Individual securities (the stuff that indices are made of) complicate things significantly by having even less predictable cycles of their own. This generally uncertain atmosphere is the very nature of the financial markets. If investors could come to grips with the non-calendar, cyclical, nature of markets, it is likely that they could improve their investment performance considerably.

In spite of decades of irrefutable evidence to the contrary, Wall Street has convinced most investors and far too many financial professionals that the calendar year is somehow investment relevant. Simple, yes; tax-code friendly, perhaps; but investment realistic— not.

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Too many experts have abandoned the financial world’s fascinating cyclical undulations for the simplicity of the planet’s annual orbit around the sun. It’s time for a change in direction— one that doesn’t ignore the realities of the investment markets. It’s time to get back on our “hogs”, and ride!

Regardless of direction, all cyclical movements have proven to be excellent investment opportunities for Market Cycle Investment Management (MCIM) navigators. The MCIM Program uses a time-proven methodology that befriends market and interest rate cycles by using strategies that most often should produce:

* Higher market value lows during market downturns.
* Moves to cash before corrections take over from rallies.
* Maintenance of planned income during financial crises.
* Faster movement to new market value highs.
* Steady growth in “working capital” in all market environments.
* Annual growth of realized “base income” in all portfolios.
* No major disappearing (unrealized) profits.
* Much better than average peak-to-peak market value numbers.
* Auto pilot maintenance of asset allocation structure.
* Reduction of analysis paralysis, appreciation of both rallies and corrections, and love of market volatility.

The past twelve years have included two major market cycles and one significant economic crisis. Email me to see how well Market Cycle Investment Management accounts fared during this interesting segment of financial history. Read “Brainwashing the American Investor” to appreciate the MCIM program— in operation since 1970.

All investors should become familiar with Market Cycle Investment Management accounts and the strategies they employ to keep portfolios on track from start up to retirement. As a family evolves over time, separately managed, “life cycle” friendly, portfolios will become necessary. For example:

Group One -Taxable income and Investment Grade Value Stock (IGVSI) portfolios for tax deferred accounts

* 70% IGVSI Equities and 30% Taxable CEFs
* 50% IGVSI Equities and 50% Taxable CEFs
* 30% IGVSI Equities and 70% Taxable CEFs

Group Two – Tax free income and Investment Grade Value Stock (IGVSI) portfolios for taxable accounts

* 70% IGVSI Equities and 30% Tax Free CEFs
* 50% IGVSI Equities and 50% Tax Free CEFs
* 30% IGVSI Equities and 70% Tax Free CEFs

Group Three – Tax managed portfolios, asset allocated as in Group Two, for taxable accounts.

Notes: (1) Group One and Two portfolios would be managed in accordance with The Working Capital Model, as documented profusely in the books and articles of Investment Manager Steve Selengut. (2) Group Three portfolios would be managed similarly; however, tax loss selling will be used annually to offset a significant portion of trading gains.

Reasonable Expectations: (1) Portfolios should lose less market value during market corrections and recover to new highs more quickly. (2) Profit taking during rallies, regular cash flow, and strict stock purchase rules should produce quicker recoveries. (3) Income production from equities, combined with a significant income securities bucket, assure annual increases in “base income” levels.

Market Cycle Investment Management replaces the racetrack mentality that runs today’s investment performance evaluation methodologies with a calmer, more cerebral, strategy.

By looking at things cyclically, and analytically, instead of celestially and emotionally, we allow our strategy to prove itself over a reasonable period of time— as it has since 1970.

If the investment strategy makes sense in the long run, why knock yourself out in months, quarters, and years? Pick the MCIM program or programs that suit you best today and let them work you through the cycles the investment gods are preparing for your future.

Attend a seminar, adopt the program, and smile.

Steve Selengut

An afternoon workshop attendee spoke of a similar predicament, but cautioned that (with new high market value levels approaching) a repeat of the June 2007 through early March 2009 correction must be avoided— a portfolio protection plan is essential!

What are they missing?

These investors are taking pretty much for granted the fact that their investment portfolios had more than merely survived the most severe correction in financial market history. They had recouped all of their market value, and maintained their cash flow to boot. The market averages remain 40% below their 2007 highs.

