This is a fairly long read, most of you will leave before you reach halfway and say “I know the ropes, I know the game and I know the rules, what the heck is this guy talking about?” If you think this is a load of crap and you are a master, get off my site and go invest all your money, I know jolly well that you know nothing. Oh yeah! before you go make sure to bookmark this page, you will need to read it when the damage is done. Ask 8 out of 10 people why they invested in a particular stock, the answers will be like “Its a great stock and besides most of my friends have invested too.” The truth is they don’t have a clue. If you do happen to read till the end, I’d love to hear from you.  Assuming I have your attention and interest, please read on.

It is important to be independent in our decisions to invest, and be able to evaluate and understand the companies that we are considering for potential investment. In this article, I want to share with you some of the things that I look at when deciding if a stock is a good investment or not.

Revenue
To pick out a stock that will create good long-term value for its shareholders, investors need to look at the sales figure to see if it is growing at a healthy rate long-term.

Investors should, however, make sure that the company is not over-aggressive in its expansion and taking on too much debt; spreading itself too thin. Investors should also make sure that the company is not in the habit of regularly issuing new stock to fund its growth, as this kind of activities will dilute the holdings of shareholders. The best companies are usually the ones that can mostly or fully fund their expansion from internally generated funds.

Investors also shouldn’t overpay for stocks with high growth rates, as this will put investors in a situation where they find themselves with big losses because a high-growth company they bought shares in missed earnings estimates by 0.1% or something.

It is important to figure out if the growth rate of the company is sustainable by reading the annual report for information on growth and looking at the industry the company is in, as well as the size of the company in relation to the size of its largest competitors. A company doing $8 billion dollars in sales in a mature industry where its biggest competitor is only doing $10 billion dollars in sales generally can’t grow much and shouldn’t have too high a rate of growth.
Read
Most important, however, is that an increase in sales is only a good thing if there is an equivalent growth rate or a higher growth rate (due to scale) in income over the long-term. We will look into income a little later in this article.

While I do believe that investors can get good profits from investing in large-cap stocks, I also believe that if investors are looking for stocks that have the potential to go up 20-30 times in value that they have to look for this kind of gains in small-cap to medium-cap stocks. It’s much easier for a $20 million dollar company to grow ten times its size than it is for a $100 billion dollar company to even double its size.

Operating Income
Investors should look for companies with operating incomes that are rising. There don’t have to be an increase in income every quarter or even every year, but there should be healthy growth in profits over the long-term.

The operating margin is the percentage of revenue a company translates to profit before paying interest and taxes, and before taking into account non-operating profits and losses. A company earning higher margins is able to expand faster and better fund its expansion from funds generated internally, while relying less on debt or issuing new shares that will dilute the holdings of its shareholders.

Many companies make losses during recessions as demand for their products drop. Companies with high operating margins are, to a certain extent, somewhat protected from adverse economic conditions and may still make at least some money during bad times. Additionally, when there is an increase in the costs of materials, companies with higher margins are able to delay passing on the increased costs to the customer and gain market share from their competitors that have no choice but to raise prices early.

While it’s true that investors should generally look for companies with high profit margins, in industries with high profit margins, investors should also take into account things like business models, return on equity, and expansion plans. Wal-Mart for example thrives on a business model that entails low margins, because it is its business model that permits it to earn a high rate of return on equity and experience great growth that turned it into the largest retailer in the world. All this has translated to very impressive profits for shareholders over the long-term.

Companies spending aggressively on expansion will temporarily experience lower profit margins (It is important that each dollar a company retains to expand its business, returns to shareholders in the future as more than a dollar plus whatever return shareholders could acceptably have earned had the company instead paid out dividends with the money used for expansion).

Net Income
While operating income allows us to have a better idea of the efficiency and growth of the company, net income is a more accurate measure of the current profitability of a company, as net income takes into account taxes and interest expense.

The Price/Earnings ratio can help investors tell if a stock is cheap. Generally, a low P/E ratio indicates that the stock is cheap. Investors should, however, take into account that a low P/E ratio could also be a sign of bad things to come. The P/E ratio could also be low because of big one-time gains (which should be taken out when evaluating profits). Companies can manipulate earnings, or accounting rules can give temporary boosts to earnings, and these things will also result in the P/E ratio being unreliable.

Investors should add the latest annual net income figure available with net income figures from the past few years and average them out. This will somewhat give investors a more normalized view of profits. The same goes for operating income and return on equity.

Return on Equity
It isn’t difficult for companies to increase earnings. Companies can for example, take on more debt or retain earnings to deploy in profit generating projects. What’s important is the return on equity, as that is the rate of return earned on shareholders’ money.

Here are some questions investors need to ask themselves with regard to return on equity: “Does the increase in assets and liabilities due to the company taking on more debt translate to an increase in return on equity that’s significant enough to compensate shareholders for the increased risks inherent in holding stock in a company that has become more leveraged?”

“Can the company continue to achieve an above average return on its equity that’s constantly rising (due to retained earnings)?”

Investors should always look for companies with high returns on equity (and if possible, rising return on equity), but should also beware of companies earning high returns on equity solely due to the fact that they are taking on lots of debt and operating on very low levels of equity in comparison to their assets.

When analyzing stocks, it is important to see if the return on equity is consistent over the long-term, even if equity has been gradually rising over the years. If the amount of debt has been rising over the years, investors need to make sure that the increase in assets paid for with money the company borrowed resulted in an increase in return on equity that is acceptable.

These are some other things that investors can factor in when evaluating a company’s return on equity:

As an organization grows bigger, it might not be able to sustain its growth without adding new products to their product line, expanding into different lines of business, or entering new markets. The company’s expanded operations might not be able to generate a return on equity that’s similar to that of its past operations (This assumes that the company uses mostly retained earnings and little or no debt to fund its growth). In this kind of situations, investors need to ensure that if the company is not able to achieve a return on equity that is as high as the past, the company has to at least achieve a return on equity that’s above average.

Increased competition is another factor that can reduce a company’s profits and ultimately the company’s return on equity.

Balance Sheet Strength
Investors should generally look for companies with as little debt as possible and as much cash as possible. I usually look for companies with cash and short term investments equaling at least 40% of total liabilities and 150% of current liabilities.

