Steve Selengut

Our Portfolio Performance Update

Investment Performance Expectations and Broker Account Statements

As impossible as it is to predict the future of the markets, it's relatively easy to anticipate what you are going to experience when you view your next brokerage account statement.

Whether you go the discount route through Schwab, Ameritrade, Fidelity, etc., or enjoy a higher level of service through an independent like LMK Wealth Management, you should never be surprised by the market values reflected on your monthly statement.

None of the firms make it easy for you to examine asset allocation, particularly on a working capital basis, and most refuse to even acknowledge that Municipal CEFs should not be lumped in with the equities. Additionally, no brokerage statement ever includes a warning label about the dangers of margin borrowing. Surprised? Not.

But you can be sure that all statements will emphasize (in every conceivable way) the short-term change in your market value. Any long term or cyclical analysis (if any) is reserved for the "we understand your long term objectives" propaganda that fills their prospect-only glossies.

Statement market value movements in both directions need to be anticipated and understood, not labeled bad or good (rhyming not intended). Investigation is required when you reasonably expect one direction and you wind up with another--- with the emphasis on the reasonableness of your expectations.

Someone should provide a simple analytical mechanism that will allow investors to know precisely what to expect from the monthly statement opening ritual--- and to have a fairly good idea of why the values have changed the way they have. No shocks, surprises, or indigestion.

I'll take a shot at it, but you should know that IGVSs are those few "value stocks" (in the classic definition) that are also B+ or better rated by S & P, dividend paying, generally profitable, and traded on the NYSE.

The IGVS expectation analysis process will prepare you for the dreaded monthly account statement--- whether you get there by password and click or by post office and letter opener.

Only four bits of information are really needed (for WCM users), and I'm assuming a 70% to 30% portfolio asset allocation--- equities vs. income, respectively.

One: An increasing Investment Grade Value Stock Index (IGVSI) will lead to higher market values for the stocks in your portfolio, but not if you just think that you own mostly IGVSs in your Mutual Funds.

Two: When you are looking for stocks that fit your buying parameters (not hot tips from "Heard on the Street", "Mad Money" or CNBC), a higher number of "bargains" will generally mean lower equity market values.

Three: If monthly (IGVS) Issue Breadth numbers are significantly positive, higher market values should be expected. For the uninitiated, issue breadth analysis compares the daily number of stocks going up in price with the number going down.

Four: If there are fewer IGVSs establishing new 52-week lows than new 52-week highs, it is likely that overall equity market values are rising.

So how do you think you did in August--- click, click, head-scratch?

The Investment Grade Value Stock Index was up for the fifth time in the past six months. The number of bargain stocks was below the average of the past six months. Issue breadth was positive. There were more 52-week highs than lows--- only one new 52-week low all month.

In other words, all indicators point to a higher market value in August than in July and a continuation of the upward trend that started in March.

Additionally, in spite of conditions where interest rates cannot really go much lower, rate sensitive CEFs continued to move slightly higher--- signaling further strengthening (for now) in the credit markets.

So what could keep you from having a better portfolio picture this month than last (from a short-sighted market value perspective)?

Well, Virginia, in the non-government world where most of us attempt to survive, disbursements in excess of income and deposits will do it every time. And when the market corrects, as it absolutely always will to some extent, the double whammy on the bottom line can be painful.

Tracking breadth, new highs and lows, bargain numbers, and an index that mirrors the types of securities you hold in your portfolio, can explain what is happening. Regular additions to your portfolio can soften the impact of a correction and help you prepare for the rally that inevitably follows.

Now if we could only convince the SEC to require that account statements be divided by security purpose (growth or income, for example) instead of by trading unit.

And market cycle analysis--- maybe next year.


Steve Selengut
Sanserve-at-aol.com
www.kiawahgolfinvestme...
Professional Investment Management from 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"

Eight Value Stock Picks

Investment Grade Value Stock Index (IGVSI) Soars 24%

The Investment Grade Value Stock Index is a barometer of a small but elite sector of the stock market. Some Investment Grade Value Stocks are included in all averages and indices, but even the Dow Jones Industrial Average includes several issues that are below Investment Grade and very few boast an A+ S & P rating.

The IGVSI tracks a portfolio of approximately 400 stocks--- and less than half of them are likely to be found in the S & P 500 average. This new market index was developed in late 2007 to provide a benchmark for the equity portion of investment portfolios managed without open-end mutual funds, index funds, or any of the other popular speculations and hedges that are included in most professionally managed portfolios.

