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May The Investment Force Be With You

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:

One - Higher lows during market downturns: Equity portfolios managed
using basic principles of quality, diversification, and income (the QDI)
and disciplined profit taking rules should not fall as much in market
value as most mutual funds or poorly diversified portfolios.

Constant cash flow, even if not reinvested, places a floor under market
values, and investors feel better when their values fall less than the
market averages. In soundly managed programs, buying activity slows
as prices rise--- increasing "smart cash" for buying at lower levels later.

Two - Moves to cash or other sectors before bubbles burst: Disciplined
profit taking automatically moves dollars from overheated sectors to
cash or undervalued sectors during rising markets. This process creates capital that can be used to lower the average cost of remaining positions or to take advantage of new opportunities.

Investors feel better when no profits have been left on the table.

Three - Maintenance of planned income streams during financial crises: Most financial plans focus so strongly on growing market values that  they lose touch with the need for planning a dependable retirement income. They rely on selling equity fund units or inflated indices for cash flow, instead of generating stable income with less exciting cash producing staples.

Steadily increasing annual income can be placed on "cruise control"
through the use of the cost basis asset allocation methods contained
 in the WCM (Working Capital Model). How many would-be retirees
are searching for jobs because of improper income planning?

Four - Faster movement to new all time market value highs: When investors have a reasonable understanding of the various cycles impacting their investment portfolios, they develop valid expectations about the market value "performance" of their portfolios.

They are less likely to initiate knee-jerk or panic driven transactions and
more likely to take advantage of the new opportunities that lower security prices always create. Additionally, higher quality securities invariably are in the first group to regain popularity with investors as good news reports begin to dominate.

Five - Steady growth in working capital in all market environments: Working capital is measured in terms of cost basis instead of market price. As a result, all income generated from interest, dividends, and realized gains grow working capital regardless of the direction of market prices.

A treasury bond generates the same income at $85 as at $115. Most
closed-end municipal bond funds (CEFs) maintained their 5% to 7%
tax-free cash flow throughout the financial crisis--- in spite of their
reduced market values. Similarly, short-term profits on high quality
securities have been growing working capital since the current rally
took hold in March.

Six - Annual growth in realized "base income" in standard portfolios: WCM portfolios are income machines by design. No security is ever purchased if it does not produce regular dividend or interest payments; at least 30% of all base income should be reallocated to income-objective securities.

Similarly, every dollar of capital gains income, and net portfolio additions are partially allocated to income producers--- and the use of a cost based asset allocation formula insures annual income growth.

Few financial professionals begin their careers with any encouragement to become comfortable with individual equity securities and the surprisingly large variety of individual, relatively uncomplicated, and generally safe(r) income producers available for their clients.

Financial products are far more lucrative for their institutional employers
and, as a result, the incentives for brokers and advisors to sell products is pretty much irresistible. Few pros can afford to be one with "The Force".

The Dark Side of investing beckons like a Siren's song, luring the majority of professional advisors away from the safety and simplicity of QDI.  Institutional propaganda, projections, predictions, and hype have the same affect on unsuspecting boatloads of speculators who most often become shipwrecked on the derivative rocks.

Investors and their professionals need to re-evaluate their product orientation and plot a global escape from the Dark Side of investing.

Contact the "Skywalker" foundation for emotional and financial support while making the transition--- and may the force be with you.

Steve Selengut
http://www.kiawahgolfinvestmentseminars.com/InvestmentWorkshopWebinars.htm
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" PGA Village Golf Outing - Seminar October 2009  

“It’s raining hard and heavy out there, and people are afraid that the people who have been guiding their investments aren’t up to avoiding the deep puddles anymore,” O’Donnell said. “Their 401Ks are turning into 201Ks, and 50 percent of the homes in America with stock holdings lost money last year, and one in five of the homes these people are living in are now mired in negative equity. People are starting to ask the question, ‘Will I outlive my capital?’ so something had to give.”

O’Donnell is seeing the trend reflected in the changes inside his own company, a global network of financial education centers aimed at teaching the modern investor how to pilot their investments through the pitfalls.

Online Trading Academy has seen a dramatic increase in students, which range in the key trading demographic of 45-70 year olds. The changes reflected in O’Donnell’s business show that:

·        Franchise locations are booming – The Company opened 12 new offices during the last 15 months – during the deepest recession in decades. That constitutes a 33 percent increase in the number of locations.

·        Enrollments – The number of students enrolled at the school has doubled every year for four consecutive years.

·        Age of enrollees – New students coming in are averaging in the 60-year-old range, a demographic that has traditionally hired brokers or advisors to help manage their money.

“The average individual investor has been led to believe that ‘buy and hold’ is the best approach, that mutual funds are a smart investment, and that professionals will do a better job of managing their money,” O’Donnell said. “The most important lesson the market has taught us is that those basic strategies don’t hold water anymore.  Buy and hold just isn’t enough. The word ‘trading’ has traditionally been associated with risky behavior, but the truth is the average buy and hold investor has lost more than 40 percent of their life’s savings.”

O’Donnell believes that three guiding principles can help investors take control successfully:

• Accept that the old investing rules don’t apply anymore, but with and education and active portfolio management, you  have an opportunity make money in any market condition

• Learn to let go of any bias you may have for market direction, asset class or time frame and simply let the market tell you where the opportunities are.  Learn to become a market-driven trader.

• Stop listening to the noise that surrounds that market and start listening to the market itself.

“The old rules don’t apply anymore,” he added. “The old rulebook doesn’t work. Down is up and left is right, so people are figuring out the fact that the only way to better invest their money is to know, for themselves, how the markets work and decide independently where they should stake their futures.”

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 The Below The Radar Hedge Fund Crisis
by Steve Selengut

The other day, with the market giving up about a third of its March
gainin DJIA points, I went looking through my favorite market stats
to see if any remaining profits could be pounced upon. Typically, profit possibilities can be identified quickly on NYSE lists of the largest
dollar and percent gainers.

Alarmingly, 75% of the largest percent gainers were ETFs, and
many of those operate using the same strategies as classic
hedge funds--- most owned no common stock at all! At the same
time, 93% of the largest dollar gainers were ETFs with a large proportion plainly operating like a hedge fund.