Their preemptive portfolio protection plan was already in place — and it worked amazingly well, as it certainly should for anyone who follows the general principles and disciplined strategies of the WCM.

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But instead of patting themselves on the back for their proper preparation and positioning, here they were, lamenting the possibility of the next dip in securities’ prices. Corrections, big and small, are a simple fact of investment life whose origination point, unfortunately, can only be identified using rear view mirrors.

Investors constantly focus on the event instead of the opportunity that the event represents. Being retrospective instead of hindsightful helps us learn from our experiences. The length, depth, and scope of the financial crisis correction were unknowns in mid-2007. The parameters of the current advance are just as much of a mystery— today.

The WCM forces us to prepare for cyclical oscillations by requiring: (a) that we take reasonable profits quickly whenever they are available, (b) that we maintain our “cost-based” asset allocation formula using long-term (like retirement, Bunky) goals, and that we slowly move into new opportunities only after downturns that the “conventional wisdom” identifies as correction level— i. e., twenty percent.

So, a better question, concern, or observation during a rally (Yes, Virginia, seven consecutive months to the upside is a rally.), given the extraordinary performance scenario that these investors acknowledge, would be: What can I do to take advantage of the market cycle even more effectively— the next time?

The answer is as practically simple as it is emotionally difficult. You need to add to portfolios during precipitous or long term market downturns to take advantage of lower prices— just as you would do in every other aspect of your life. You need first to establish new positions, and then to add to old ones that continue to live up to WCM quality standards.

You need to maintain your asset allocation by adding to income positions properly, and monitor cost based diversification levels closely. You need to apply cyclical patience and understanding to your thinking and hang on to the safety bar until the climb back up the hill makes you smile. Repeat the process. Repeat the process. Repeat the process.

The retrospective?

The WCM was nearly fifteen years old when the robust 1987 rally became the dreaded “Black Monday”, (computer loop?) correction on October 19th. Sudden and sharp, that 50% or so correction proved the applicability of a methodology that had fared well in earlier minor downturns.

According to WCM guidelines, portfolio “smart cash” was building through August; new buying overtook profit taking early in September, and continued well into 1988.

Ten years later, there was a slightly less disastrous correction, followed by clear sailing until 9/11. There was one major difference: the government didn’t kill any companies or undo market safeguards that had been in place since the Great Depression.

Dot-Com Bubble! What dot-com bubble?

Working Capital Model buying rules prohibit the type of rampant speculation that became Wall Street vogue during that era. The WCM credo after the bursting was: “no NASDAQ, no Mutual Funds, no IPOs, no problem.” Investment Grade Value Stocks (IGVSI stocks) regained their luster as the no-value-no-profits securities slip-slided away into the Hudson.

Embarrassed Wall Street investment firms used their influence to ban the “Brainwashing” book and sent the authorities in to stifle the free speech of WCM users— just a rumor, really.

Here we are once again. For the sixth time in the thirty-five years since its development, Working Capital Model operating systems are proving themselves to be an outstanding market cycle management methodology.

And what was it that the workshop participants didn’t realize they had— a preemptive portfolio protection strategy for the entire market cycle. One that even a caveman can learn to use effectively.

About the author:
Steve Selengut
can be contacted: sanserve (at) aol.com

Brands that invest in marketing during a recession tend to gain market share as their competitors lose focus on their overall strategy, he said. Lindstrom was speaking in the run-up to his Buyology Symposium, held recently at Dubai. The symposium – the first time it was held in the Gulf – will cover the impact of subliminal advertising and the revolutionary influence of neuroscience in marketing.

The book, Buyology, which was released in October, is the result of a groundbreaking study on NeuroMarketing, which studied thousands of volunteers and was the largest of its kind ever taken.
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The three-year study, which uses the latest brain scanning technology to reveal the science behind what makes consumers tick, is the single biggest breakthrough in marketing in decades, according to global experts. The pioneering research will turn advertising and market research approaches on their head, and refute most of what we thought we know about why people buy.

Here are his top tips:

1. Don’t cut your prices – research how’s that by discounting your brand during a recession it will take you 7 years to recover to your original price level.