Two related indices (the WCMSI and WCMSM) track portfolios of closed-end income funds. Between the three, they serve as an excellent performance expectation development tool for investment portfolios managed according to the disciplines of the Working Capital Model (WCM). Through July 31 2009, these indices soared approximately 24%---- about five times the growth of the S & P 500 and twelve times that of the DJIA.

The reasons are fairly simple: A diversified portfolio of high quality, dividend-paying equities, combined with an equally well diversified collection of conservative interest paying securities is what investors move into after licking their wounds from failed speculations.

Indices that contain the highest quality, dividend paying equities and a variety of historically solid income producers in a manner similar to a conservative personalized portfolio are valuable in helping investors "fine tune" their portfolio performance expectations and their forward-going action plans. The IGVSI is telling us several things right now:

There should be profits in your portfolios so make certain you don't let any of them slip through your fingers.

Sticking with the QDI (quality, diversification, and income production) safety structure clearly moves you away from market bottoms more quickly than approaches that are based on more speculative methodologies, gimmicks, and hedges. It also puts the brakes on slip-sliding-away market values much sooner than the conventional sell everything low methodology.

Clearly, adding dollars to portfolios during corrections (portfolio income plus regular contributions) is a far more productive approach to investing than loss taking and waiting for Wall Street to tell you when the next upturn is about to begin. Just ask yourself: Have I benefited twenty-plus percent from this five-month rally?

Additionally, individual securities portfolios are much easier to manage and to monitor as to monthly income production than other forms of investing in times of financial chaos. Income produced by the twenty-five closed end income producers in the WCMSI is pretty much the same now as it was when the downturn began in May of 2007--- particularly when you factor in profits and reinvestment of dividends.

Without a doubt, investment portfolios that are able to use the IGVSI, WCMSI, and the WCMSM as their benchmarks are most likely to out-perform the most well known Wall Street benchmarks. They have done so in an environment where congress has killed major institutions and where many interest rate sensitive securities failed to move higher in the face of the lowest interest rates in modern history.

It's time to move away from the speculative underbelly of investing; it's time to build an investment future on a foundation of quality, diversification, and income.


Steve Selengut
www.valuestockindex.com
sanserve(at)aol.com
Professional Portfolio Management since 1979
Author: The Brainwashing of the American Investor
Investment Instruction provided through Kiawah Golf Investment Seminars

Can the Hedge Fund ETF Actually Deliver?

Hedge Fund ETFs: Under The Radar Wall Street Con

The other day, with the market giving up about a third of its March gain in 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.

Earlier in March, while we were all sunning ourselves in the far-too-infrequent-lately UVs of a brief rally, I was doing a similar search for undervalued IGVSI stocks. Yes, Virginia, there is an equally impressive array of hedge funds betting that the markets (and the South) actually will rise again.

What is a hedge fund, and just what does it try to accomplish? I think the key legal element is that they don't say how they intend to get the job done.

Initially, hedging was used as a risk mollifier in the securities markets in the same way as insurance is used for protection against disasters impacting life, health, and personal property. Taking a short position on an owned security, for example, protects an investor's profit if the company's market price plunges.

Naked shorting, shorting baskets of securities, and shorting indices, however, have morphed into a risk creator, not a risk reducer. Similarly, hedge funds that hold index funds as betting devices on market sector performance are not what the investment gods envisioned when they blessed the sector experiment.

The new definition of hedge fund speaks of an aggressively managed entity that uses leverage, long, short, options, futures, and derivative positions with the goal of generating high returns. Risk reduction is no longer the objective.

Hedge funds have never been regulated like their open-end mutual fund cousins--- the rationale being that they cater to a wealthy and sophisticated clientele. In fact, the law requires that participants in hedge funds jump over income, net worth, and investment high-hurdles before being eligible to participate.

Investopedia refers to them as mutual funds for the super rich, but the only similarities to the plain vanilla equity mutual fund are the pooling of participants' money and professional management. During the past decade, a series of ill advised and shortsighted rules changes gave hedge fund managers destructive powers that exacerbated the financial crisis that will mourn its second anniversary this summer.

But regulating the hedge fund is clearly a too late closing of a barn door encrusted with diamonds (no pun intended). A few years ago, the masters of the universe rediscovered, redefined, and complicated the world of closed end mutual funds by creating many different forms of passively managed index/hedge funds.

