. No fads, no passive cop outs, and no MPT. MCIM is the active personal portfolio management that the average investor can’t get on Wall Street.

The MCIM methodology was developed and implemented in the seventies — intended for use by the family and friends of investment manager Steve Selengut. It has been available to a select group of clients ever since, and only on a personal contact, individual portfolio containing individual securities basis.