For me the more cash the company has the better, as cash allows a company to weather downturns and even take opportunities during downturns to acquire assets at depressed prices. While on the surface I think it is a good thing for a company to have lots of excess cash, I also would need the company to have a great track record in terms of using its cash wisely, whether it has been known to make great acquisitions at reasonable prices, launching share buyback programs when the company’s stock is undervalued, or etc.

Companies shouldn’t have excess cash for a long period of time as not only will inflation erode the value of the company’s cash holdings, but the shareholders will be much better off if the company paid out its excess cash in dividends.

I can’t remember the exact quote, but Warren Buffett once said something along the lines of “If you’re smart you don’t need debt, and if you’re dumb you shouldn’t get involved with debt in the first place.” I try to recall this quote every time I think about personally taking on debt to invest or buying stock in a company that have a little bit too much debt for my liking.

I generally dislike debt, but I do understand that companies can benefit from taking on debt when the cost of debt is very low. However, I find it important that the company don’t take on more debt than it can very comfortably manage, no matter how low the company’s cost of debt is. When evaluating if a company has taken on too much debt, I generally look at book value to total liabilities, cash to total liabilities, and owner earnings to total liabilities.

Another thing I look at when investing in a company that has debt is the maturities of the company’s debts in the short to medium term, and if the company is able to build up enough cash to repay any maturing debt in the near to medium term. I also look at the company’s cost of debt and will tend to exclude the stock from my list of potential investments if the cost of debt is too high, as not only will it be harder for the company to service its debt, but it is a sign that there could be something fundamentally wrong with the company that justifies it having to pay higher interest rates on its debts.

This segment of the article describes very generally some of the things I look at when evaluating companies’ balance sheets. There are of course other things that investors should take into consideration when evaluating a balance sheet.

Owner earnings
Warren Buffett wrote about a concept he called “owner earnings” in Berkshire’s 1986 letter to shareholders. While it has been quite some time since I read about owner earnings, this is how I calculate owner’s earnings:

Net profit (I try and take out one-time gains or losses) + depreciation and amortization +/- certain non-cash items – average capital expenditure needed to maintain current profitability and competitive advantage – increase in working capital (if there is).

Some companies might be building up cash, and this might result in a significant increase in working capital. I try to take this into account by factoring out the cash portion of the working capital increase once the company’s total cash reaches a certain percentage of current liabilities(depending on the industry the company is in and what you believe is enough cash for the company to run smoothly).

After calculating the owner earnings figure, I will discount the company’s owner earnings for the next 20 years (I use 20 years as I feel that this is the minimum timeframe for long-term investing, investors can of course use their own timeframes) to the present at a discount rate of 6-7%. I suggest applying a 6-7% discount rate, as I feel these are the returns investors can very reasonably earn over the long-term by dollar cost averaging into a low-cost index fund. The value I get from discounting all the owner earnings to the present will be the base from which I will determine the company’s intrinsic value.

After I’m confident that I’ve roughly arrived at the intrinsic value of the company, and I believe that the stock of the company will make a good investment, I make sure that there’s a margin of safety before buying the stock. I generally look for the market price of the stock to be at least 40% below my estimate of the stock’s intrinsic value but may require less of a margin depending on factors like high profit margins, strong cash position, and etc. No matter how sure an investor is in his or her calculation of the intrinsic value of a stock, the investor, to be prudent, should still have a significant margin of safety when investing, as this will give the investor some protection if things at the company don’t go well, if there are adverse economic conditions in the future, if the investor’s valuation of the company is off, and etc.

Investors should note that different people may come up with a different value for owner earnings, as well as a different intrinsic value for the same company.

(I read a little bit about the margin of safety before, and I know that Benjamin Graham wrote about it in the “Intelligent Investor” (which for some dumb reason I haven’t read), but I currently don’t have a good understanding about the margin of safety, and I’m not sure if I’m applying the concept correctly (even though I think what I’m doing makes sense). I am of course going to make reading the “Intelligent Investor” a top priority, but until then, I would greatly appreciate it if anyone could share some information about the margin of safety).

Competitive advantage
Companies need to have some sort of a competitive advantage if they are to produce good returns for shareholders over the long-term. A great brand or a great reputation, an effective distribution system, an exceptionally strong focus on the customer, being the low-cost producer, having a product that’s the de facto standard, and having a great business model that is incredibly difficult to profitably copy can all be a source of competitive advantage.

Economies of scale can be said to be a source of competitive advantage, but I wouldn’t, in most cases, count on it being a lasting competitive advantage over the long-term as some competitors can gain scale with time. There are also an increasing number of smaller companies that are able to effectively compete against their larger counterparts due to the fact that they are able to successfully integrate technology into their business models. Don’t get me wrong, economies of scale is great and can contribute to a company being a low-cost producer, I just don’t think it’s a very substantial competitive advantage on its own.

I do, however, believe that having a near monopoly over a market is an excellent source of competitive advantage. Companies that have achieved almost monopoly status not only get all the possible advantages of scale in their markets, but also pricing power as a result of their huge market share, as well as significantly higher margins than they normally would due to a lack of meaningful competition which would most certainly put pressure on prices.

Usually, there is a reason why some companies are able reach a point where they’re almost monopolizing their respective markets. The reason could for example be a license that makes the company the sole distributor of a certain product, or the company has a product or line of products that have become the de facto standard in their product category (example: Windows engine). These reasons are the things that make these companies able to somewhat sustain their near monopolies over their markets.

Intellectual property, especially in industries like the pharmaceutical industry, can be a great source of competitive advantage assuming that the company has a great R&D department that works closely with the production and marketing departments to consistently come up with feasible and profitable products that have a big enough market potential for the company to enjoy really huge returns (needed to compensate for the risk that the new products won’t be successful) on R&D costs and the costs needed to bring the new products to market.

There are also competitive advantages that are unique to their industries. In the banking industry for example, a large cheap deposits base is a source of competitive advantage.

Great management is also a very good source of competitive advantage. Here are a few things to look for to tell if management is good:

Management is committed to enhancing long-term shareholder value. Management that aims to enhance shareholder value will do things like buyback shares when the stock is undervalued, pay out dividends when the company can no longer reinvest earnings at higher returns than shareholders can, and focus on activities that will result in long-term profits.