As innocent as these funds may appear, they too have altered the investment landscape. Speculators (not investors) place their bets on the rise or fall of the index. These bets artificially impact the market price of securities because many (if not all) of the funds actually own the securities they are tracking.

Additionally, many individual stocks fall into several indices, and most of the major ETF marketing companies sell similar index funds. Didn't we just go through this with mortgage-backed securities? Aren't these funds artificially taking common stock pricing further and further away from the fundamentals of the companies themselves?

Today, it appears that every passive fund has two or three accompanying short/bear ETFs plus an equal number of bull/long funds to choose from.
Apparently, the SEC has not taken the trouble to look inside the thousands of boutique ETFs that by now must outnumber the securities they are tracking.

Wall Street wants all CEFs (index, hedge, bond, equity, real estate, whatever) to be regulated and reported upon as though they were simply common stocks. As a whole, they aren't even close. In fact, there are more of these derivatives traded on the NYSE than common stocks and preferred stocks combined.

And the real crime is this: investors as naive as the wet-diapered E-Trade spokesbaby can push a button and buy operational hedge funds more bizarre and sophisticated than any ever imagined buy the rich and famous.

If an ETF harbors a hedge fund, but doesn't call it a hedge fund, is it really not a hedge fund? If Merrill Lynch creates a mutual fund with pro rata individual account statements, is it any less of a mutual fund? Is it really individual account management? Have the commissions really disappeared? The SEC thought so.

Shouldn't the regulators be smart enough (and brave enough) to put an end to these legal-in-name-only frauds? Should your mother's IRA be speculating in puts on Netherlands Tulip Bulb futures? How about 200% of the inverse of the Financial Select Sector Index?

A search at ETF-Connect for US Equity ETFs finds roughly 500 potential speculations that absolutely anyone can buy into. All are self-directed IRA eligible--- 401(k) eligible, possibly. A look inside reveals hedge-fund-like operations. But technically, they are not hedge funds because they describe the strategies employed.

So long as we tolerate Wall Street attorneys circumventing the intent of our securities laws, and so long as we reward regulators for their blind worship of the letter of these laws, we will have this kind of manipulation.

Index ETFs (and the no doubt about it hedge fund casinos they front) need a league of their own, located in Vegas, AC, or Uncasville. (A free "Brainwashing" book to the first three people who explain Uncasville!) They demand a new rulebook that recognizes content and strategy--- not trading form.

The ETF derivative market requires a fresh new breed of big picture aware, loophole fillers --- the Obama team is accepting applications.

Whatever happened to stocks and bonds?


Steve Selengut
www.sancoservices.com
The Brainwashing of the American Investor
Professional Investment Management Since 1979

Economic Stimulus Package: Let Them Eat Cake

The President's $10,000,000,000,000 Economic Stimulus Package

For homeowners: Cut the interest rate on all mortgage loans by 50 basis points and extend the payment schedule by three to five years. Convert all variable rate loans to fixed, at prevailing rates, and extend the payment schedule by six to ten years. No fees, points or charges tolerated.

More for homeowners: Provide a pre-paid $5,000 debit card to all free and clear homeowners. The cards are worth double for Ford or GM car purchases, and expire valueless if not used for retail purchases within 60 days of issue.

For retirees: Eliminate all income taxation, at all levels, on any formalized retirement income program. Eliminate all income taxation on one half of all non-retirement plan investment income received by retirees. Provide totally free health care coverage.

For Social Security tax payers below age 35: Reduce mandated contributions to 3% of salary, but allow for additional voluntary contributions. Redirect all contributions to personally owned but "untouchable until age 60" SSRIA contracts with private insurance and annuity companies. Participants would be permanently assigned to qualified providors.

These fixed-income-investmen... contracts would be non-commisionable, management fee only, and benefit identical at all providors. Trustees responsible for directing the investments of SSRIA funds would have strict QDI (Quality, Diversification, & Income) guidelines, with a focus on all kinds of government securities--- federal, state, and local.

For Social Security tax payers from ages 35 to 55: Reduce mandated contributions as above and redirect to SSRIAs. Deposit one half of each person's total existing Social Security deposit account to the SSRIAs.

For Social Security recipients and taxpayers above age 55: Annuitize the income benefit over the next ten years using SSRIAs, starting with the youngest recipients.

For income tax payers: Over a five-year period, replace the Internal Revenue Code with a 10% tax on all income above $40,000 per year. During the same time frame, bring all state and local income taxes to a total of no more than 5%.

