Retirement Ready Income Programs

Stock Market Correction: Month Nine And Counting

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During every correction, I encourage investors to avoid the destructive inertia that results from trying to determine: "How low can we go?" and/or "How long will this last?" Investors who add to their portfolios during downturns invariably experience higher values during the next advance than those who cower in a fearful corner.

Just as certainly as balanced portfolios are safer long term than equity only portfolios, there is absolutely another rally in our future. We are in month nine of an equity downturn; month eight of a tax free CEF rally.

Corrections are part of the normal "shock market" menu, and can be brought about by either bad news or good news. (Yes, that's what I meant to say.) Investors always over-analyze when prices become weak and lose their common sense when prices are high, thus perpetuating the "buy high, sell low" media directed lunacy.

Waiting for the perfect moment to jump into a falling market is as foolish a strategy as taking losses on investment grade companies and holding cash.

Repetition is good for the investor's soul, so forgive me for reinforcing what I've said in the face of every correction since 1979: If you don't love these natural occurrences, if you don't love price volatility, you really don't understand the financial markets and/or the difference between speculating and investing.

Don't be insulted, I've been relatively alone in this belief for decades.... and I've shifted to the conclusion that institutional Wall Street no longer loves it when individual investors panic in the face of falling equity prices.

The regulators have replaced variable cost "commissions" with fixed expense "fees" making corrections a short term problem for their meant-to-be "upward only" total return numbers.

Psst, corrections are part of the cyclical mystique of investment theater, they are what makes rallies so profitable, so quickly, for MCIMers.

It's human nature to want an explanation for corrections... something other than profit taking, that is. There's so much for the media to choose from: employment numbers, manufacturing statistics, inflation prospects, and interest rate expectations.

Then there's durable goods orders, corporate earnings reports, the economic outlook here and abroad, the weather, climate change, energy prices, the trade deficit, high consumer debt, unemployment, and conditions in the Middle East ... just to name the obvious few.

Rarely, if ever, is anything new put forward as the direct and irrefutable cause of the new correction... the longer this one lasts, the more theories will be proposed and the more actions (hedges) will be recommended.

But as different as the investment environment (theoretically) is today from what it was in 2008, or 2000, or 1987, you will never hear anyone explain (any louder than this non-institutional whisper) this clear, simple, and omnipresent fact:

There has never, no not ever, been a correction of any magnitude, broad based or sector specific, that has not turned out to be an investment opportunity... especially with regard to Investment Grade Value Stocks.

A true investor will someday come to the conclusion that a major correction is nothing more than the Xtra Large version of the opportunities the investment gods provide regularly in the form of (generally disrespected) volatility. EUREKA!

If you don't, without reservation, love volatility, you shouldn't be investing in the stock market... no matter what "product" you are using.

Clearly, there will always be new economic problems and challenges, while others vanish. As investors, we simply have to deal with the opportunities at hand. The threat of higher interest rates and the growing scarcity of reasonable yield, and high quality, fixed income paper is Opportunity #1, in income CEFs.

Opportunity #2 is in the equity markets, where nearly half the S & P's best ranked companies were recently down an average 30% from their 52-week highs. This is not new people. It's called "The Market Cycle" a fact of investment life that just doesn't fit well into Wall Street's, MPT driven, "long con". 

Markets move in both directions, it's their thing, just like politicians talking out of both sides of their mouths...

There is an "Investment Mindset Solution" for the problems that most people have dealing with corrections, and rallies too, for that matter. I've never understood why "yard sale prices" here are so scary. Prices of high quality securities always seem to bounce back eventually. And there need be no rush for this to happen...

In recent years, Wall Street and the media have turned the process of investing into a competitive event of Olympic proportions. What was once a long term (a year is not long term), goal directed activity, has become a series of monthly and quarterly sprints.

The direction of the market isn't nearly as important as the actions we take in anticipation of the next directional change. Performance evaluation needs to be rethunk (sic) in terms of cycles!

The problems, and the solutions, boil down to focus, understanding, and retraining. You need to focus on the purpose of each security in the portfolio. You need to understand and accept the normal behavior of your securities in the face of different environmental conditions.

You particularly need to overcome your obsession with calendar period market value and/or total return analysis, and embrace a more manageable asset allocation approach that centers on growing, income productive, portfolio Working Capital.

Just for kicks, and to get an appreciation for how completely Wall Street ignores the Market Cycle, Google: Market Cycle Investment Management...

But for now, relax and enjoy this correction. It's your invitation to the fun and games of the next rally, when you will see that correction is always spelled o-p-p-o-r-t-u-n-i-t-y.

How Do You Spell Correction?



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Retirement Ready Income Programs
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Steve Selengut is registered as an investment adviser representative. His assessments and opinions are purely his own. None of the information presented here should be construed as an endorsement of any business entity; the information is only intended to be educational and thought provoking.

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Risk Management: Income, 401k, and IRA Programs

Take a tour of a professional investment managers' private SEP IRA program during ten years surrounding the financial crisis:


In developing the investment plan, personal financial goals, objectives, time frames, and future income requirements should all be considered. A first step would be to assure that small portfolios (under $50,000) are at least 50% income focused.

At the $100,000 level, between 30% and 40% income focused is fine, but above age 50, the income focus allocation needs to be no less than 40%... and it could increase in 10% increments every five years.

The "Income Bucket" of the Asset Allocation is itself a portfolio risk minimization tool, and when combined with an "Equity Bucket" that includes only Investment Grade Value Stocks, it becomes a very powerful risk regulator over the life of the portfolio.

Other Risk Minimizers include: "Working Capital Model" based Asset Allocation, fundamental quality based selection criteria, diversification and income production rules, and profit taking guidelines for all securities,

Dealing with changes in the Investment Environment productively involves a market/interest rate/economic cycle appreciation, as has evolved in the Market Cycle Investment Management (MCIM) methodology. Investors must formulate realistic expectations about investment securities--- by class and by type. This will help them deal more effectively with short term events, disruptions and dislocations.

Over the past twenty years, the market has transitioned into a "passive", more products than ever before, environment on the equity side...  while income purpose investing has actually become much easier in the right vehicles. MCIM relies on income closed end funds to power our programs.

To illustrate just how powerful the combination of highest quality equities plus long term closed end funds has been during this time... we have provided an audio PowerPoint that illustrates the development of a Self Directed IRA portfolio from 2004 through 2014.

Throughout the years surrounding the "Financial Crisis", Annual income nearly tripled from $8,400 to $23,400 and Working Capital grew 80% $198,000 to $356,000.

Total income is 6.5% of capital and more than covers the RMD.

Managing income purpose securities requires price volatility understanding and disciplined income reinvestment protocals. "Total realized return" (emphasis on the realized) and compound earnings growth are the key elements. All forms of income secuities are liquid when dealt with in Closed End Funds. 

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Please read this disclaimer:
Steve Selengut is registered as an investment advisor representative. His assessments and opinions are purely his own and do not represent the views of any other entity. None of his commentary is or should be considered either investment advice or a solicitation of business. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be or should be construed as an endorsement of any entity or organization. The reader should not assume that any strategies, or investments mentioned are any more than illustrations --- they are never recommendations, and others will most certainly disagree with the thoughts presented in the article.