Wed 6 Jul 2011
The “Bargain Stock Monitor” is one of three market statistics used as performance expectation analyzers for portfolios that are designed and managed using the Market Cycle Investment Management (MCIM) methodology.
It is derived from the month end Investment Grade Value Stock Index (IGVSI) “watchlist” screening program, which identifies IGVSI companies that are trading at least 15% below their 52-week highs.
The “15% down” break-point allows you to keep your eye on “Bull Pen” items. (You really need to be familiar with the selection rules to get the most from the BS Monitor – chuckle – and from the Watch List program.)
The fewer IGVSI equities at bargain prices, the stronger the stock market and the more “smart cash” you should be accumulating in the equity asset allocation “bucket” of your investment portfolio. As the list of bargain stocks grows (indicating market weakness), portfolio “smart cash” should be finding its way back into undervalued securities.
The 2011 monitor documents the rally that began in March 2009. At year end 2010, barely 2% of the entire IGVSI universe were at bargain price levels — only 7 stocks. April’s “6” tied for “lowest-month-end-number-ever” honors, and clearly showed the continuation of a bubbling out of control rally.
The April 30 number demanded continued “Buy Side” patience — May & June have showed you why!
Finally, a buying opportunity in IGVSI equities! In spite of some serious month end bargain hunting (or, possibly, window dressing), the month end “monitor” showed the weakest market conditions in ten months — but still not a big-deal market correction.
The number of IGVSI bargain stocks doubled in May and re-doubled in June.
Those of you who heeded earlier “bubble” warnings (on the IGVSI website) and took your profits, should have repositioned some of your “smart cash” over the past six weeks or so. As for me, I’m rubbing my hands together in excitement, hoping that the market weakness will continue for another few months — in the long run, corrections are a good thing.
If you did not take your profits by the April peak, one of these things happened: (a) You were greedy, and continued to ignore MCIM profit taking guidelines; (b) You didn’t have profits because you failed to make new equity purchases during the last correction; (c) You didn’t want to be burdened with those short-term capital gains that will surely disappear — yet again; (e) You thought that the rally would last forever.
If you locate yourself in the previous paragraph, you should still have unrealized profits that you should be taking — have you figured out yet that “total realized return” is a much better number to focus on than the unrealized variety?
On the “income” side of your portfolio, you should notice significant value gains after the third month of an income CEF rally — particularly in the municipal variety — there have been profit-taking opportunities there as well.