There are no tax deductions, but those earning less than $40,000 per year would be exempt from sales taxes.

For governments: Over the same five-year period, institute a 12% Federal Sales Tax on all goods and services consumed or used by individuals. Do the same at the state and local level with a combined cap of 6%. Decrease (thru attrition) the number of federal, state, and local government employees by 30%.

As surpluses develop, sales taxes on food, shelter, clothing, healthcare, and education would be cut or eliminated.

For the financial sector: Abandon mark-to-market accounting rules with regard to mortgage-backed securities until such time as all multi-level mortgage products can be unwound and restructured. Consider a permanent ban of all market value assessment of income purpose, and other illiquid, securities.

More for the financial sector: Unravel all multi-level derivatives, control blatant and damaging speculation, and protect shareholders from abuse by corporate executives. Adopt a global SIBORAP code, one that is created by securities investors.

For health care and insurance cost control: Reform the tort law system with an eye to restricting awards at reasonable numbers and to subject all law suits to non-peer, economic-impact, review before allowing them to move forward. All costs of extortionary and frivolous lawsuits must be borne by plaintiff attorneys.

For corporations: Eliminate all income taxes, fees, and nuisance charges at all levels in exchange for an audited requirement of: more jobs, higher non-management compensation, reduced product prices, or increased health care benefits.

Also for corporations: Eliminate matching contributions for Social Security over the next five years, starting with the age 35 participants and working higher. Note that all such contributions would have been reduced to 3% already.

For the self employed: Eliminate matching contributions for Social Security immediately, and refund all such contributions made over the past ten years to any business still in operation.

For heirs: Repeal the confiscatory death and gift taxes at all government levels and return all the stolen monies to the estates involved for immediate distribution--- also retroactive 10 years.

For investors: All investment income would be treated equally (at flat tax rates), except municipal bond interest would continue to be tax free--- but at all jurisdictional levels. All public corporations reporting profits would be required to disburse at least 25% of their profits to shareholders.

For education: The federal government would support and subsidize (even construct if necessary) fifty, non-sectarian, non-political, four-year, non-research, colleges or universities.

A total enrollment of between 100,000 and 150,000 students, with 75% tuition coverage, and some form of qualified pool lottery selection system. Management, administration, student selection, and professional staffing would be provided by the private sector.

For everyone: bring back usury laws with respect to credit card debt.

Chances are good that this revised package will reduce taxes, increase disposable incomes, grow the economy, eliminate the Social Security mess, increase tax revenues, reduce all budget deficits, provide better health care, reduce insurance costs, encourage home ownership, and reduce the size of government.

Hmmmm. Maybe the next President.


Steve Selengut
www.sancoservices.com/
www.kiawahgolfinvestme...
Professional Investment Management from 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"

How Will the Stock Market React to Obama's First Year?

IGVSI Performance Expectations - WCM Portfolios

No investor should ever be surprised by the changes in market value that appear on his or her monthly brokerage account statements. In general, media noise throughout the month should lead to a feel for what has been going on and investors should understand that the market prices of investment securities are constantly changing.

No investor should be particularly surprised by the changes in market value that have taken place over the preceding year. In general, short-term changes in portfolio values will correlate positively with shorter-term prognostications about the economy, interest rates, and government plans for the political direction of the country.

No investor should make changes to his or her WCM portfolio based upon short-term events or media/Wall Street/Washington speculations of the impact of such events on the future direction any cycle or financial market.

Most investors back into the portfolio development process by making short-term decisions based on guesswork, hype, "insider" information, media stories, etc. Their selections are expected to "perform" (Wall Streetese for go up in price better than other similar speculations.) quickly, or at least within the calendar year of their purchase.

Most investors wind up with "buckshot" portfolios that are asset allocation confused, qualitatively questionable, diversification rule indistinguishable, and income generation not thought "aboutable".

Most investors are caught in a devious "product" trap. They think in terms of buying an investment product instead of making an investment in something of value. They believe that any upward price movement in their product choice is good, sustainable, and unrelated to anything else in their environment save the genius of this year's financial advisor.

Most investors have no use at all for any bad news that adversely impacts the market value of their investment products. Those few who learn to buy on bad news to take advantage of oversold market conditions benefit exponentially from their sound judgment. Most of these, however, forget to realize their profits.

Some investors take the time to think about where they are going before they get started selecting securities to put inside their portfolios. They distinguish between the income generation purpose of one class of securities and the realized capital gains, or growth, potential of the other, more exciting class.