2. Focus on your brand strengths (real not imagined!), and emphasise heritage and classic/traditional values – while the crisis is on people tend to hark back to the memories of the good old days.

3. Do exploit the fact that your competitors may have shrunk their advertising spending – you can rapidly win back mind share as well if you have the courage to act now. Then rely on your operations and product teams to keep you ahead long-term.

4. Brands that invest in marketing during a recession tend to gain market share when the recession ends. It might seem wrong to splash out on a new advertisement campaign when you are cutting staff, but if the message is right and the campaign is well executed, the investment will pay off in the long run.

5. Bundle up: instead of cutting prices on your top brands, offer something for free as an add-on to your core (non-discounted) brand. So if you happen to sell bags, don’t discount your bags but throw in a free keyring instead. Create strategic alliances with matching products or brands. If you happen to sell jewellery, then team up with the local flower store. Let the flower store promote your jewellery and ensure you’re promoting their flowers whenever a couple comes to you to buy an engagement ring, for example. The result? You double your reach and marketing budget – for next to nothing.

6. Play on the practical dimensions of your brand. Does the product you sell last longer or stay fresher, or can they be used for multiple purposes (for example, if you sell jackets, can you turn them inside out and suddenly have a second colour option)? During recessions consumers are practical – make your brand practical too.

7. Make your agency more accountable for strategic decisions as well as costs. Take advantage of the economic downturn to make your agencies work and think harder for their fees.

8. The overriding influence of the global ad agency or mother brand in campaigns is over. Local agencies and marketing teams within the organisation must have an increasing influence on marketing strategy to ensure campaigns speak directly to their consumers – so listen to them!

9. Don’t spend money on a flashy new logo – you’re not going to need it in five years time. Instead, spend the money on making your marketing communications adverts appeal to more than one of the senses (the sense of smell is far more effective than sight!!!)

10. The Buyology Symposium, is expected to tour more than 50 countries Lindstrom will appear live and in person at each event.

With the right system, and most importantly, the right discipline, it can be done. Casinos typically work to a ‘House Edge’ of 1 to 5%. For every $100 gambled, the player will lose $1 to $5. It doesn’t sound like much, but in a multi-billion dollar industry it’s enough to make online casinos some of the most profitable sites in the world, and to build Las Vegas up from nothing in just a few years.

A whole lot of people will tell you that it is impossible to overturn this edge, and from a purely mathematical point of view they are correct. The Laws of Probability mean that you cannot turn a negative into a positive. If you are playing Roulette, and Black has come up 10 times in a row, the odds of it coming up next time are still 50/50. (Ignoring the ‘0′ and ‘00′) According to the Laws of Probability, there is no reason why Black cannot come up 100 times in a row. This argument, while scientifically sound, ignores the Law of Possibility, which means that in the real world, the chances of Black coming up 100 times in a row is so slight that it can be ignored.
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This doesn’t mean that you can gamble recklessly and expect to win. You need a good system, and the discipline to quit while you are ahead, which is where most gambling systems come apart. Set yourself the target of winning, say, $50, and quit as soon as you have achieved it.

Gambling is a game, a contest. When you gamble, you take a chance that you will increase your money. You give your money to a Golden Casino or other gambling venue and hope that you will get the right role, the right cards, or the right horse will win. You could make a lot more money or you could lose it all depending on whether or not something happens. There’s no way of knowing what will happen.

Blackjack is one of the casino games, which provides the greatest advantage to its players. In fact, in some variations of the game, the players have a slight better edge over the casino. There are many Blackjack strategy guides available online that teach you how to play Blackjack with the best chance of winnings. If you have not learned one of the Blackjack strategies that work best for you, it will be a good idea to get one of those guides and learn to master the skills before you play the game with your hard-earned money.

So, is investing the same as gambling? It can be. But if you diversifying your investments, have patience during the bad years, and match your portfolio to the time you have until you need the money you won’t eliminate risks, but you can eliminate the effect of those risks. That’s the way the casino owner can still smile when writing a $1 million check to a super-grand-mega-winner in slots. It’s because he’s looking at all of the other machines digesting a whole lot of quarters.

Whether you go the discount route through Schwab, Ameritrade, Fidelity, etc., or enjoy a higher level of service through an independent like LMK Wealth Management, you should never be surprised by the market values reflected on your monthly statement.