Management has a good track record of doing what they say, whether it is to cut costs, reduce debt, increase revenue contribution from a certain division, or etc.

Management is committed to keeping costs low. This can be seen in terms of the company’s selling/general/administrative expenses being significant lower than that of similar size competitors.

Management is conservative. A company that is run by conservative management will have low debt levels and hold enough cash on its balance sheet to ensure that the company doesn’t find itself in financial trouble. The company will also distance itself from risky activities.

The executives own shares in the company worth significantly more than their total annual compensation. The shares these executives own should come not only from stock options, but also from them investing their own money on their own account. While this doesn’t indicate that management is good, it ensures investors that management’s interests are aligned with the shareholders.

Management should be honest and open with shareholders, whether it’s about the current performance of the company, the company’s goals and the progress made towards those goals, the slip ups of the company, or etc.

Price & Understanding your investments
Companies in different industries are valued differently. For example: book value and cost of funds are important in determining the value of a bank, while a lot of weight is put on same-store sales figures in the evaluation of the investment appeal of retailers.

Not knowing what to look for in a particular industry, can lead to investors not being able to properly value companies in that industry. Because of this, investors should put their efforts into analyzing stocks in industries they understand, as this will increase their chances of properly identifying and valuing a truly great company. It is also important to note that great companies can be found over many different industries, and investors will be better off specializing in and really understanding a few industries (even one will do) as opposed to knowing just a bit about many different industries.

Investors should always try to avoid overpaying for stocks, and should instead just build up cash and wait for the stocks they like to become undervalued. This is one of the most basic rules in investment, and everyone knows this, but there will always be people who will still do it anyway, whether they realize it or not. A 50% loss on overpaying for a “hot stock” that has come back to ground will require the stock to go up by a 100% (which could be years) from its no longer irrational price just for you to breakeven. So, even if you are confident that you’ve found a really great stock, you should wait till the price of the stock drop to a point where if bought, could turn out to be a very great investment.

Most people enter the investment arena thinking that “Risk” is a board game they played in college. Today, I would guess that the majority of investors have never owned an individual share of common stock or a Municipal Bond.

The popularity of investment products has heightened the risk for all investors and has indirectly led to many of the policy errors that threaten both capitalism and the economic fabric of America. Market prices are increasingly and inappropriately influenced by decision-making based only on the derivatives that contain them.

Few people consider the investment risk associated with public policy decisions. Product investors and derivative speculators participate in less personal markets, where it is more difficult to connect the dots between their personal financial interests and their political alignments.

So in a very real sense, investors have to deal with public policy risk every bit as much as they need to analyze the risks associated with the securities and other financial products they hold in their portfolios — complicated, but it is doable.

Apart from these important peripheral considerations, the risk of loss in any equity investment is generally greater than the risk of loss in any debt related instrument. The potential reward from each type is just the opposite, and that’s where all the excitement begins.

Read

Do we risk more for the chance of a greater return, or do we risk less and try to preserve our investment capital? Keeping in mind that investment capital is a measure of cost, not of market value, and that the only real loss is a realized loss.

Typically, the older the investor, the more boring or income focused the portfolio should be — minimizing the overall level of risk. But it’s difficult to actively minimize or manage your risk in the “open end” mutual fund or passively managed ETF marketplaces.

Risk minimization requires the identification of what’s inside a portfolio. Risk control requires decision-making by the owner of the investment assets. Risk management requires a selection process from a universe of securities that meet a known set of qualitative standards.

Product owners assume the added “fear and greed” risk of the general population, while their fund mangers stand aside and mumble about the opportunities lost in either direction.

Without a risk sensitive menu to select from, 401(k) participants need to minimize risk by: (a) avoiding the poor diversification that may be a requirement of their plan, and (b) developing outside income portfolios with any invest-able income above the employer matching contribution.

The first and most important management action focused on risk minimization in any “program” is the development of an asset allocation plan. The plan separates “liquid” investment assets into two buckets (Equity and Income) based on cost, not market value. No portfolio should have less than 30% in the income bucket — no ifs, ands, or buts.

And no investment plan should be developed “tax” or “cost” first. Risk minimization comes first, and then tax minimization if possible. Finally, transaction cost minimization can be considered if you are qualified to run your program yourself.

A cost based asset allocation approach (Working Capital Model) assures growing levels of “base income” throughout the portfolio development process and, possibly, into retirement. Income growth, by the way, is the only real hedge against that other economic risk, inflation — a buying power problem that has nothing to do with the market value of the income producing assets.

Minimizing investment risk is done best through the use of disciplined sets of rules for the various operations involved in managing a portfolio. Strict rules need to be developed for security selection, three types of diversification, income production, and for profit taking.

Forget the Wall Street “I-can-fix-that” product menagerie. We’re not interested in massaging our market value to take the sting out of cyclical market value changes. Our plan is to take advantage of these changes as they unwind around us over time, and when they occur unexpectedly, causing short-term disruptions and dislocations.

In the securities markets (stocks and bonds), the real risk of loss can be minimized without products and futures speculations, without commodities and hedge funds, and without the ageda that most people experience throughout their investment lifetimes.

The old fashioned principles of investing: Quality, Diversification, and Income, plus disciplined, targeted, Profit Taking are the only hedges an investment portfolio needs to assure long-term success. Conveniently, the QDI+PT applies equally well to both classes of investment securities.

“Q” is for quality. If you study the long-term behavior of Investment Grade Value Stocks, and high quality income CEFs, you’ll discover that they hedge themselves quite effectively.

Risk is wrung out of portfolios by investing only in S & P, B+ or better rated, dividend paying, and historically profitable companies and then only when their equity prices are well below their 52-week highs.

“D” is for diversification. Absolutely never allow any position in your portfolio to exceed 5% of total portfolio working capital (i.e., the total cost basis) and never start a position anywhere near maximum exposure. You want to be able to buy more at lower prices.

Similar diversification rules apply to industry exposure and global diversification through the use of the mainly world class companies in the investment grade quality categories.

