Djia Historical Charts
Performance Analysis of Investment Operations using the asset allocation model
No matter what lines, numbers, indices, or gurus you worship, just can not know where the stock market is going or change direction. Too much investor time and analytical effort is wasted trying to predict course corrections … even more is squandered comparing portfolio Market Values with a handful of related indices and averages. If we reconcile in our minds that we can not predict the future (or change the past), we can go through the uncertainty more productively. We will simplify the performance evaluation portfolio through the use of the information that they have to speculate, and that has to do with our own personal investment programs.
Each December, with visions of candy dancing in their heads, investors begin to analyze their results, develop and coulda shoulda, and determine what to try next year. It is a annual, masochistic, right of way. My year-end vision is different. I see a lot of cats of Wall Street fat, and RotF LOL, while investors and alphabetically correct advisors determine what to change, sell, buy, re-allocate, or adjust for the next twelve months behave better financially than above. What happened to that old fashioned emphasis on long-term progress toward specific goals?
Use of number and 52 weeks Size High / Low statistics for navigating the sea of uncertainty and peak maximum interest rate and market cycle analysis are much more useful as performance expectation barometers than the DJIA was destined to be each time. When it became fashionable to think of investment portfolios as the sprinters in a race of twelve months with the great cloud of indices and averages? Why are the Masters of the Universe on the floor rolling with laughter? They can view their annual ritual of production performance share transactions generate excitement in every direction imaginable. An unhappy investor is Wall Street's best friend, and an emphasis on short-term results superbowlesque in an environment, ensure that the vast majority of investors will be unhappy about something, all the time.
Your portfolio should be as unique as you are, They argue that a portfolio of individual securities rather than a shopping cart full of one size fits all consumer products is much easier to understand and to manage. Just focus on two longer-term objectives: (1) The increased production of capital, and (2) increase the revenue base. Ni target is directly related to the market averages, interest rates, or the calendar year. Thus, to protect investors from short-term thinking associated with anxiety caused by events or trends while facilitating objective based performance analysis that is less frantic, less competitive and more constructive if conventional methods.
In short, Working Capital total cost basis of securities and cash in the portfolio, and the tax base is the interest and dividends portfolio produces. Deposits and withdrawals, earnings and capital losses, each directly impact on the number of operations, and indirectly affect growth income base. Values to be non-productive when they fall below investment grade quality (fundamentals only, please) and / or no longer produce income. Common sense management can minimize these unpleasant experiences.
We will develop an "all you need to know" chart that will help you manage your way for investment success (goal achievement) in a low failure rate, unemotional, environment. The table will have four data lines, and its management objective portfolio will keep three of moving upward through time. Note that a separate record of deposits and withdrawals should be maintained. If you are paying fees or commissions separately from your transactions, consider them withdrawals of Working Capital. If you do not have specific selection criteria and profit-taking guidelines, develop them.
A line has the label of Operations, and an average annual growth rate of between 5% and 12% would be a reasonable target, depending asset allocation. (An average can not be determined until after the second full year, and a longer period is recommended to allow combined.) This line only up (Did you raise one eyebrow?) increases in dividends, interest, deposits and capital gains and lower withdrawals and losses. A new look at some behaviors widely accepted end of the year might be helpful at this time. Offset capital gains firms with losses of good quality becomes suspect because it always results in a higher deduction of the tax payment transactions. Similarly, avoiding values that pay dividends are more or less the same level of absurdity as marching to the office of his boss and demanding a cut in pay.
There are two basic truths in root of this: (1) You can not make much money, and (2) there is no such thing as a bad profit. Do not pay anyone who recommends loss taking the high production values. Tell you are helping to reduce their tax burden.
Base Line Two reflects the income and also always move upward if you are driving your asset allocation properly. The only exception would be a 100% allocation of capital, where the emphasis is placed on a variable source base revenue … dividends on a portfolio of shares changing.
Line Three reflects historical trading results and labeling is accumulated net profits Realized capital. This total is most important during the early years of the construction of the portfolio and that directly reflect both the security selection criteria you use, and the profit taking rules they employ. If you build a portfolio of investment grade value stock (IGVS) and apply a 5% diversification rule cost base, which rarely have a downturn in this monitor of both selection criteria and your profit taking discipline. All benefits is always better than any loss and, unless your selection criteria is really too conservative, there is always something out there worth buying with the proceeds. Three singles produced an 8% number greater than 25% of home runs, and that is easier to obtain?
Obviously, growth in the third line should accelerate in rising markets (Measured by the IGVSI). The revenue base continues to grow due to asset allocation is also based on a cost basis of each kind of security … get it? Note that a gain or loss is as meaningless as the quarter to quarter movement of a market index. This is a decision model, and good decisions should produce net revenues.
An important detail: No matter how conservative your selection criteria, one or two of security is destined to become a loser. Not this judge indicators Wall Street popularity, tea leaves, or the views of analysts. Let the fundamentals (profits, S & P, the action of dividends etc) send up red flags. Market value can not be trusted for a decision to bite the bullet … but it can help.
This brings us to the line four, a reflection of change in the total market value of the portfolio over time. This line follows an erratic path, constantly staying below Working Capital (Line one). Looking at the table after a market cycle or two, you will see that lines One through Three move steadily upward regardless what is making the line four. But you also notice that the lows of Line Four begin to occur above earlier highs. It's a nice feeling and movement of the stock market are, themselves, controllable.
Line Four will rarely over one line, but when it starts to close the lid, a greater movement upward in Line Three (net realized capital gains) should be expected. In 100% income portfolios, is possible that the market value for Operations overcome by a slight margin, but is more likely to have allowed some greed into the portfolio and making opportunities Profits are being ignored. Do not let this happen. Research shows quite clearly that the vast majority of unrealized gains are brought to the category Schedule D as realized losses … and this includes potential profits on income securities. And when your portfolio hits a new high watermark market value, look around for a security that is no longer a IGVS and bite the bullet.
What is different about this approach, and why it is more high tech? There is no mention the popular market indices, or comparison with anything other than personal investors, reasonable goals. This method of looking at things that get you where you want to be without the hype that Wall Street uses to create unproductive transactions, foolish speculations, and incurable dissatisfaction. Provides a valid use for portfolio Market Value, but far from the prejudices of the nature of Wall Street would like. Its use in this model, as both an expectation clarifier and an action indicator for the portfolio manager personal level, should illuminate the bulb.
Most investors will focus on Line Four out of habit or because they have been brainwashed by Wall Street into thinking that a lower value of the market is always bad and a higher one always good. You need to get out of the market value vs box if you hope to achieve anything their goals. Cycles rare form January to December mold, and are only visible in rear view mirrors anyway … but its impact on the performance of its new line dance is totally your tune to name.
The Market Value Line is a valuable tool. If it rises above working capital, you are missing profit opportunities. If it falls, start looking for buying opportunities. If the basis of income falls, so has: (1) the quality of their holdings, or (2) have changed their distribution assets for some reason, etc. So, Virginia, it really is OK if its market value falls in a weak market IGVS or face of higher interest rates high. The important thing is to understand why it happened. If it is a surprise, then do not really understand what's in your wallet. You also need to find a better way assess what is happening in their markets. Neither the CNBC talking heads, nor the popular averages are the answer. The best method of all is to follow the statistics IGVS … if you needed medications, which are better than you've grown. Has a nice change!
About the Author
Steve Selengut
http://www.sancoservices.com
http://www.valuestockindex.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”
Stock Market History Dow Jones Industrial Average Index 10 Bear Market Anniversary Pt 1
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