None of the firms make it easy for you to examine asset allocation, particularly on a working capital basis, and most refuse to even acknowledge that Municipal CEFs should not be lumped in with the equities. Additionally, no brokerage statement ever includes a warning label about the dangers of margin borrowing. Surprised? Not.

But, you can be sure that all statements will emphasize (in every conceivable way) the short-term change in your market value. Any long term or cyclical analysis (if any) is reserved for the “we understand your long term objectives” propaganda that fills their prospect-only glossies.
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But, statement market value movements in both directions need to be anticipated and understood, not labeled bad or good (rhyming not intended). Investigation is required when you reasonably expect one direction and you wind up with another— with the emphasis on the reasonableness of your expectations.

Someone should provide a simple analytical mechanism that will allow investors to know precisely what to expect from the monthly statement opening ritual— and to have a fairly good idea of why the values have changed the way they have. No shocks, surprises, or indigestion.

I’ll take a shot at it, but you should know that IGVSs are those few “value stocks” (in the classic definition) that are also B+ or better rated by S & P, dividend paying, generally profitable, and traded on the NYSE.

The IGVS expectation analysis process will prepare you for the dreaded monthly account statement— whether you get there by password and click or by post office and letter opener.

Only four bits of information are really needed (for WCM users), and I’m assuming a 70% to 30% portfolio asset allocation— equities vs. income, respectively:

One: An increasing Investment Grade Value Stock Index (IGVSI) will lead to higher market values for the stocks in your portfolio, but not if you just think that you own mostly IGVSs in your Mutual Funds.

Two: When you are looking for stocks that fit your buying parameters (not hot tips from “Heard on the Street”, “Mad Money” or CNBC), a higher number of “bargains” will generally mean lower equity market values.

Three: If monthly (IGVS) Issue Breadth numbers are significantly positive, higher market values should be expected. For the uninitiated, issue breadth analysis compares the number of stocks going up in price with the number going down, daily.

Four: If there are fewer IGVSs establishing new 52-week lows than new 52-week highs, it is likely that overall equity market values are falling.

So how do you think you did in August— click, click, head-scratch?

The Investment Grade Value Stock Index was up for the fifth time in the past six months. The number of bargain stocks was below the average of the past six months. Issue breadth was positive. There were more 52-week highs than lows— only one new 52-week low all month.

In other words, all indicators point to a higher market value in August than in July and a continuation of the upward trend that started in March.

Additionally, in spite of conditions where interest rates cannot really go much lower, rate sensitive CEFs continued to move slightly higher— signaling further strengthening (for now) in the credit markets.

So what could keep you from having a better portfolio picture this month than last (from a short-sighted market value perspective)?

Well, Virginia, in the non-government world where most of us attempt to survive, disbursements in excess of income and deposits will do it every time. And when the market corrects, as it absolutely always will to some extent, the double whammy on the bottom line can be painful.

Tracking breadth, new highs and lows, bargain numbers, and an index that mirrors the types of securities you hold in your portfolio, can explain what is happening. Regular additions to your portfolio can soften the impact of a correction and help you prepare for the rally that inevitably follows.

Now if we could only convince the SEC to require that account statements be divided by security purpose (growth or income, for example) instead of by trading unit.

About the author:
Steve Selengut
Sanserve-at-aol.com
Professional Investment Management from 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

You knew it the moment it left the club, that spark at contact when you catch it just right. You look up. It’s just reaching the top of its climb— and heading down right at the pin, a pin positioned left of center on the elevated green, much too close to the water.

This could be the one! Four mouths hang open, not a sound. Then whack, the ball strikes low on the stick and disappears; the pin wobbles; the ball is nowhere to be seen—

Moe and Curley are certain it dropped into the hole as they hurry their tee shots and rush to their cart. “My buddy Stan holed out like that at Disney a few years ago”, you hear, as they search the cooler for four cold brewskis.

Larry isn’t ready to slap you on the back yet. “With my luck”, he says, “the ball would go dead left, down the hill and into the water”. He calmly puts his tee shot on the green, far to the right of the pin— about where you were really aiming. What are your expectations? What scenario fits your game today?
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If it weren’t for optimism, few of us would continue to be golfers. The perfectly struck ball can encounter a myriad of obstacles on its way to your target. Experienced golfers expect some adversity, even when they are playing well. For most of us, it only takes one or two good shots to keep us coming back.