“I” is for income. Own no security that does not pay regular, dependable, dividends or interest. Regular and growing dividends are a quality indicator in equities. In the income “bucket”, seek out above average yields while avoiding those that seem either too high or two low.

Managed closed end funds do it best and provide easy “PT” and “buy more” opportunities. Buy established CEFs with long term “income” (not ROC) payment records.

“PT” is for profit taking. Absolutely always smile and take your profits willingly, net/net 7% to 10% (dependent upon available reinvestment possibilities and security class), and never, ever, look back.

Trading this same body of securities, again and again, has been shown to sustain growth of capital and income consistently in a relatively low risk environment.

Boaters run aground by not paying attention to tides, charts, navigation tools and their GPSes. Investors get swamped with information, media noise, breaking news, politicians, gurus, and derivatives — so much so that they can’t see the oncoming fog banks and tsunamis of cyclical change.

Most investment mistakes are caused by basic misunderstandings of the securities markets and by invalid performance expectations. Losing money on an investment may not be the result of an investment sandbar and not all mistakes in judgment result in broken propellers.

Errors occur most frequently when judgment is rocked out of the boat by emotion, hindsight, and misconceptions about how securities react to waves of varying economic, political, and hysterical circumstances. You are the commander of your investment fleet. Use these ten risk-minimizers as lifeboats:

1. Identify realistic goals that include time, risk-tolerance, and future income requirements — chart your course before you leave the pier. A well thought out plan will minimize tacking maneuvers. A well-captained plan will not need trendy hardware or exotic rigging.

2. Learn to distinguish between asset allocation and diversification. Asset allocation divides the portfolio between equity and income securities. Diversification limits the size of individual holdings in several ways. Both hedge against the risk of loss. Both are done best using a cost based approach.

Read

3. Be patient with your plan and think of it as a long-term voyage to a specific destination — change direction infrequently and gradually. There is no popular index or average that matches your portfolio, and calendar sub-divisions have no relationship to market, interest rate, or economic cycles.

4. Never fall in love with a security. No reasonable profit, in either class of security, should ever go unrealized. Profit targeting must be part of your plan, and keep in mind that three sevens beats two tens — and is much easier to achieve.

5. Prevent “analysis paralysis” from short-circuiting your decision-making powers. Limit the information you allow into your course charting process, and avoid any form of future prediction or bet covering.

6. Burn, delete, toss-out-the-window any short cuts or gimmicks that are supposed to provide instant stock picking success with minimum effort. Consumers’ obsession with products underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; investors select securities.

7. Attend a workshop on interest rate expectation (IRE) sensitive securities and learn to deal with changes in their market value — in either direction. Few investors ever realize the full power of their income portfolio. Market value changes must be expected and understood, not reacted to with fear or greed. Fixed income does not mean fixed price.

8. Ignore Mother Nature’s evil twin daughters, speculation and pessimism. They’ll con you into buying at market peaks and panicking when prices fall, ignoring the cyclical opportunities provided by their Momma. Never buy at all time high prices and avoid story stocks religiously. Always buy slowly when prices fall and sell quickly when targets are reached.

9. Step away from calendar year, market value thinking. Most investment errors involve unrealistic time horizon, and/or “apples to oranges” performance comparisons. The get rich slowly path is a more reliable investment road that Wall Street has allowed to become overgrown, if not abandoned.

10. Avoid the cheap, the easy, the confusing, the most popular, the future knowing, and the one-size-fits-all. There are no freebies or sure things on Wall Street, and the further you stray from conventional stocks and bonds, the more risk you are adding to your portfolio.

Compounding the problems that investors face managing their investments is the sensationalism that the media brings to the process. Investing is a personal project where individual/family goals and objectives must dictate portfolio structure, management strategy, and performance evaluation techniques. It is not a competitive event.

Do most individual investors have difficulty minimizing investment risk in an environment that encourages instant gratification, supports all forms of speculation, and gets off on shortsighted reports, reactions, and achievements?

You bet they do!

Fascinating, isn’t it, this stock market of ours, with its unpredictability, promise, and unscripted daily drama. But individual investors are even more interesting. We’ve become the product of a media driven culture that must have reasons, predictability, blame, scapegoats, and even that four-letter word, certainty.

We are a culture of investors where hindsight is rapidly replacing the reality-based foresight that once was flowing in our now real-time veins — just like in basketball, golf, and football.

The Stock Market is a dynamic place where investors can consistently make reasonable returns on their working capital if they comply with the basic principles of the endeavor AND if they don’t measure their progress too frequently with irrelevant measuring devices.

The classic investment strategy is so simple and so trite that most investors dismiss it routinely and move on in their search for the holy investment grail(s): a stock market that only rises and a bond market capable of paying higher interest rates at stable or higher prices — just not going to happen.

Read

This is mythology, not investing. Investors who grasp the realities of these wonderful marketplaces recognize the opportunities and embrace them with an understanding that goes beyond the media hype and side show performance enhancement barkers.

Simply put, when investment grade securities rise in price (as they did from March 2009 through April 2010), take your profits — because that’s the purpose of investing in the stock market.

On the flip side (and there has always been a flip side, more commonly dreaded as a “correction”), replenish your portfolio inventory with investment grade value stocks. Yes, even some that you may have just sold days or weeks ago during the rally.

This is much more than an oversimplification. It is a long-term strategy that actually succeeds without the ajeda — cycle, after cycle, after cycle. Sounds an awful lot like Buy Low/Sell High doesn’t it? Obviously, Wall Street can’t let you know that it is quite so simple!

You need to understand that your portfolio market values will absolutely rise and fall throughout time, and rather than rejoice or cry, you need to initiate actions that will enhance both your “Working Capital” (whatever that is) and the ability of your portfolio to accomplish your long term goals and objectives.

Through the application of a few easy to memorize rules, you can plot a course to an investment portfolio that regularly achieves higher market value highs and (much more importantly) higher market value lows.

Left to its own devices, an unmanaged investment portfolio (like the, still below where it was a decade ago, DJIA) is likely to have long periods of unproductive sideways motion. You can ill afford to travel ten years at a break even pace, and it is foolish, even irresponsible, to expect any passive approach to be in sync with your personal financial needs.