Some investors have learned that the Working Capital Model (the WCM) allows them to put the extremely important asset-allocation-plan step on autopilot, so they can focus their efforts on selection, diversification, and profit taking. These investors generally know what they want (and expect) from every security they add to their portfolios.

Some investors have learned what to expect from income securities in various IRE (Interest Rate Expectations) environments and understand that price changes rarely have a negative impact on income production. Most WCM investors have been patient enough to see nearly all income securities survive severe credit market problems with only minor payout reductions, if any.

A few investors understand that they will eventually want to partially support themselves with the income their portfolios produce, and they program their decisions to assure an annually increasing level of essential retirement "base income". Few mutual fund investors even know what base income is, much less think about it.

A few WCM investors have learned how to focus on their growing base income while most mutual fund, index fund, and NASDAQ investors rely on growth in market value to somehow fund their pension plans. In the real world of cycles, dislocations, Madoffs, and credit crunches, the market value plan just doesn't do it.

A few investors try to pick and choose those elements of the WCM that they will or will not include in their approach to the securities markets. That doesn't do it either.

All investors need to become intimate with both the content of their portfolios and the workings of the various cycles that impact on security market values. They need to expect, even anticipate cyclical changes in the market values of their securities by taking reasonable profits in either classification willingly, gleefully, and without hindsight.

All investors need to plan their portfolios in a manner that allows them to add to positions at predefined, acceptable, lower price points during cyclical (and hysterical) market value downturns. Fear control allows these WCM types to create larger cash flows and more easily attainable profit-taking target levels for the eventual upswing.

All investors need to exorcise the two major Wall Street demons: (1) blind devotion to portfolio market value change analysis from one blink of the market cycle's eye to the next, and (2) focus on the length of time it takes the planet to travel around the Sun while ignoring the cyclical facts of investment life.

No person should become an investor until and unless he or she forms a set of precise expectations about the behavior of securities values--- all securities values, at all stages of the stock market, interest rate, and economic cycles.

No person should become an investor without first having established reasonable long-term goals and objectives and/or without understanding which classes and types of securities are most likely to safely move him toward achievement.

No person should be so fearful of current financial conditions that he is thinking more of loss taking than bargain hunting or that he is expecting market value growth when he should be embracing a rising working capital.

WCM people think of performance in terms of growing productive working capital and annually increasing levels of base income--- irrespective of market conditions. WCM equity investors think in terms of their completed profitable trades--- how many, average gain per trade, holding period.

WCM--- you can do it.

Steve Selengut
www.sancoservices.com/
www.kiawahgolfinvestme...
Professional Investment Management from 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"

Investment Strategy: Try to Catch a Falling Knife?

Investment Management - Put More Smart Cash In Your Future

The stock market is a dynamic place where investors can consistently make reasonable returns on their capital if they comply with the basic principles of the endeavor and if they don't measure their progress too frequently against irrelevant indices.

The income securities market is most often a less dynamic place where investors can consistently make reasonable returns on their capital if they understand the basic principles of the endeavor and if they focus steadfastly on the income produced by their holdings.

Securities markets are truly fascinating--- replete with promise, mystery, and unscripted daily drama. But individual investors are even more interesting. We've become media driven creatures that must have reasons, predictability, blame, scapegoats, instant gratification, and an imaginary sprite called certainty.

We are becoming a culture of hindsightful speculators, attempting to replace the raw beauty of unpredictable market and economic cycles with an upward only mythology superimposed on a vast casino-like landscape. Most would-be investors are simply keyboard-skilled gamblers, impatient, lazy, and unfamiliar with the nature of the securities they bet upon--- in either direction.

Wall Street provides chips, tables, odds, croupiers, and atmosphere. There are no controls on speculation, and (obviously) no oversight to prevent product creativity from undermining the very foundations of capitalism. Big brother picks up the pieces and imposes more controls and safeguards on the innocent--- while we re-elect the guilty.

Yet the beacons of simplicity burn brightly at the end of the always-under-construct... tunnel between The Battery and Capital Hill. If investors could focus on them (unemotionally) through a cycle or two, the sanctity of stocks and bonds would be re-affirmed and the rationale for derivative drug abuse all but eliminated.

The classic investment strategy that worked so well prior to the development of the multi-level derivatives is so simple, and so trite, that it just begs to be ignored. B-o-r-i-n-g! Surely, the investment Holy Grail will never be found by individual issue buyers and coupon clippers.

