Article Advocates - Blogging and Content Management System
Welcome!

The Investment Gods Are Still Furious

Submitted by The Investment Shadow | RSS Feed | Add Comment | Bookmark Me! print

Market Cycle Investment Management (MCIM) is an historically new methodology, but with roots deeply embedded in both the building blocks of capitalism, and financial psychology--- I'm sure there is such a thing.

The earliest forms of capitalism sprung from ancient mercantilism, which involved the production of goods and their distribution to people or countries mostly around the Mediterranean.

The sole purpose of the exercise was profit and the most successful traders quickly produced more profits than they needed for their own consumption. The excess cash needed a home, and a wide variety of early entrepreneurial types were quick to propose ventures for the rudimentary rich to consider.

There were no income taxes, and governments actually supported commercial activities, recognizing how good it was for "Main Street" --- it still is, as is free trade, and the profit motive itself..

The investment gods saw this developing enterprise and thought it good. They suggested to the early merchants, and governments that they could "spread the wealth around" by: selling ownership interests in their growing enterprises, and by borrowing money to finance expansion and new ventures.

A financial industry grew up around the early entrepreneurs, providing insurances, brokerage, and other banking services. Economic growth created the need for a trained work force, and companies competed for the most skilled. Eventually, even the employees could afford (even demand) a piece of the action.

Was this the beginning of modern socialism, Bernie? Not! The investment gods had created the building blocks of capitalism: stocks and bonds, profits and income. Stock owners participated in the success of growing enterprises; bondholders received interest for the use of their money; more and better skilled workers were needed.

As capitalism took hold, entrepreneurs flourished, ingenuity and creativity were rewarded, jobs were created, civilizations blossomed, and living standards improved throughout the world. Global markets evolved that allowed investors anywhere to provide capital to industrial users everywhere, and to trade their ownership interests electronically.

But on the dark side, without even knowing it, Main Street self-directors participated in a thunderous explosion of new financial products and quasi-legal derivatives that so confused the investment gods that they had to holler "'nuff"! Where are our sacred stocks and bonds? Financial chaos ensued.

The Working Capital Model was developed in the 1970s, as the guts of an investment management approach that embraced the cyclical vagaries of markets. This at a time when there were no IRA or 401(k) plans, no index or sector funds, no CDOs or credit swaps, and very few risky products for investors to untangle.

Those who invested then: obtained investment ideas from people who knew about stocks and bonds, had pensions protected by risk-averse trustees, and appreciated the power of compound interest. Insurance and annuities were fixed, financial institutions were separated to avoid conflicts of interest, and there were as many economics majors as lawyers in Washington. (Well, maybe someday.) 

MCIM was revolutionary then in its break from the ancient buy-and-hold, in its staunch insistence on Quality, Diversification, and Income selection principles, and in its cost based allocation and diversification disciplines. It is revolutionary still as it butts heads with a Wall Street that has gone MPT mad with product creation, value obfuscation, and short-term performance evaluation.

MCIM(ers) alone continue to focus on realized income and profit taking...

Investing is a long-term process that involves goal setting and portfolio building. It demands patience, and an understanding of the cycles that create and confuse its landscape. MCIM thrives on the nature of markets while Wall Street ignores it. Working Capital numbers are used for short-term controls and directional guidance; peak-to-peak analysis keeps performance expectations in perspective.

In the early 70s, investment professionals compared their equity performance cyclically with the S & P 500 from one significant market peak to the next --- from the 1,500 achieved in November 1999 to the 1,527 of November 2007, for example. Equity portfolio managers would be expected to do at least as well over the same time period, after all expenses. (Could they even possibly have done worse?)

Another popular hoop for investment managers to jump through was Peak to Trough performance ---managers would be expected to do less poorly than the averages during corrections.

Professional income portfolio managers were expected to produce secure and increasing streams of spending money, regardless. Compounded earnings and/or secure cash flow were all that was required. Apples were only combined with oranges in fruit salads... not total return hyperbole.

Today's obsession with short-term blinks of the investment eye is Wall Street's attempt to take the market cycle out of the performance picture. Similarly, total return hocus-pocus places artificial significance on bond market values while it obscures the importance of the income they produce.

MCIM practitioners will have none of it; the investment gods are furious.

Market Cycle Investment Management embraces the fundamental building blocks of capitalism --- individual stocks and bonds, and managed income CEF portfolios in which the actual holdings are clearly visible. Profits and income rule.

Think about it, in an MCIM world, there would be no CDOs or multi-level mortgage mystery meat; no hedge funds, naked short sellers, or managed options programs; no mark-to-market lunacy, Bernie Madoffs, or taxes on investment income.

In MCIM portfolios, lower stock prices are seen as a cyclical fact of life, an opportunity to add to positions at lower prices. There is no panic selling in high quality (IGVSI caliber) holdings, and no flight to 1% Treasuries from 6% tax free Munis. In an MCIM portfolio, dividends and income keep rolling, providing income for retirees, college kids, and golf trips --- regardless of what security market values are doing.

Capitalism is not broken; it's just been overly tinkered with. The financial system is in serious trouble, however, and needs to get back to its roots and to those building blocks that the Wizards of Wall Street have cloaked in obscurity.

Let's stick with stocks and bonds; lets focus on income where the purpose is income; let's analyze performance relative to cycles as opposed to phases of the moon; let's tax consumption instead of income; and let's not disrespect the gods, the "Bing", or the intelligence of the average investor...

So sayeth the gods. Amen!

Contact Us
Support and Sales
Contact Us


Associated Articles:
A Dark Future For IRAs and 401(k)s? - Dr. Ghilarducci has presented a socialist solution to a problem that could easily be dealt with usin...
IGVSI Up 16% thru November; Twice the Gain in the S & P 500 - The IGVSI is a barometer of a small but elite sector of the stock market called Investment Grade Val...
How's Your Investment Portfolio Doing? --- Seven Long-Term Analyzers - Before Wall Street conned investors into thinking of calendar quarters as short-term and single year...
Value Stock Buy List Program - What's all the Excitement About? - Investor's are discovering an Investment Grade Value Stock Selection and Trading Strategy that make...
Crisis Investing - The Three-Pronged MCIM Strategy - Unfortunately, investors in general are a lot like teenagers. They know everything immediately; expe...
Golf and Investing: Tin Cup Lessons - For an endless variety of reasons tin cup amateur investors bring on their own demise by failing to ...
Managed Asset Allocation - A Portfolio Mission Statement - The Asset Allocation formula is often abused in an effort to superimpose a valid investment planning...
Income Investing: Go Ask Alice When She's... - Don't let uniformed thinking sabotage your retirement program; don't let the selfish advice of a pro...
Bridging Loans UK For Business - Bridging loans UK are very helpful for people looking for instant financing and short term financing...
Investment Performance: Part 1 - Contrary to popular belief and media propaganda, investing is not a competitive event. Rather, it is...

Related Tags (related articles): Capitalism (8), psychology (60), finance (520), MCIM (85), income (649), IRA (427), investment (817), products (502), market cycle (77), long-term (70), Wall Street (156), bonds (115), (19098)