Require A GPS For Your Portfolio?
"Hey 'Deep Pockets ', what were you doing on October 19th, 1987", the Wall Street Jungle journalist asked? I was gritting my teeth, shaking more than just a bit, palms sweaty but placing lots of individual orders for the best NYSE, dividend-paying, firms --- at costs that almost everybody thought would drop even further. Looking round the room, I appeared to be the only one in the office that was really purchasing! The other brokers were fielding telephone calls from scared clients. Sell! Sell! Sell! The crash of '87 was the 1st important test of an investment technique developed in 1970 by an RIA customer of mine. 2 months earlier, plenty of his investment management clients were thinking about why he had sold practically everything, and was sitting on mountains of what he called "smart money" --- whatever that meant. Now they knew, but why were they so quiet? Their money was totally invested, the media was forecasting the end of civilization --- my telephone was the only one not ringing! The investment executive had one call from a customer that day --- the bloke wanted to find out how many calls he had got. Just that one call, he revealed, and that customer is still on the books today.
5 years after, a smaller scale but similar situation rattled the markets --- we invested what we were then both calling "smart cash", fearlessly, never doubting that we might at last be taking profits on the new positions established at levels significantly below the manager's trained diversification boundaries. Cycle after cycle, profits were taken methodically, sanguinely, and without delay --- with nothing save revenue stocks acquired --- till individual equity costs retrenched at least twenty percent. Slowly the smart money would get a new home. The race toward the year 2000 brought with it a demented worship of unproven, unprofitable, high potential corporations --- but few "new economy" stars met the manager's tough Quality and Revenue generation standards. Find me a "dot-com" that fits, and I'll give it an opportunity was his challenge. 15% gains were not adequate for plenty of our shared clients and the greediest among them threw millions of borough bond bucks under dot-com IPO busses and into hyper-inflated funds. Almost 50% of them were gone when the bubble burst.
The leftover stalwarts kept growing at that snail's pace 15% while the turncoats lost virtually everything. Working capitalization grew gradually ; the critical "base revenue" grew yearly ; market values rose and slipped with the cycles --- rates, commercial conditions, and investment grade worth stocks. Not even the regulators could think the manager's claims that there wasn't any dot-com crash for Market Cycle Investment Management users. However there it was, a technique with focus, discipline, and security selection rules like these : "No Naz , No Open-End hedge funds, and No IPOs" ; and these, for individual stock selection : "S & P B+ or better, dividend paying, NYSE and nothing else".
This discipline produced a risk defensive mechanism that would be trusted during market depressions enormous and small. But perhaps more critical was a good profit taking discipline that permitted no reasonable profit to go unrealized. Over time, this "portfolio positioning" strategy acted like a latter day GPS for our shared client's portfolios. We eagerly exited rallying markets, one stock at a time, as reasonable profit targets were achieved. As the market cycle turned, cash was slowly reapportioned to investment grade value stocks, bit by bit, bit by bit. And with a cost-based asset grant formula, the earnings portion of the portfolio was permitted a life of its own, to keep on growing the earnings, irrespective of the where we were in either market or industrial cycle.
Overall, and over 30 years, what we presently have recognised and relabeled a "Market Cycle Investment Management" methodology has proved its capability to get speculators thru the cycles with less risk, less agony and suffering, and a growing money flow. "Then 20 years later on 'Deep Pockets ', where were you when the monetary emergency hit the fan? Fully invested, or absolutely capable of using replenished bargains in both equity and fixed revenue markets? And where are you today?" Well child, I am still standing --- and still smiling.
Article Source: FxTradingStock.com
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by: Johannes Spinoza
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Date: Sun, 27 Feb 2011
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