Five simple concepts of Asset Allocation, Investment Strategy, and Psychology are summed up quite nicely in what I call “The Investor’s Creed”:

One: My intention is to be fully invested in accordance with my planned equity/fixed income asset allocation.

Two: On the other hand, every security I own is for sale, and every security I own generates some form of cash flow that cannot be reinvested immediately.

Three: I am happy when my cash position is nearly 0% because all of my money is then working as hard as it possibly can to meet my objectives.

Four: I am ecstatic when my cash position approaches 100% because that means I’ve sold everything at a profit, and that I am in a position to —

Five: take advantage of any new investment opportunities (that fit my guidelines) as soon as I become aware of them.

If you were managing your portfolio properly, your cash position was rising through April, as you pocketed profits on the securities you purchased when prices were falling just a few months earlier — and (this is a big “and”) you were chock full of cash well before the market blew the whistle on its advance.

Yes, if you are going about the investment process properly, you will be swimming in cash at about the same time:

Wall Street discovers the rally and starts encouraging people to weight their portfolios more heavily into stocks; the number of IPOs coming to market starts to rise exponentially; morning drive radio DJ’s start to laugh about their stock market successes; all of your friends start to talk about their new investment guru or the 30% gains in their growth Mutual Funds. What are you doing in cash!

This embarrassment is what I call the holding of “smart cash”. It represents realized profits, interest, and dividends that are just catching a breather on the bench after a scoring drive.

Patiently you watch, without letting that smart cash burn a hole in your portfolio pockets, while it compounds at historically low money market rates — but safely. The disciplined coach looks for sure signs of investor greed in the market place.

And the beat goes on, cycle after cycle, generation after generation. What do you think: will today’s coaches be any smarter than those of the late nineties? Of 2007? Have they learned that it is the very strength of a rising market that proves to be its greatest weakness?

About the author:-
Steve Selengut
Can be contacted on steves AT sancoservices DOT com

A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I’m told, corrections adjust equity prices to their actual value or “support levels”. In reality, it’s much easier than that.

Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former “becauses” are more potent than ever before because there is more self-directed money out there than ever before. And therein lies the core of correctional beauty!

Mutual Fund unit holders rarely take profits but often take losses. Additionally, the new breed of Index Fund Speculators over-react to news of any kind because that’s what speculators do. Thus, if this brief little hiccup becomes considerably more serious, new investment opportunities will be abundant!

Here’s a list of ten things to think about doing, or to avoid doing, during corrections of any magnitude:
Read
1. Your present Asset Allocation should be tuned in to your long-term goals and objectives. Resist the urge to decrease your Equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Asset Allocation decisions should have nothing to do with stock market expectations.

2. Take a look at the past. There has never been a correction that has not proven to be a buying opportunity, so start collecting a diverse group of high quality, dividend paying, NYSE companies as they move lower in price— Investment Grade Value Stocks. I start shopping at 20% below the 52-week high water mark— the bargain bins are filling.

3. Don’t hoard that “smart cash” you accumulated during the last rally, and don’t look back and get yourself agitated because you might buy some issues too soon. There are no crystal balls, and no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is nearly as important to long-term investment success as selling too soon is during rallies.

4. Take a look at the future. Nope, you can’t tell when the rally will resume or how long it will last. If you are buying quality equities now (as you certainly could be) you will be able to love the rally even more than you did the last time— as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most Wall Streeters are still just scratchin’ their heads.

5. As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely. Hope for a short and steep decline, but prepare for a long one. There’s more to Shop at The Gap than meets the eye, and if you are doing it properly, you’ll run out of cash well before the new rally begins.

6. Your understanding and use of the Smart Cash concept has proven the wisdom of The Investor’s Creed (look it up). You should be out of cash while the market is still correcting — it gets less scary each time. As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7. Note that your Working Capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities). Examine both fundamentals and price, lean hard on your experience, and don’t force the issue.

8. Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on Investment Grade Value Stocks; it’s just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago —

9. Examine your portfolio’s performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model (look this up also), because it is based upon your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed portfolio.

If you are lucky, you’ll be able to invest in a Market Cycle Investment Management “Mirror Portfolio” — check with your financial advisor.

10. So long as everything is down, there is nothing to worry about. Downgraded (or simply lazy) portfolio holdings should not be discarded during general or group specific weakness. Unless of course, you don’t have the courage to get rid of them during rallies — also general or sector specifical (sic).

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I’m told); the long and slow ones are more difficult to deal with. Short ones (those that last a few days, weeks, or months) are nearly impossible to deal with using Mutual Funds.

So if you over think the environment or over cook the research, you’ll miss the party. Unlike many things in life, Stock Market realities need to be dealt with quickly, decisively, and with zero hindsight. Because amid all of the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never been a correction/rally that has not succumbed to the next rally/correction—

Think cycle instead of year. Smile more.

Author
Steve Selengut
and can be contacted on steves AT sancoservices DOT com

Rising markets require GREED CONTROL just as surely as falling markets demand protection against FEAR — the two heads of the “ole” Uncertainty Monster!

While the media and your buddies drool or cringe, respectively, your Working Capital focus keeps you on target, looking for higher yielding, quality, income securities and/or quality equities that have fallen from grace with the Market. Remember that Smart Cash is only “smart” if it doesn’t burn a hole in your Asset Allocation.

Knowing that excessive cash is the result of profit taking should encourage investors to avoid the purchase of high priced old favorites, hot new issues, and the best performing funds. When the FEAR head is talking to you, The Working Capital Model will be whispering in your other ear to get that Equity Allocation back where it belongs with lower priced quality issues — possibly the same ones you recently sold for profits.

I know of no other Investment Manager anywhere (other than those who have contacted me and obtained my consent), private or public, that uses The Working Capital Model to direct individual investor portfolios — certainly none of the major operators, who are dependent for their survival upon the whim of even larger “others”.
Read
Now I realize that this approach is totally different than anything you’ve ever dealt with before, but in one fell swoop it surely eliminates all of those nagging ifs, ands, and buts, that make standard bottom-line market-value analysis totally useless and excessively stressful (to the investor).

