Fortune Watch

May The Investment Force Be With You

Steve Selengut — Tue, 30 Jun 2009 20:56:54 +0000

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:

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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.

About the author:
Steve Selengut has been a Professional Investment Manager 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.

Don’t Become A Victim To Loan Sharks

Robin Bal — Thu, 25 Jun 2009 14:49:07 +0000

A phenomenon that had had been declining is making a comeback. The seedy dangerous world of the loan shark is experiencing a new surge of popularity as progressively greater numbers of people are refused credit by the major and sub-prime lenders.

‘Loan sharks’ is the term used to describe money lenders who operate illegally. These lenders are not licensed by the financial services and so are completely unregulated. The Office of Fail Trading (OFT) issues guidelines to first and second line lenders. These guidelines must be adhered to or the lender will lose its licence. They concern a raft of items, however they specifically lay down a set of rules that are designed to protect the interests, livelihood and privacy of the borrower; for instance licensed lenders are prohibited from using unethical tactics to pursue debt arrears and are not permitted to charge unethical interest rates.

On the other hand the loan sharks operate with a completely free rein. Examples of this are interest rates and repayment terms. Loan sharks will often charge enormous rates of interest and offer loans on extremely bad terms for the borrower. Should the borrower fail to make scheduled repayments on the loan, the loan shark will often use extremely unethical tactics in order to get their money back. Often they will make further loans in order to enable the borrower to repay the first one. Gradually the borrower will become entrapped in a debt mountain with which they are unable to cope.

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Anyone who is finding it difficult to borrow money in a normal manner should seek debt advice from a reputable practitioner. To check whether a lender is licences is simply a matter of phoning the OFT.

There is no legal obligation to repay loans obtained from loan sharks, however resisting their demands can be very difficult. Often it is necessary to involve the local Trading Standards Office and even the police if things get very difficult. Anyone who has fallen into their clutches needs to seek help as soon as possible and before things get even more desperate.

Do You Have Plan B Ready?

Robin Bal — Mon, 22 Jun 2009 09:14:01 +0000

The mantra of the times is cost cutting. The axe of cost cutting invariably falls on the employees. It is either through wage reduction, reduced bonuses, reduction of other benefits, reduced work hours or in a worst case scenario in the form job losses.

In most countries unemployment rates are hitting close to double digits, the worst case scenario might soon become a reality for anybody including you. In such a situation, it is imperative that you should have a plan B ready.

Instead of waiting for a surprise and acting re actively, it is important for you do a realistic assessment of your current situation.

Each and every one of you must have an understanding of your employer’s financial situation and strategy, your own function/department current state and whether there is any danger of retrenchment at your level. Once you access the macro and micro level picture, you need to play your next steps accordingly.

You may not have a choice but to look out for alternate employment if you feel that you may be in the firing line. It may not be easy in the current situation. However the current economic situation gives you an excellent opportunity to do what you always wanted to do.

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A job loss or a potential job loss might be an excellent excuse for you to change your field and move into the field of your liking. An engineer may want to get into arts and a banker may want to get into farming. This might prove to be a once in a life time opportunity and catalyst for such a shift.

If you don’t foresee an immediate threat to your job, however at the same time don’t feel confident about your situation in the medium term, you need to adopt a different strategy. As long as the company you work with doesn’t look like winding up/closing down, the first option to be explored should be within your employer.

Being fair to yourself, you need to treat your employer as your customer and demonstrate value for the salary you are earning. If you feel the same is not the case in your current role, you should position yourself for an alternate role that is a better fit for your potential and will help bring more visible benefits to your employer.

Such an alternate role may be in the same or different function. Such a positioning and the subsequent change to your role may not happen overnight. However this paradigm shift in your outlook towards your employer will definitely help you in the medium to long run.

One important alternate option you need to consider is honing your professional skills. It is an excellent time to consider education in your field of liking, be it a management degree or a certification in any technical subject.

It should be something which will give you satisfaction and the edge required to move ahead. The thing you should keep in mind is to be careful on how much money you spend as fees. The last thing you want is getting stuck in a ROI loop.