High handicappers shout “golfshot”— as one word, when they think one of those has occurred.

Similarly, if not for optimism, few investors would have the courage to take advantage of the hundreds of opportunities that are created every time the financial markets hit the wall and tumble down Canal Street into the Hudson.

Are you headed for an ace or a double bogey, a nice solid profit or another disappointment? The decisions we make at the highs and lows of our experience are the most significant, always. Were you selling or buying six months ago— eighteen months ago?

Just as Moe and Curley are certain the ball is in the cup as they rush to the green, many independent financial pros were certain that the markets would rebound throughout what seemed like twenty rounds without a single par.

After months of hazards, tree roots, hardpan, lip outs, and high winds in their faces, investors are experiencing a string of “gimmie” birdies— in the form of a robust rally. Once again, Investment Grade Value Stocks and income producing closed end funds are leading the way.

Were you selling or buying six months ago— eighteen months ago?

Being optimistic is critical for long-term investment success. When things don’t seem to be just right, ratcheting-up your focus on basic principles, fundamentals, and the cyclical realities of the playing field is the type of practice session that gets those security (and club) selections back on track.

Optimism needs to be controlled or it morphs into speculation— and speculation breeds both losses and snowmen. Most investors miss the early hours of the new party because their gurus don’t think it will be much fun. Eventually, market cycles repeat; with practice, so will your swing. Don’t forget to leave the party before midnight, pumpkin.

Remaining focused on the QDI rules you’ve developed for your investment program, and the few swing thoughts that fine-tune your pre-shot routine, bridles the optimism and allows you to focus on the major hazards that could keep you from goal achievement.

In both golf and investing, too much thinking about too many inputs from too many experts is as bad for the game plan as simply doing the things that haven’t worked over and over again.

The key to attaining and maintaining a satisfying skill level is to understand what it is that you should practice. You’re not going to three-putt less often by complaining about it. Find someone who rarely three-putts and ask for help. Focus on how things work, and you’ll formulate more accurate expectations.

It’s easier and less expensive for golfers to practice than for investors and there’s a whole lot less at stake, financially. But practice means more than loosening up on the range and stroking a few putts before moving on to the “breakfast ball” or “Mulligan” that often describes your opening tee shot.

Practice means addressing the problem areas of your last effort before the next one. You need to be confident that you have it right so you can focus on the new challenges of today’s pin placements.

Investment practice sessions are different, and I’ve learned that investors are more stubborn, lazy, impatient, and fickle than golfers. Both crave shortcuts to success and gadgets that will instantly improve their performance. But few investors are able to bring their focused course management skills to the long-term financial playing field.

Golfers will spend thousands on instruction, gadgets, machines, clinics, magazines, lessons, drivers, and putters. Investors love the gimmicks, shortcuts, and expert recommendations, but they seem allergic to anything really educational. They must see it as a sign of weakness.

Golfers should be better investors. Investors need to introduce themselves to some basic education.

Hello ball!

Steve Selengut
Sanserveataoldotcom
Search – Kiawah Golf (or not) Investment Seminars
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

The IGVSI tracks a portfolio of approximately 400 stocks— and less than half of them are likely to be found in the S & P 500 average. This new market index was developed in late 2007 to provide a benchmark for the equity portion of investment portfolios managed without open-end mutual funds, index funds, or any of the other popular speculations and hedges that are included in most professionally managed portfolios.

Two related indices (the WCMSI and WCMSM) track portfolios of closed-end income funds. Between the three, they serve as an excellent performance expectation development tool for investment portfolios managed according to the disciplines of the Working Capital Model (WCM). Through July 31 2009, these indices soared approximately 24%—- about five times the growth of the S & P 500 and twelve times that of the DJIA.

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The reasons are fairly simple: A diversified portfolio of high quality, dividend-paying equities, combined with an equally well diversified collection of conservative interest paying securities is what investors move into after licking their wounds from failed speculations.