I created the Working Capital method of portfolio performance evaluation many years ago (1975), when it became evident that a trading strategy was quite a bit different from most styles of investment management. It shows you where you are and allows for meaningful comparisons with where you’ve been. As a kicker, it allows for an instant and accurate appraisal of Asset Allocation.

Working Capital is defined as the actual Cost Basis of the securities in the portfolio as opposed to their current market value. This concept is also consistent with the retail store approach towards equity investing which was discussed earlier. Income of any kind, including realized capital gains, and deposits increase your working capital while withdrawals and realized capital losses alone decrease it. Current market value is not a factor. Since you will constantly monitor the age of the securities in the portfolio the tendency to hang on too long to nonproductive assets is also avoided.

The total Working Capital will always be more than the Market Value of the portfolio, unless the bulk of the portfolio is invested in fixed income securities. (AND then only if interest rates have moved down since the time the income securities were purchased.) This is both expected and accepted because it is easy to understand without having to sift through a dozen research reports that try to explain an array of unknowables about the economy and the company’s management team. However, the closer the broad market gets to truly high ground, the narrower the difference between working capital and market valuations.

Is this clear? Working Capital doesn’t change as a function of market value. It grows through the addition of cash from deposits, dividends, interest, and realized gains. It decreases when losses are realized and when cash is withdrawn from the portfolio. The day-to-day changes in market value that you used to worship can now be thrown out into the street with the other garbage!

We are replacing our profitable investments (merchandise we have sold at our store) with new ones that have potential for future profit (inventory on the shelves). Thus our current portfolio value will not “catch up” until new buying opportunities dry up. If you have nothing to buy, Smart Cash builds up (compounding at money market rates) while profit taking continues.

Always Remember: The Investor’s Creed

My intention is to be fully invested in accordance with my planned equity/fixed asset allocation. On the other hand, every security I own is for sale, and every security I own generates some form of cash flow that cannot be reinvested immediately. I am happy when my cash position is nearly 0% because all of my money is then working as hard as it possibly can to meet my objectives. But, I am ecstatic when my cash position approaches 100% because that means I’ve sold everything at a profit, and 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.

About the author
Steve Selengut
Can be contacted steves AT sancoservices DOT com

The Asset Allocation formula is the mission statement that defines the long term structure and nature of the portfolio. By simply stating, for example, that the portfolio is to be 70% invested in equities and 30% in fixed income, an investor has proven that: (1) he has analyzed his personal situation carefully and, (2) determined that this structure is most likely to achieve his long term goals.

Asset Allocation is often misused and abused in an effort to superimpose a valid investment planning tool on speculation strategies that have no real merits of their own. For example, “annual portfolio repositioning”, “market timing adjustments”, and shifting between Mutual Funds. To be effective, Asset Allocation must be implemented as an on-going process that is to be tended to with every investment decision.

The Asset Allocation Formula itself is sacred, and if constructed properly, should never be altered in any respect due to conditions in either equity or income markets. Changes in the personal situation, goals, and objectives of the investor are the only issues that can be allowed into the Asset Allocation decision making process. It operates above the whims and cycles of the markets — Income or Equity.

Read

Cost Basis is the total amount paid for a security, any security, in the portfolio. The cost basis of a dollar of cash or money market is $1.00. Cost basis includes commissions and fees, and will be reduced on occasion when returns of capital are distributed. It is the very foundation of The Working Capital Model.

To illustrate, let’s start with a portfolio of $100,000 in cash. (The size doesn’t matter.) We expect to invest $70,000 of this in equities and the remainder in fixed income. Once the portfolio has been constructed, the Working Capital total will remain at $100,000 until there are cash additions or withdrawals, realized gains or losses. Day to day changes in Market Value are ignored.

As cash increases from income and from deposits it becomes a part of the Working Capital total and is reinvested in a way that maintains the 70/30 Asset Allocation, based solely on cost basis. Thus, both investment buckets are constantly growing, as is the income generated from the portfolio, while the Asset Allocation is being maintained with no unwarranted influence from current market conditions.

In The Working Capital Model, Cost Basis is also used for all diversification calculations.

Cash Flow then becomes the engine that propels The Working Capital Model forward toward goal achievement. It is only fitting and proper that the successful investment portfolio has this common ground with the successful business entity of any size.

Performance analysis becomes much more productive and forward going because both future predicting and comparing with arbitrary indices/averages is eliminated. Year-end adjustments are unnecessary. Cash Flow analysis shows how effective the allocation formula is and helps isolate how effectively the investor is managing each investment bucket.

Investment Performance Evaluation should be a measure of the extent to which a goal or objective has been achieved. The Working Capital Model facilitates the clear analysis of goal achievement based solely on each investors unique portfolio structure. Market value analysis, on the other hand, tells you nothing about progress toward your long term income goals or the appropriateness of your Asset Allocation.

Three specific numbers are important to long term Working Capital growth:

Gross Realized Earnings as a percentage of beginning Working Capital. This number should be better than the One Year CD Rate at the beginning of the year.

Gross Realized Capital Gains as a percentage of the Cost Basis of Securities Sold. This percentage should be right around the profit taking target you’ve set for yourself. You may also want to determine the Average Holding Period of each security sold . Shorter holding periods enhance portfolio working capital growth. It is important to set a reasonable target, one that can be achieved frequently throughout the year. Three 8% gains may not be exciting, but they can produce more revenue than one 20%er.

Growth in Working Capital as an annual percentage. A negative number in this area is totally unacceptable and should (almost) never occur. If it does, the portfolio manager (investor) has: (1) allowed too much risk into the security selection process, or (2) realized losses on older holdings that could not be given up on too quickly.

The actual WC growth rate will be somewhere between the target profit taking rate for equities and the average yield for fixed income — thus, it depends upon the asset allocation (the size of each bucket), which depends on the age, circumstances, and risk tolerance of the investor. Hey, is this easy or what.

As portfolio Working Capital grows, so does the income that it generates — there will always be some uninvested cash looking for a home. This is a good thing and should not be tinkered with by applying artificial or automatic reinvestment mechanisms.

Every dollar deserves to be allocated separately to the appropriate bucket, and there are times when investment opportunities in the equity market are few and far between. Income Securities can and should be purchased whenever the allocation formula warrants because? Because it is an income compounding decision, not a price decision.

