Investment
Management Strategy:
Seven Principles for Success
Steve
Selengut
http://www.sancoservices.com
http://www.valuestockbuylistprogram.com
Professional Portfolio Management since 1979
Many Investment
Gurus, with a straight face and a gleam in their
eye, will insist that successful investing is a
function of expansive research, skillful market
timing, and detailed technical analysis. Others
emphasize fundamental information about companies,
industries, and markets. But trends and numbers
are secondary to a thorough understanding of the
basic principles of Investing and Management, and
their interrelationships. The ingredients for a
successful investment portfolio are these: stubborn
belief in the Quality, Diversification, and Income
trinity from Investments 101, and operations that
employ the Planning, Leading, Organizing, and Controlling
skills introduced in Freshman Management. Here are
some things to keep in mind while you season your
experience with patience and marinate your investment
process with discipline:
- A viable Investment
Program begins with the private development
of an Investment Plan. The first step is the
identification of personal goals and objectives
and a time frame for goal achievement. The end
result should be a near autopilot, long-term
and increasing, retirement income. Asset Allocation
is used to structure the portfolio so that it
operates in a goal directed manner. The finished
Plan must be flexible in design, based upon
reasonable expectations, simple in structure
and operation, and easy to supervise.
- Use a "cost based"
Asset Allocation Model. Although most of the
Investment World operates on a Market Value
basis for everything from performance analysis
to Asset Allocation and Diversification decision
modeling, you will improve your long-term results
and stay within your allocation and diversification
guidelines better by using a system based upon
Working Capital. This widely unknown Asset Allocation
"model" takes the hype out of daily stock market
reporting and keeps the income investor's focus
on appropriate statistics.
- Control your emotions,
among other things. Clearly, fear and greed
are the two that require the most control in
the investment environment... particularly in
these days of a reckless media, Internet empowered
scam merchants, high-speed information gathering/processing,
and cheap personalized trading capabilities.
Love and hate need to be dealt with as well,
but there are fewer out-of-body influences on
these. Only strictly disciplined decision makers
need apply for your Investment Management position...
and you may not be the ideal candidate. Investment
Management is a continual responsibility, not
a weekend and occasional evenings avocation.
- Avoid hindsightful
analysis, and uninformed (or salesperson) criticism.
It is painfully comical how hindsight has taken
over in our society... in sports, finance, politics,
and the professions, everywhere... everyone
you hear is second-guessing and finger pointing.
No one is willing to take responsibility for
their own actions and everyone is willing to
sue whoever coulda', woulda' or shoulda' prevented
whatever happened. Investors cannot afford to
be Little League crybabies. Make one of the
three basic decisions (which are?) and don't
look back. No person or program can predict
the future, and your portfolio requires management
today. The playing field for the investment
game is uncertainty.
- Establish a profit-taking
target for every security you purchase. The
purpose of investing is to make more money than
you could in a guaranteed, non-negotiable instrument.
This larger money making expectation comes with
an assumption of some form of risk... there
are several, and its "in there" in all investments.
In Equities, set a reasonable profit target
and take less if you can get it quickly. With
income investments, never say no to a profit
equal to a year's income, or 10% if you like
round numbers. There are always new investment
opportunities, and there is no such thing as
a bad profit... or a good loss.
- Examine Market Value
numbers at intelligent intervals. Frequent examination
is stressful and non-productive. There are no
averages or indices that compare with a properly
diversified Investment Portfolio, particularly
if your Equity selections are screened for Quality
and Income. Investing is a long-term endeavor,
and neither Shock(sic) Market symbols nor current
yields operate on a calendar year schedule.
Look at market peaks and troughs over significant
time periods that include "cycles"... and do
separate your analysis by class.
- Avoid what the crowd
is doing and shun investment products. Consumers
buy products; Investors buy securities. The
crowd is driven by the very emotions that you
must learn to control. Stay focused on your
plan; analyze your annual income and trading
statistics. Buy and hold creates more real tax
problems than real millionaires, and gimmicks
and fads last just slightly longer than spring
fashions. Always buy good stuff on bad news
and sell into good news announcements.
- Don't try to save
the world with your investment decisions. Never
limit your investment opportunities artificially.
Votes work better when it comes to changing
your world, and corporations should not be the
targets of your political hates... get rid of
incumbents, state and local, until there are
changes in the tax code, social security, tort
law, environmental issues, etc. In the meantime,
invest with your head, not your heart. The business
of a capitalist society is...
- Keep in mind that
you need Income to pay the bills, and that your
cost of living in retirement will be higher
than you think. If you insist on some income
from every Equity security you ever own, and
beat-the-bank income from income securities,
you will obtain two important things: An annually
increasing cash flow that will rise at a rate
greater than most normal inflation rates, and
a higher quality investment portfolio for better
long-term investment performance. (If you use
a cost based Asset Allocation model with at
least 30% invested in income securities and
no open end Mutual Funds or Index ETFs.) Never
settle for tiny short-term yields or get hooked
on those that are unsustainably high.
- Investing is not
a competitive event, ever. You don't need to
beat the market. You need to accomplish a set
of personalized goals. Not even your twin's
portfolio should be the same as yours. The faster
you run, the less likely it is that you will
succeed over time. Big risks, foolproof gimmicks,
and exotic computer programs occasion more failures
than success stories. Remember the Investment
gods? They created Stocks and Bonds... only
Stocks and Bonds!
- Avoid Unrealized
Gains, Embrace Volatility, Increase Annual Income,
and remember that all key investment moments
are only visible in rear view mirrors. Most
unrealized gains become Schedule D realized
losses. As of today there has never been a correction
(rally) that has not succumbed to the next rally
(correction). Only an increasing income level
can beat back inflation... a bigger market value
number just doesn't do it.
Steve Selengut
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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