So what is an investor to do if he isn't going to just follow the crowd (i.e., by ignoring all of the blatant inconsistencies between the basics of goal orientated Investment Management and the ridiculousness of the "performance- evaluation-by-the-averages", quarterly and annual statistical fiasco)?
The book to your left, and up a tick, Chapter Seven, introduces and explains The Working Capital Model and how it makes Investment Portfolio Perfomance Evaluation more personal.
Your equities are dealt with as dividend and capital gains producers; your fixed income securities as income generators; and your Working Capital is supposed to go up every year... yes, if you are doing your investing properly, your Working Capital and your Base Income will almost absolutely grow every year. But you do need to understand the concepts and the terminology, so read the book.
Sanco Services, Inc. manages diversified equity and income portfolios, invested only in Investment Grade (NYSE) Value Stocks. Sanco Services is one of the very few Investment Managers anywhere that uses The Working Capital Model, and we focus on things that the average investor seems to have lost sight of.
NOTE: Only a handful of other professionals are qualified to manage your portfolio using this methodology, and I have "certified" all of them. No professional should be using it without my blessing--- in writing. Please check with me before signing anything.
So when and if I do look at market value performance, it will almost never be for a conventional period of time...especially if market value is all we have to deal with. In the late 90's, when the Pied Piper of greed was leading investor dollars into the NASDAQ "black hole" , many of the most conservative investors succumbed to the pressure, leaving their high quality portfolios behind as they joined the gold rush.
I have looked at market value performance figures for a group of people who stood their High Quality (no NASDAQ, no Mutual Funds, No IPOs) ground from November of 1999 (about four months before the bubble burst) through September of 2004... considered a total disaster area by Wall Street and the Mutual Fund Industry. Take a look at how your experience would have improved with the "NO" MAGIC Formula mentioned above. (No, you won't find the numbers here, I just can't do it.)
The mid-2007 through 2008 debacle is still front page news, as investment portfolio Market Values have lost as much or more than they did in 1987 - - IGVSIstocks included. The Working Capital Model endures with minor operational changes. What it seems to do best is to keep investors focused on their long term goals and objectives.
Before you evaluate performance, you need to form valid expectations. Before there can be valid expectations, there must be a basic understanding of securities. The stock market is, and always will be, a volatile place where even the best and most profitable companies can be expected to rise and to fall in market value. Similarly, income securities will always rise and fall in price as interest rate change expectations... change.
The factors that affect these normal and generally harmless fluctuations are many and mostly unpredictable, so the investment task is to understand this and to work within it. For, as much as we may try, we just can't change Mother Nature... yeah, she's everywhere.
The 2007 through 2009(?) Credit Crunch and related issues has had more of an impact on the market value of income generating securities than ever before. But most of the countless articles I've written on this concept hold up in today's very new environment. Those of you who develop an understanding of how equity and fixed income market prices react to events in finance and the world economy will fare best in the long run..
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Try to create a portfolio that you can see through. What? (A portfolio where you can see and name individual securities.) Mutual funds are securities containers that you can't open up to understand what's inside.
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Then, learn how to create a cost based asset allocation. Doing so will help you fine tune your selection criteria and lead to an understanding of valid performance expectations.
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Now you're ready to use The Working Capital Model for performance evaluation. Learn how and the job is done.
I've heard a rumor that adapting your financial swing to the Working Capital Model will actually improve the other (more important?) one... probably just a rumor.
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Investment Performance: Part 1 <--