Similarly, because of the disciplined investor’s dedication to the profit taking purpose of the equity allocation of the portfolio, large amounts of Smart Cash will accumulate with broad advances in the Stock Market. (Smart Cash is defined as cash that results from the realization of profits plus income generated by securities in the portfolio).

This process is not a hedge on anything, and not some form of market timing. It’s simply some realized profits that are earning some compound interest until new opportunities arise. [Yes, Virginia, compounding is still an important growth provider.]
About the author
Steve Selengut
Can be contacted steves AT sancoservices DOT com

During every correction, I encourage investors to avoid the destructive inertia that results from trying to determine: how low can we go; how long will this last? Investors who add to their portfolios during downturns invariably experience higher market values during the next advance— particularly if they focus on Investment Grade Value Stocks (IGVS).

IGVS valuations have been trending upward for nearly a year; Market Cycle Investment Management portfolios are eclipsing the all time highs achieved in 2007, and income Closed End Fund values have risen with surprisingly high yields still intact. The investment gods are smiling once again— but not on everyone.

Corrections are as much a part of the normal market cycle as rallies, and they can be brought about by either bad news or good news. (Yes, that’s what I meant.) Investors always over-analyze when prices become weak and over-indulge when prices are high, thus perpetuating the “buy high, sell low” Wall Street lunacy.
Read
Waiting for the perfect moment to jump into a falling market is as foolish a strategy as taking losses on investment grade companies and holding cash. Corrections in both equity and income securities produce the same kind of hysteria as a spring sale at Macy’s— but in reverse. Waiting for the perfect moment to bail out of a rising market is as foolish a strategy as buying the most popular stocks at 52-week and/or all time highs.

The fundamental quality of securities does not change simply because their prices rise and fall in response to market conditions. The investment gods work in surprisingly un-mysterious ways, and they get pretty annoyed when you don’t pay attention to their teachings. When all value stocks are moving lower, it’s an opportunity, not a problem. When all IGVS stocks are moving higher, it’s also an opportunity— an opportunity to capture reasonable profits.

During every correction, I’m amazed at the shocked reaction of the Media, the confused explanations from market gurus, and the poor advice streaming from Wall Street. It’s no wonder that the average investor panics. If they could buy a new car, a new business suit, or a new house for half price, they would be ecstatic.

Only on Wall Street are lower prices villains and higher prices heroes. The Market Cycle Investment Management methodology understands the inevitability of both, anticipates cyclical changes, and takes advantage of market gyrations, big or small, and in either direction.

The equity securities in your portfolio are inventory, not fixtures. Inventory is best acquired at lower prices, marked-up a reasonable amount for quick sale, and replaced with new inventory— and repeat the exercise as often as possible.

The income securities in your portfolio are fixtures— and the highest quality ones last the longest and produce the best. Their purpose in your investment portfolio “business” is to generate the spending money needed for current expenses now, and living expenses later.

The calendar year has no particular investment relevance— and if we tried hard enough, we could possibly do something about a tax code that rewards unsuccessful investments more than it encourages profits. Investment performance analysis should be an objective based program monitor instead of 365-day horse race with irrelevant market indicators.

Rallies and corrections could be looked at like children— learn to love them equally and their parents (the investment gods) will reward you with stable long term market value growth within a balanced portfolio that produces annually increasing base income. (Can you tell me what that is?)

There is an investment mindset solution for the problems that most people have dealing with corrections, recessions, inflation and the Red Sox. Bad news creates opportunities; so does good news. We have allowed Wall Street and the media to turn the process of investing into an endless series of circus sideshows.

The direction of the market isn’t nearly as important as the actions we take in anticipation of the next directional change. Performance evaluation needs to be “rethunk” in terms of cycles. You need to overcome your obsession with calendar period market value analysis, and embrace a more manageable approach that centers on your portfolio’s unique business model.

The Market Cycle Investment Management methodology seems to get people to where they want to be less stressfully and more consistently than the more “conventional wisdom” based strategies— and, you do want to keep the investment gods happy by appreciating their market cycle children equally.

Steve Selengut

Asset Allocation is an investment-planning tool, not an investment strategy — few investment professionals understand the distinction. Fewer still have discovered the power of The Working Capital Model. The problem that most investors have is that they use the wrong number to determine their Asset Allocation in the first place. Neither market value nor the calendar year should be relevant issues.

The only reason for a person to assume the risks associated with investing is the possibility of achieving a higher rate of return than is attainable in risk free savings depositories for their capital (money). Investing is a get rich slowly process, conducted in an uncertain environment — one that must be understood and managed in a way that minimizes the risks involved.

The Working Capital Model accomplishes this by eliminating the need for impersonal comparisons with arbitrary and unrelated numbers and time periods. It works best with portfolios that are diversified among individual securities that are at the same time of high quality and income producing.

Read

The key to successful investment management is Asset Allocation, the process of dividing the available investment dollars into two, and only two, buckets: equity investments and income producing investments. All investment grade securities fit within one of these two classifications, based solely upon the primary purpose for their ownership. There are several key issues involved in successful Asset Allocation:

(1) Understanding the purpose of each security owned; (2) Being true to the asset allocation formula; (3) Knowing the cost basis of the securities in the portfolio; (4) Worshiping Cash Flow, and understanding the “Smart Cash” concept.
Most humans enter the investment process greed first, thus transforming a relatively simple wealth enhancing exercise into a mass of confusing products and philosophies, destined to expand the pocketbooks only of the creative souls that produce them.

Very simply, the purpose of any equity investment is the eventual production of a realized capital gain, or profit. This profit need not be huge, but it should be targeted in advance as a guideline and it certainly should be above the guaranteed return in a bank account. The profit must be realized as soon as it is available, so it is tax-helpful if equity Investments are housed in tax deferred quarters.

The Working Capital Model works best with equity investments that pay dividends, but this is more of a quality assurance element than a cash flow consideration. The primary purpose of equities is profit production, ASAP. Thou shalt not fall in love with any Equity holding — ever.