Indices that contain the highest quality, dividend paying equities and a variety of historically solid income producers in a manner similar to a conservative personalized portfolio are valuable in helping investors “fine tune” their portfolio performance expectations and their forward-going action plans. The IGVSI is telling us several things right now:

There should be profits in your portfolios so make certain you don’t let any of them slip through your fingers.

Sticking with the QDI (quality, diversification, and income production) safety structure clearly moves you away from market bottoms more quickly than approaches that are based on more speculative methodologies, gimmicks, and hedges. It also puts the brakes on slip-sliding-away market values much sooner than the conventional sell everything low methodology.

Clearly, adding dollars to portfolios during corrections (portfolio income plus regular contributions) is a far more productive approach to investing than loss taking and waiting for Wall Street to tell you when the next upturn is about to begin. Just ask yourself: Have I benefited twenty-plus percent from this five-month rally?

Additionally, individual securities portfolios are much easier to manage and to monitor as to monthly income production than other forms of investing in times of financial chaos. Income produced by the twenty-five closed end income producers in the WCMSI is pretty much the same now as it was when the downturn began in May of 2007— particularly when you factor in profits and reinvestment of dividends.

Without a doubt, investment portfolios that are able to use the IGVSI, WCMSI, and the WCMSM as their benchmarks are most likely to out-perform the most well known Wall Street benchmarks. They have done so in an environment where congress has killed major institutions and where many interest rate sensitive securities failed to move higher in the face of the lowest interest rates in modern history.

It’s time to move away from the speculative underbelly of investing; it’s time to build an investment future on a foundation of quality, diversification, and income.

About the Author:
Steve Selengut
Can be contacted – sanserve (at) aol (dot) com
Professional Portfolio Management since 1979
Author: The Brainwashing of the American Investor
Investment Instruction provided through Kiawah Golf Investment Seminars

There were four types of standard analysis used by most financial institutions, Peak-to-Peak, and Peak-to-Trough being the most common found in annual reports. There were also basic differences in purpose and perspective in the old days, and a focus on results vs. reasonable expectations for actual portfolios.

Even more boring, and not nearly as profitable for “the wizards” as today’s super Trifecta, instant gratification, speculative, mentality.

Portfolio performance analysis was intended to be a test of management style and overall methodology, not a calendar year horse race with one of the popular averages. The DJIA was (I believe) originally conceived as an economic indicator, not as a market-performance measuring device.

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No real-life, personalized, portfolio should ever be a mirror image of any other, or comparable to any particular market index. Analysis should be of process, content, and operating strategy; the objective should be fine-tuning of either the philosophy or the discipline.

If the portfolio market value, in a Peak-to-Trough scenario, fell by a greater percent than the benchmark(s) being used, the overall approach would be looked at for reasons why. Was there excess speculation? Did interim profits go unrealized? Was an issue or a sector overweighted?

Theoretically, portfolios with 30% or more committed to income securities would fall less in market value than 100% equity portfolios — they would also be expected to rise less than their more speculative brethren in a Peak-to-Peak analysis. Formulating valid expectations are important for long-term investment success, and sanity.

November 1999 to Mid-March 2009 would have been the ideal analytical period for a Peak-to-Trough review of WCM (Working Capital Model) portfolios, but the November to May time period illustrates the cyclical approach to market value performance evaluation just as well— and the data was easier to obtain.

Here are seven tests you can use to determine how your investment portfolios (or your clients’ portfolios) have fared since the stock market peaked toward the end of 1999, using a 60% Equity/40% Income, WCM asset allocation as an expectation producing benchmark.

One: The percent fall in the S & P 500 average was about 33%. Your portfolio market value should be up by around the same number.

Two: “Smart cash” should have been huge toward the end of 1999 and on the rise again through the middle of 2007, reflecting much too high IGVSI stock prices. Then, portfolio smart cash should have been shrinking (while equity prices tanked) to nearly zero until the second quarter of 2009.

Three: Planned disbursements for expenses should have continued unabated throughout the entire ten year period without ever the need to sell any securities, or to reduce payment amounts— except in (client) emergency circumstances.

Four: Portfolio market values should have rebounded to a greater extent (closer to the most recent all time high) than the gain in the S & P average relative to its latest ATH— after both the dotcom bubble debacle and the latest financial meltdown.

