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Investment Strategy: The Investor's
Creed, and
"Smart Cash"
By:
Steve Selengut"Smart Cash"
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 downhill racing,
grouse hunting, and Super Bowls.
The Stock Market is a dynamic place where investors can
consistently make reasonable returns on their 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.
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 are now,
with the DJIA finally putting together a successful attack on
the 11,000 barrier], 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 securities.
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 (a year or two is not long term.) strategy that succeeds...
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!
[Note that Dow Jones 11,000 was last breached during the infancy of
this century, and that the last All Time High in this much too widely
followed average occurred late in 1999. When the DJIA banner is
repositioned on that historical peak of 11,700 or so, it will
represent no less than six years of zero growth in this, the most
respected, of all Market Indicators! Would the media strip the gold
medal from this Stock Market Icon if it knew that during these same
years: (1) There have been significantly more stocks rising in price
on a daily basis than moving lower. In fact, more than two-thirds of
the last 68 months have been positive. (2) Since April 2000, there
have been 120 more positive days in NYSE issue breadth than negative
days. (3) 250% more NYSE stocks established new high price levels
than new lows. (4) We are working on our sixth consecutive year of
positive issue breadth!]
So understand that your portfolio statement values will rise and
fall throughout time, and rather than rejoice or cry, you should be
taking actions that will enhance your "Working Capital" and the ability
of your portfolio to accomplish your long term goals and objectives.
Through the simple application of a few easy to memorize rules, you
can plot a course to an investment portfolio that regularly achieves
higher highs and (much more importantly), higher lows! Left to its
own devices, like the DJIA for example, an unmanaged portfolio is
likely to have long periods of unproductive sideways motion. You
can ill afford to travel six years at a break even pace, and it is
foolish, even irresponsible, to expect any unmanaged or passively
directed 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":
(1) My intention is to be fully invested in accordance with my
planned equity/fixed income asset allocation. (2) 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. (3) 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. (4)
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 (5) take advantage of any new investment opportunities (that fit my guidelines) as soon as I become aware of them.
If you are managing your portfolio properly, your cash position has
been rising lately, as you take profits on the securities you purchased
when prices were falling just a few months ago… and (this is a big and)
you could well be chock full of cash well before the market blows 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; and 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 is what I call "smart" cash, because it represents realized
profits, interest, and dividends that are just catching a breather
on the bench after a scoring drive. As the gains compound at money
market rates, the disciplined coach looks for sure signs of investor
greed in the market place: fixed income prices fall as speculators
abandon their long term goals and reach for the new investment stars
that are sure to propel equity prices ever higher, boring investment
grade equities fall in price as well because it now clear [for the
scadieighth (sic) time] that the market will never fall again…
particularly NASDAQ, which could double and still not be where it was
six years ago. 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? Have they learned that it is
the very strength of a rising market that proves to be its greatest
weakness!
Steve Selengut
mailto:sanserve@aol.com
800-245-0494
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management 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"
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