Income securities should be the easiest to understand and to deal with — they aren’t. They are primarily income producers, and can be held for extensive periods of time doing absolutely nothing but producing cash flow. That is job one.
Most fixed income securities represent a contractual obligation between a corporation and investors: interest, dividends on a preferred stock, returns of principal, royalties, rent, etc, will be paid at periodic intervals. Investors become creditors of the issuing entity.

Obviously it pays to lend money only to corporations, municipalities, and others that have solid finances themselves.

Typically, longer loan commitments produce higher rates of return than shorter ones, and AAA insured obligations produce lower yields than those of a lesser quality. Investment Grade falls somewhere in between, and this is where The Working Capital Model keeps investors focused.

All income securities are Interest Rate Expectation Sensitive and will rise or fall in price depending on day-to-day perceptions about the direction of interest rates.

This is expected and totally irrelevant. In fact, if an investor purchases the securities in the income portion of the portfolio properly, he or she will be able to add to holdings when they move higher in yield, AND to sell the securities profitably when they move higher in price.

Wall Street financial institutions and financial professionals almost never instruct investors to ignore the market value gyrations of income securities, but the facts remain:
1. The primary purpose of these securities is income generation and investors should never accept or consider a lower rate of return in an effort to reduce volatility; 2. Investors should never avoid adding to the fixed income asset allocation bucket for fear (or in anticipation of) higher interest rates; 3. The Working Capital Model recognizes this, and works well with sound financial advice as it deflects the temptation either to transact or to sit back for the wrong reasons.
About the Author
Steve Selengut
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”

Many of the things you think you know about investing are part of a mythology designed to make you bounce around between investment products. Modern day “conventional wisdom” just isn’t all that its cracked up to be. Concepts you worship are inaccurate; indices and averages you trust do not tell the complete story; the basic investment concepts still work — but Wall Street won’t tell you what they are.

It’s time to determine your investment IQ, here’s the deal:

Just take the True-False test below and send me an email list of the statements you feel are generally TRUE — please refrain from including any rationale or explanation. If you don’t get 80% or more correct — you need help.

Here we go: Generally speaking, are the following statements mostly True or mostly False? Note: you’ll do better if you research terms that you are unfamiliar with. Terms in “quotes” have very specific meanings in the Market Cycle Investment Management/Working Capital Model methodology.
Read

1. The proper gauge of your Investment Portfolio Performance is the change in your market value vs. the S & P 500 or Dow Jones Industrial Average over the course of a calendar year.

2. Mutual Funds are a safer route to long-term investment success than trying to create your own portfolio of individual securities.

3. You really don’t need to worry about growing your “Base Income” until a year or so before you plan to retire. That’s the time to begin designing a safe income portfolio.

4. The Day-Limit Order assures you of getting your trade executed no matter what happens during the trading day.

5. The Dow Jones Industrial Average is comprised of “investment grade” companies, and generally gives a clear indication of what is going on in the Stock Market.

6. In the long run, investing in the Stock Market will assure you of keeping up with inflation.

7. Annuities are perfect investments at retirement both for people of limited resources and for the wealthy, particularly Variable Annuities.

8. Technical Analysts can predict the future movements of the economy, individual securities, and the Stock Market with a very high degree of accuracy.

9. If you were to chart them, your total “Working Capital” line will almost always exceed the portfolio Market Value line.

10. There is no such thing as a freebie on Wall Street.

11. It is important that you take your tax losses regularly, particularly if you have held the losing position for less than one year.

12. Asset Allocation is a strategy used by investors to move assets from weak markets to strong ones in order to improve the growth of the investment portfolio’s bottom line.

13. Sell your losers and let you profits run is the essence of sound Investment Management thinking.

14. Closed End Mutual Funds (CEFs) are not popular with Wall Street professionals because they are inherently more risky than normal Mutual Funds.

15. It’s smarter for income investors to buy short duration individual municipal and corporate bonds, even at a premium, because it assures them of less market value volatility in the income portion of their portfolios.

16. DRIPs and Dollar Cost Averaging are recommended strategies because they are guaranteed to enhance the long-term performance of a properly diversified portfolio.

17. There are fewer than 400 “Investment Grade Value Stocks” traded on the NYSE.

18. Closed End Muni-Bond Funds are a much maligned and little appreciated income generation machine in spite of the fact that they generally maintained their 6% or so tax free dividend yield during the recent financial crisis and outperformed the DJIA in market value growth during 2009.

19. “Smart Cash” is an integral part of any Asset Allocation formula because it allows investors to time the market successfully. Professional market timers know precisely when to move into or out of cash in anticipation of the next major directional change in the market.

20. Buy and Hold continues to be the proper investment strategy for most individual investors.

21. It is a well-known fact that there are certain Core Portfolio issues that belong in all investment portfolios if long-term success is to be expected.

22. Every properly diversified portfolio will have up to 5% in each of these areas: miscellaneous speculative opportunities, gold or other commodities, small cap stocks, and global index funds.

23. Zero Coupon Bonds are an important part of the fixed income portion of the investment portfolio, especially when retirement is contemplated within five years or so.

24. These are the FOUR most Important elements of successful long-term investing:

Diversify properly.
Establish a target for taking profits.
Buy high quality securities.
Increase annual income.

25. Greed and Fear are important performance enhancing emotions; those who sell when others are greedy, and buy when panic rules the markets have a much better chance of investing successfully.

26. The second step in every stock purchase should be the establishment of a Stop Loss Order. Such an order assures you that your losses will be limited to a specific percentage of your purchase price.

27. “Investment Grade Value Stocks” will be the next red-hot market sector.

28. Mark-to-market valuation of mortgages backed securities has proven to be good for investors.

29. Wrap Accounts provide investors with the opportunity to obtain private, personal, investment management by a well known professional at a reasonable cost.

30. The expression Managed by the Mob with regard to open-end mutual funds refers only to the direct impact of Wall Street and Washington on the movement of mutual fund prices.

Investing is as fascinating as it is frantic, as scary as it is exciting, and as intimidating as it is satisfying. But perhaps the most interesting thing about it is how educationally unprepared most individual investors are for the adventure!

The first and most important step in your investment program is a non-product biased investment education— and that goes for both part-time and full-time investors.

Thank you for participating and your feedback.

About the author
Steve Selengut
Canbe contacted on stevesATsancoservicesDOTcom