Actually, the dotcom fiasco was pretty much of a non-event for WCM portfolios because of disciplined operating rules boiled down to: “no IPOs, no NASDAQ, no Mutual Funds, no problem”. This time around, the “problem” was a stake in the heart of what once were some of the best of the best financial institutions.

Five: Portfolio “working capital” should be higher than it was at its peak in 2007, adjusted for net additions and withdrawals, and possibly about twice the level of May 1999.

Six: Total portfolio “base income” should be slightly higher than it was in mid-2007, again adjusted for net portfolio additions and withdrawals (and drastic asset allocation changes)— but the 2007 base income level would have been significantly above that in 1999.

Seven: Finally, there should not have been any major profits left on the table, on any security, of any kind, in any portfolio throughout the ten-year period.

Here’s to a return to the boring investment portfolio!

As to straight, most of us refer to that phenomenon as “the dreaded straight ball”— and it’s this lack of straight that makes it so critical for us to master the art of working the ball. We need to understand how to move the ball left or right, consistently, on the golf course, under pressure, but without ever aiming out-of-bounds or into a lateral.

Yeah, sure, just like that.

It is doable though, and Ehow.com is a great place to start. There, at “work-golf-ball” is a simple five-step tutorial that anyone should be able to master with countless hours of range work. Of course it’s more difficult on an actual golf course, with those red and white stakes, trees, bodies of water, marsh grasses, and back yard barbequers.

To become a lower handicapper, work the ball we must— unless your name is Moe Norman. Making the shot go higher or lower than normal is another of those ball working skills that you need to master to save strokes. Mother Nature really appreciates it when you maneuver the ball below Live Oak branches and over environmentally protected “no search” zones.

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Really, it just takes some practice, keeping the club on the target line, a consistent tempo, head down, either an open or closed stance, relaxed hands, etc. OK.

Mother Nature’s investment twin sister is not nearly as difficult to deal with, but is often treated by the media with a level of disrespect normally reserved for ladies whose profession involves a whole “nuther” sort of market making. Perhaps deservedly so, but the media is an instant gratification or blame environment little suited to either golf or investing.

Today’s product sideshow and short-term roulette-like atmosphere is just not what the investment gods had in mind when they developed trade, created world business, and gave birth to the building blocks of the financial markets.

Even Pete Dye would be shocked at the way Wall Street’s financial course architects have turned the most rudimentary of tracks into a moguled, windswept, bunker field, fraught with hazards unimaginable even by their creators. Whatever happened to stocks and bonds?

One financial triple-bogey at a time, the world’s amateur investors are learning that they either have to “Work the Investment Ball” or drop out of the tournament. In this case however, a lifetime of short straight strokes down the middle of the fairway will achieve par most of the time. The sooner investors apply the K.I.S.S. principle to their investment program, the easier the process becomes.

The Working Capital Model is a boring, conservative methodology for lowering the slope rating of the most diabolical wealth accumulation courses. Market hazards are avoided with reasonable expectations, and retirement approach shots that grow the annual income chip by chip, throughout the wealth accumulation period.

In 2008, this approach maintained income levels with market values falling at a relatively lower rate. In 2009, market values have grown acceptably (relatively speaking) while income levels have been bolstered by robust profit taking.

Thinking about the next hole or two, too soon, spoils many a round of golf. Not thinking about the next turn of the market, interest rates, or the economy soon enough will sabotage most normal investment portfolios.

Most of us recognize that, without full time instruction and practice, golf is just not easy to master. Less than 10% of amateurs break 100 regularly (unadjusted), but most of us could do better if we had the time and money to play more frequently.

Similarly, most amateur investors are unable to practice frequently enough to learn how to “work the ball” away from the hazards that always become headlines much too late to be useful.

Practice with market simulators of any kind, by the way, is as useless as pounding balls at a video screen image of The Ocean Course. When it’s your own money, there’s a whole new set of emotions to be dealt with. How often have you brought that “poifect” drive from the range to the Number 1 tee box?

Really, above par (a good thing) investing just takes practice, keeping the targets reasonable, consistent selection rules, patience, media noise muted, proper asset stance, relaxed emotions, etc. OK?