Last and not the least, your best option for plan B depends on how much you have saved in your coffers for the bad times. If you have enough bank balance, what about an extended vacation for globe trotting?

Billionaire Financier Stanford Arrested By FBI

Robin Bal — Fri, 19 Jun 2009 09:12:06 +0000

His girlfriend’s house was surrounded by Federal agents in black SUV’s this afternoon, they told him to walk out and introduce himself. So he did, and he asked them, ‘If you’ve got a warrant, take me into custody. If you don’t, I’m going to Houston.’ And they did, so they arrested him.

Chairman of the troubled Stanford Financial Group, R. Allen Stanford surrendered to FBI agents in Virginia Thursday afternoon, his attorney said. Law enforcement officials said Stanford is in custody after surrendering in Stafford, Va. Authorities plan to unseal an indictment charging Stanford on Friday, the officials said, speaking on condition of anonymity because they were not authorized to discuss the case.

Stanford Financial Group has been under investigation by a grand jury in Houston. The Securities and Exchange Commission filed civil charges earlier this year accusing Stanford and his top executives of conducting an $8 billion fraud by advising clients to buy certificates of deposit from the Antigua-based Stanford International Bank.

The SEC’s lawsuit charged that the bank advertised its CDs in a brochure touting a conservative investment philosophy. But instead the bank’s portfolio was “misappropriated by Defendant Allen Stanford and used by him to acquire private equity investments and real estate,” the suit says.
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An amended complaint by the SEC has accused Stanford and his finance chief, James M. Davis, of conducting a “massive Ponzi scheme” in which early investors were paid returns from money put in by later investors. Davis promised in April to cooperate with federal investigators.

Stanford has maintained his innocence.

Stanford’s attorney in Houston, Dick DeGuerin told The Associated Press that Stanford “surrendered this afternoon to some FBI agents who were hiding out in black SUVs outside the residence where he was staying in Virginia.”

Richard Kolko the FBI spokesman declined to comment.

Chief investment officer, Laura Pendergest-Holt, of Stanford’s parent company, is facing criminal charges of obstructing the SEC’s investigation by lying about her knowledge of the firm’s activities and omitting key details.

“We heard the grand jury has been active, and we fully expect indictments,” her attorney Jeff Tillotson told the AP. “We obviously deny that our client has committed any crime.”

He has said she was “set up” by Stanford.

The Financial Crisis Has Hit Everyone

Robin Bal — Tue, 16 Jun 2009 20:36:45 +0000

Is Investing Similar To Playing Tennis

Robin Bal — Sat, 13 Jun 2009 09:40:59 +0000

I’m not a professional tennis player. I’m not even a tennis player. The last time I touched a tennis racket was 5 years ago. But I did read about how a professional tennis player aims to hit as many balls to the opponent to make him miss, in order to win. An amateur , on the other hand, aims to try to catch as many balls as possible, aiming not to make any mistakes till his opponent eventually makes a mistake and causes himself to lose. That’s defensive playing.

I’m not a professional stock investor either. I admit neither I have the time nor the patience to go through every financial report, visit the companies I’m interested in buying and whatever else it takes to be really confident enough to put a huge chunk of my hard-earned money into the stock. So I have to invest defensively. I aim to minimise my losses while riding the general upward trend of the stock market, rather than maximising my gains on the individual hot stocks. It may limit my gains a little, but in the event of a crash, I hope to come out relatively intact. I basically expect a crash, even in the longest bull run ever. It’s like having a Plan B even though you hope you never have to use it, or buying insurance though you don’t really want to die or get a critical illness just to make the most of it.

So how do I play my defensive game ? I protect myself the following ways.

1. I stick with what I know. It’s easier to figure out that maybe the market has over-reacted when you are familiar with the industry. For example, I bought Bank Of America at $4 and Citigroup at $1. The prices were crashing as people anticipated a further crash and that didn’t happen. Today they are holding at $13 and $3.5 respectively. Do the exact opposite of what the average investor is doing. I bought Merck when it was being sued for one of its drugs , Vioxx. The price crashed as people anticipated huge lawsuit payouts, which never happened.

