Fortune Watch

 “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”- Warren Buffet.

The right time to get back in the market may be just around the corner. With global economies sinking, sometimes dramatically, it can be a scary thought to put your hard-earned money on the line. However, a smart investor will realise that golden opportunities are appearing if proper research is done.

It has not dropped dramatically since the financial collapse of 2008-2009, but it is still in familiar territory. It may take another another year or more for a large upswing in the markets, but at least we hope that the Dow will not drop below previous lows. That may bring hope and some peace of mind about starting to invest again.

For investors, the operative question is simple, albeit very broad: In the midst of this crisis, what do we do?

A good rule of thumb: If a stock you are considering for investment depends upon a speedy return to normal, you should be looking elsewhere. Warren Buffett has often said that you should invest in businesses that you wouldn’t mind owning if the stock market were closed for an extended period.

Dollar Cost Averaging

The concept of Dollar Cost Averaging comes to mind in the current market situation. It is the process of buying stocks or similar investments on a regular basis, such as once a month, using a fixed amount of money. When prices are low, you are able to buy more shares. When prices are high, you buy fewer. In this way, you are able to take advantage of temporary low prices. This is especially helpful for long-term investments, such as retirement accounts. It may go against human nature to buy stocks when everything is falling and red but in fact it can lead to a bigger payoff if done correctly.
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A participant in the morning Working Capital Model (WCM) investment workshop observed: I’ve noticed that my account balances are returning to their (June 2007) levels. People are talking down the economy and the dollar. Is there any preemptive action I need to take?

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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Emphasize tradition and heritage in your advertising campaigns and don’t cut prices, said marketing guru, Martin Lindstrom, as he revealed his top 10 tips for the advertising during the economic downturn.

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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As impossible as it is to predict the future of the markets, it’s relatively easy to anticipate what you are going to experience when you view your next brokerage account statement.

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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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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The Investment Grade Value Stock Index is a barometer of a small but elite sector of the stock market. Some Investment Grade Value Stocks are included in all averages and indices, but even the Dow Jones Industrial Average includes several issues that are below Investment Grade and very few boast an A+ S & P rating.

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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I think it was the immortal Ben Hogan who quipped: I can put “left” on the ball and I can put “right” on the ball— “straight” is essentially an accident. Most amateur golfers would make a slightly different observation. We can hit the ball left or right with no problem; we just have no idea when either will occur.

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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Investment markets got you down, Bunkie? Been blown away by derivative stun guns? When will portfolio market values move back to 2007 levels— and then what will you do about it?

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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The mantra of the times is cost cutting. The axe of cost cutting invariably falls on the employees. It is either through wage reduction, reduced bonuses, reduction of other benefits, reduced work hours or in a worst case scenario in the form job losses.

In most countries unemployment rates are hitting close to double digits, the worst case scenario might soon become a reality for anybody including you. In such a situation, it is imperative that you should have a plan B ready.

Instead of waiting for a surprise and acting re actively, it is important for you do a realistic assessment of your current situation.

Each and every one of you must have an understanding of your employer’s financial situation and strategy, your own function/department current state and whether there is any danger of retrenchment at your level. Once you access the macro and micro level picture, you need to play your next steps accordingly.

You may not have a choice but to look out for alternate employment if you feel that you may be in the firing line. It may not be easy in the current situation. However the current economic situation gives you an excellent opportunity to do what you always wanted to do.

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I’m not a professional tennis player. I’m not even a tennis player. The last time I touched a tennis racket was 5 years ago. But I did read about how a professional tennis player aims to hit as many balls to the opponent to make him miss, in order to win. An amateur , on the other hand, aims to try to catch as many balls as possible, aiming not to make any mistakes till his opponent eventually makes a mistake and causes himself to lose. That’s defensive playing.

I’m not a professional stock investor either. I admit neither I have the time nor the patience to go through every financial report, visit the companies I’m interested in buying and whatever else it takes to be really confident enough to put a huge chunk of my hard-earned money into the stock. So I have to invest defensively. I aim to minimise my losses while riding the general upward trend of the stock market, rather than maximising my gains on the individual hot stocks. It may limit my gains a little, but in the event of a crash, I hope to come out relatively intact. I basically expect a crash, even in the longest bull run ever. It’s like having a Plan B even though you hope you never have to use it, or buying insurance though you don’t really want to die or get a critical illness just to make the most of it.

So how do I play my defensive game ? I protect myself the following ways.

1. I stick with what I know. It’s easier to figure out that maybe the market has over-reacted when you are familiar with the industry. For example, I bought Bank Of America at $4 and Citigroup at $1. The prices were crashing as people anticipated a further crash and that didn’t happen. Today they are holding at $13 and $3.5 respectively. Do the exact opposite of what the average investor is doing. I bought Merck when it was being sued for one of its drugs , Vioxx. The price crashed as people anticipated huge lawsuit payouts, which never happened.

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