Here’s to the search for the holy repeatable swing.

It’s time to overthrow the evil Masters of the Universe and deactivate their weapons of financial destruction. Let’s outlaw the brainwashing that has changed how average investors look at and value their investment portfolios.

It’s time to exorcize the Wall Street demons and return to stocks and bonds— and to QDI, “the Force” for long-term investment portfolio security.

Speculating is complicated, even for financial rocket scientists. What most of us want (or would certainly settle for) is simplicity, stability, and reasonable growth in our productive working capital.

A return to plain vanilla investing strategies with operating procedures that minimize risk and encourage understanding of the financial markets needs to become part of our financial force field.

As bad as things have been since this black hole appeared, investment models true to fundamental concepts, simple strategies, and disciplined operating rules have probably bettered the market numbers in at least six important ways:

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One – Higher lows during market downturns: Equity portfolios managed using basic principles of quality, diversification, and income (the QDI) and disciplined profit taking rules should not fall as much in market value as most mutual funds or poorly diversified portfolios.

Constant cash flow, even if not reinvested, places a floor under market values, and investors feel better when their values fall less than the market averages. In soundly managed programs, buying activity slows as prices rise— increasing “smart cash” for buying at lower levels later.

Two – Moves to cash or other sectors before bubbles burst: Disciplined profit taking automatically moves dollars from overheated sectors to cash or undervalued sectors during rising markets. This process creates capital that can be used to lower the average cost of remaining positions or to take advantage of new opportunities.

Investors feel better when no profits have been left on the table.

Three – Maintenance of planned income streams during financial crises: Most financial plans focus so strongly on growing market values that they lose touch with the need for planning a dependable retirement income. They rely on selling equity fund units or inflated indices for cash flow, instead of generating stable income with less exciting cash producing staples.

Steadily increasing annual income can be placed on “cruise control” through the use of the cost basis asset allocation methods contained in the WCM (Working Capital Model). How many would-be retirees are searching for jobs because of improper income planning?

Four – Faster movement to new all time market value highs: When investors have a reasonable understanding of the various cycles impacting their investment portfolios, they develop valid expectations about the market value “performance” of their portfolios.

They are less likely to initiate knee-jerk or panic driven transactions and more likely to take advantage of the new opportunities that lower security prices always create. Additionally, higher quality securities invariably are in the first group to regain popularity with investors as good news reports begin to dominate.

Five – Steady growth in working capital in all market environments: Working capital is measured in terms of cost basis instead of market price. As a result, all income generated from interest, dividends, and realized gains grow working capital regardless of the direction of market prices.

A treasury bond generates the same income at $85 as at $115. Most closed-end municipal bond funds (CEFs) maintained their 5% to 7% tax-free cash flow throughout the financial crisis— in spite of their reduced market values. Similarly, short-term profits on high quality securities have been growing working capital since the current rally took hold in March.

Six – Annual growth in realized “base income” in standard portfolios: WCM portfolios are income machines by design. No security is ever purchased if it does not produce regular dividend or interest payments; at least 30% of all base income should be reallocated to income-objective securities.

Similarly, every dollar of capital gains income, and net portfolio additions are partially allocated to income producers— and the use of a cost based asset allocation formula insures annual income growth.

Few financial professionals begin their careers with any encouragement to become comfortable with individual equity securities and the surprisingly large variety of individual, relatively uncomplicated, and generally safe(r) income producers available for their clients.

Financial products are far more lucrative for their institutional employers and, as a result, the incentives for brokers and advisors to sell products is pretty much irresistible. Few pros can afford to be one with “The Force”.

The Dark Side of investing beckons like a Siren’s song, luring the majority of professional advisors away from the safety and simplicity of QDI. Institutional propaganda, projections, predictions, and hype have the same affect on unsuspecting boatloads of speculators who most often become shipwrecked on the derivative rocks.

Investors and their professionals need to re-evaluate their product orientation and plot a global escape from the Dark Side of investing.

Contact the “Skywalker” foundation for emotional and financial support while making the transition— and may the force be with you.

About the author:
Steve Selengut has been a Professional Investment Manager since 1979.
Author of: The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read, and A Millionaire’s Secret Investment Strategy.