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2. I buy stocks when the price is low. It works either when the market is down, or if the individual stock has fallen out of favour. If you buy when the market is down, it can only turn up. Of course, the risk is that you never know when it is going to turn up and you may be stuck with a low price for a long time. It really isn’t easy to time the market, but you can tell for example, if there has been an irrational selling off of stocks. That’s a good time to buy. The stock market has gone on sale. Stock up !

3. I try to buy stocks that are near their underlying values. I’m not very good at analysing companies, but I figure if the company has $X in cash per share, or $Y in assets that can be sold off should the company fold, and the price is within that range, it should be reasonably safe.

4. I like stocks with good dividend yields. That way, even if the stock price falls, eventually, the dividend payout becomes so good, people will start buying it again, so helping to support the stock price. Plus I figure, if the company can afford to give out dividends regularly every year, it can’t be doing too badly.

5. I have some of Warren Buffet’s stock. It doesn’t come cheap. But hey, if he can’t get his investments right, who can ?

Investing Lessons And Golf - Fundamentals

Steve Selengut — Tue, 09 Jun 2009 20:50:00 +0000

Is it luck or skill that gets us to the goals and objectives we set for ourselves— gimmicks and software programs or practice and understanding? How many golfers are still using the putter they started with decades ago at a nine-hole cow pasture? How many of you are still bouncing between investment gurus and hedges in your search for the investment holy grail?

The best athletes come to the competition with sound fundamentals, well thought out objectives, and the discipline to hone their basic technique with countless hours of practice. The most successful investors come to the process with sound fundamentals, realistic goals and objectives, and a consistently applied discipline that embraces the cyclical nature of markets and economies.

Discipline is an ingredient in most long-term success recipes— business, sports, relationships, politics, veal scaloppini, etc. Well, maybe not politics. There are “fundamentals” involved in each.

Favorite foursome conversations provide clues to the particular fundamental that just failed you, as your duck-hooked tee shot comes to rest at the base of the dead pine tree, and possibly, just beyond the white stake. “Have you weakened your grip?” comments Larry. “Nah, he was lined up that way; went right where he aimed it,” Curley offers.

“Might have worked out just fine if he hadn’t picked his head up so soon,” spouts Moe. “What are you guys talking about? I was set up to fade the ball but I swung way too hard at the bottom and closed down the club face,” you bark as you tee up a provisional.

Grip, alignment, focus, target, and tempo— some major golf fundamentals.

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During the cocktail hour at monthly AAII and NAIC meetings, or around the country club bar, you might overhear some of these: “I can’t afford to play a lot of golf anymore. My junk bond fund has reduced its payout to barely 2%.” Yeah, my retirement plans have been put on hold too. I lost 60% of my net worth when the government killed Lehman Brothers and Washington Mutual.”

“I was counting on my short-term Munis, CDs, and T-Bills to provide enough income to pay the bills, but the yields have gotten so low.” “Two years ago, my portfolio was worth twice what it is today; if only my advisor had taken the profits when we had them, and added to the income bucket of the portfolio.”

Quality, diversification, income, asset allocation, and profit taking— some biggies in investing.

Surprisingly (or perhaps not), it is more likely that the newbie or high-handicap golfer will seek help with the game’s fundamentals than it is for the new or inexperienced investor to spend moment one on the basic concepts of investing. Serious amateur golfers work at their game constantly; amateur investors seriously avoid the work required to fine-tune their expectations.

Neither seems capable of avoiding an endless parade of props, programs, and short-term panaceas as they make their way around and through the hazards that torment all levels of golfer and investor from the very beginning of their quest for brilliance.

A round of golf has its ups and downs, hot streaks and bad breaks. Investing has its rallies and corrections, scandals and frauds. Why are these two frustrations so popular?

Fundamentally speaking (but not analyzing), investors need to wrap their heads around an asset allocation formula that is most likely to get them to a comfortable nineteenth-hole lifestyle. Golfers need to wrap their hands around their clubs in a manner that will help them get to shorter term targets often enough to keep their Nassau partner smiling.

A properly aligned investment portfolio will be constructed with regular income producers and equities expected to have capital gains potential. Each are viewed differently in terms of time and distance. Golfers attempt to align themselves in a manner that will get them to the safest and most opportune position for the shot that comes next.

A golfer without a clear target for every full swing, chip, and putt will be thrown off course more often than not, gaining only the exercise value. Similarly, an investor who fails to set multiple targets (at least three: buy more, sell, and yield) for every security will fail to gain full value from the investment exercise.

To be successful at either requires patience, reasonable expectations, and a mastery of the fundamentals. With that in your bag or briefcase, you’ll be prepared to follow in the footsteps of the Great One’s fundamentals coach and say:

“Hello ball.”

About the author:
Steve Selengut has been a Professional Investment Manager 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.

Let Go Of The Past To Embrace The Future

Robin Bal — Sun, 07 Jun 2009 19:47:26 +0000

You might not see how the past affects your ability to reach goals in the future. How can your past life affect what’s going to happen in years ahead? It is really quite important to understand that your past experiences affect you strongly in all you do.

Some of these past experiences may hinder you directly in working towards a goal and some might just be slight hurdles. In all cases these memories can affect you as to how well you do when heading towards a new goal.

Some of you go through life dragging an imaginary anchor around with you. It slows you down, it makes you unable to react to the changes in your life and it certainly weighs you down when trying to work towards new goals.

Releasing that weight would enable you to move quicker and succeed more easily. Perhaps that’s you holding on to past hurts, past incompletes, past resentments, anger or fear. Yet letting go of those anchors could be what you need so that you can fly into the future.

Have you allowed past failures to slow you down in achieving new successes? Have you remembered a friend telling you that you will never achieve anything? Do you remember the teacher at school who told you, you were an idiot and couldn’t do anything anyway?

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What about your parents? Did they always encourage you as much as you thought you needed? Did they support you with your school activities and sporting endeavours or did they show no interest?

What have those people done to your confidence in moving forward and achieving new successes? Have they kept you back because you remembered what they said about you? Do your memories of anger, resentment and desire for revenge make you waste valuable energy that could be used to better effect in attaining success?

It’s important to move forward in your life with love and forgiveness. Forgive those who have hurt you, who might have lied to you or stolen from you. Maybe they gossiped behind your back or cheated on you. That doesn’t mean you condone their action, but just that you are letting go.

Letting go will release all that negative energy and will provide you with newfound momentum to perform in your life and attain successes that you might have never thought possible to achieve.

Best way to achieve this release is to actually note down all the people you need to forgive by creating a list showing anyone who has hurt you. Work on each of these hurts until you are able to forgive them.

The release of new-found energy will amaze you. Negativity can be unbelievably draining and in many cases can even be harmful to your health.

Yet it is one of the hardest things to do. Forgiving somebody and letting go of hurts and resentments is the biggest life challenge you face. You feel that these people who have hurt you have made you lose your confidence and contributed to your inability to succeed in life.

It’s not these people who have hurt you that are holding you back from earning the successes you deserve to have. It’s the fact that you are allowing those hurts to hold you back that is so damaging. For your own sake forgive the people who have hurt you. It will clear the way to personal achievements you wouldn’t otherwise even dream of reaching.

Declutter Your Life And Reap The Benefits

Robin Bal — Sun, 07 Jun 2009 03:01:05 +0000

Make space for those goals in your life. That seems an obvious statement doesn’t it. But what if you want to study a course that will help you to further your career. Take a look at your life and see how much time do you actually have available.

Will a new goal fit into your life if you are already rushing every day to complete the tasks you have to do in terms of your commitments to work, your relationship with your partner, the time with your elderly parents, the hobby you have, the musical instrument you are trying to learn, the marathon you want to run for the first time and never mind keeping in touch with your friends?

Where in the busy schedule would a course fit? Not very likely. But you sign up for it anyway. Within the first month you find yourself not attending the evening classes and not handing in assignments. You just don’t have time.

You need to make way for that goal if you are serious about achieving it. University Business Schools know all about the falls off rate of students who sign up for MBA’s or Management Advancement Programs.

The drop out rate is something like 40% within the first term of the course and only about 70% or so finish. And yet at sign up time every student is informed as to how much time they will need to free up for this course.

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Somehow in our minds the time available to us has an elasticity that has no boundary. Of course this is not the case and many times we set ourselves up for failure by not de-cluttering our lives sufficiently to make time to achieve a goal we have set.

Examine your day and see where you spend your time. What of the time is being wasted on non-essential activities, which of those can be let go and which activities have to be kept. Get rid of the clutter that keeps you frantically busy but that gets you absolutely nowhere.

We all have mountains of clutter around. This could be physical clutter that means that every time we are looking for something it takes twice the time to find. It could be tasks that we have taken on ourselves such as doing all the housework while our partner watches TV that easily eliminate our free time.

Or it could just be too many repetitive activities such as running to clear the mail once a day instead of once a week, or finding a quicker route to work, or using an easier shop close by for the daily grocery requirements. All it needs is a closer look at what you fill your day with and with some clever planning you could free substantial time for all sorts of great achievements.

Check against everything you do in a regular day whether this needs doing or whether it can be relegated to the trash can of bad habits. You will be surprised how much time you spend on aimless tasks that add no value to your life.

Just alone canceling some of the time spent in front of the TV could help you find the time needed to attain a wonderful goal such as learning a new language.

Keeping Track And Accelerating Your Successes

Robin Bal — Sat, 06 Jun 2009 09:02:37 +0000

Achieving ones goals will depend on celebrating the successes you have on your journey. Nobody likes to continue working on something when there are only defeats. It’s the successes that spur us on to achieve greater heights.

It’s therefore really important when working towards a goal to keep track of your successes. The best way to do this is to write them down, or journal those in a file on your computer or even better write about them on a blog.

There is also great project management software available online that allows you to keep accurate track of what’s happening on your journey towards your goals. Many of these are free if you use the basic entry level option.

Keeping such an accurate track of your successes makes you appreciate your achievements. It allows you to pat yourself on the back and to encourage yourself to achieve even more. It also provides you with a history of your activities which will allow you to reflect in future years on the steps that you took to reach your goals.

Set up your journal to show the day and date and then compile a list of activities that you completed during the day. If your goal is to lose weight you might want to fill in the first block of your journal with the point that your scale showed you had lost some weight.

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That would make you feel good about yourself. To achieve further progress you might consider a personal trainer at the gym just to give yourself a bit more momentum in the exercise regime or you could work on the next day’s menu with nutritious fruit and veg to fill the whole day with so as not to need to grab that packet of crisps because you are hungry.

Looking at your success journal will allow you to work out the best experiences for the next day. It makes it clear in your mind what worked for you and what you need to do more of to continue your successes. Leaving your weight loss program to chance will lead you to miss reaching your goal.

Add to this powerful exercise by visualizing your next day and how it could be absolutely perfect for you. Imagine the day as you would like it to happen. You see yourself complete your work quickly so that you have time to enjoy your day at the gym and even add a quick swim to your exercise regime and maybe extend those precious minutes in the sauna.

You see yourself having time to really enjoy that healthy salad you have planned for lunch instead of having to resort to grabbing a quick hot dog to fill that hole in the stomach. You see your day run smoothly and efficiently with many friendly and helpful people making it a pleasurable experience.

With such a wonderful day you will feel that you can go home happily and that you won’t need to relax with that bottle of wine that you know will pile on the pounds faster than you can exercise them off. You have had such a great day you just know your body is loving you and your scale will show the effect by dipping further.

Visualizing your ideal day will help you create it. By doing this at night just before you go to sleep your subconscious mind will have the opportunity of working on it for you and helping you make it a reality.