Investors willing to identify the realities of our wonderful marketplaces, to recognize and embrace the opportunities with an understanding that goes beyond media hype and blog threads, will survive and prosper. They just need to look back, to rediscover the principles of investment success that can shelter their futures--- but without futures.

The Investor's Creed is a pillar of the Working Capital Model, an investment management methodology developed over three decades ago. It synthesizes basic asset allocation principles, an IGVSI trading strategy, and market psychology into five principles of portfolio operation that transcend market cycles, administrations, and global temperature changes.

Remember, this is a summary and it should raise questions--- limited explanation is provided:

One: "My intention is to be fully invested in accordance with my planned equity/fixed income asset allocation." There must always be a "planned asset allocation" using cost basis instead of market value for calculations. Always be looking for buying opportunities that meet your quality, diversification, and income (QDI) standards.

Two: "Every security I own is for sale, and every security I own generates some form of cash flow that cannot be reinvested immediately." It is important that a profit-taking target is assigned to every security; it is essential that you pull the trigger when or before the target is achieved. The words "I do not need the income" cannot be thought, much less uttered.

Three: "I am happy when my smart-cash position is nearly 0% because all of my money is then working as hard as it possibly can to meet my objectives." Smart Cash is compounding capital, created by portfolio dividends, interest, and profits. If it remains uninvested while new investment opportunities exist, it loses IQ points rapidly. Long corrections can make you too happy.

Four: "I am ecstatic when my smart cash position approaches 100% because that means I've sold everything at a profit, and---" This condition should occur whenever there is a serious rally going on in IGVSI equities and you have no income asset allocation in the portfolio. In that case, it's a good time to re-assess your asset allocation plan.

Five: "--- that I am in a position to take advantage of any new investment opportunities (that fit my guidelines) as soon as I become aware of them." Unless the equity market is at an all time high level, it is likely that there are new buying opportunities out there. But never relax your QDI standards, or rush into overpriced securities.

Simply put, The Investor's Creed portfolio management plan keeps you buying investment grade securities when prices are low, and selling them at a relatively easy to achieve profit-taking target. Investment grade companies are most likely to survive major financial havoc, are generally in the forefront of cyclical advances, and are always kind enough to provide regular cash flow for portfolio building or grocery shopping.

If you've ever turned an unrealized gain into a realized loss, if you've ever sold mutual fund shares to deal with monthly expenses, if you've ever been unable to take advantage of low prices for lack of income, this is an approach you need to consider. It won't work without well thought out QDI rules and a disciplined mouse.

Can anyone tell me why this approach is difficult with conventional mutual funds?


Steve Selengut
www.sancoservices.com/
www.kiawahgolfinvestme...
Professional Investment Management from 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"

Calling for an 'Investor Bill of Rights'

Part One of Four proposing a new kind of Bill of Rights:

Securities Investors' Bill Of Rights (SIBORAP): Part One of Four

We the securities investors of the United States, in order to form more transparent financial markets, establish effective regulations, defend against destructive speculation and manipulation, promote financial well-being, preserve working capital, and protect retirement income, do establish this Securities Investors Bill of Rights and Protections (SIBORAP).

These rights are intended to replace, amend and/or abolish all laws and regulations currently in conflict with SIBORAP, and are to be implemented by all parties to financial transactions.

Any institutional efforts to create and/or market securities and/or derivative products that do not comply with the spirit of SIBORAP will result in fines to corporate officers and directors, congressional oversight committee members, regulatory agency directors, and their financial or legal counsel.

All derivative investment products of any kind, any investment programs or specific recommendations promoted in any medium by non-professionals and professionals alike, SEC registered or not, must comply with SIBORAP. Any non-plain-vanilla security, or derivative product containing college-level mathematical complexity, must comply with SIBORAP.

If the average investor cannot understand the purpose of the security, view its content, and form valid expectations about its market value and/or income generation performance in varying market environments--- that security should not be purchased by that person, and must not be sold to him.

It is important that the regulatory bodies responsible for implementing SIBORAP include non Wall Street representatives in their advisory committees. Any and all financial products, contracts, options, and programs approved by regulators will be given a layman's language risk assessment.

All producers of derivative products must provide regulators with clear written documentation of the specific risks involved, in layman's terms. Regulators will label derivatives as to risk "tier level", and identify the entities, persons, and programs prohibited from purchasing them.

The primary purpose of SIBORAP is to protect investors from the actions of others by lessening the global impact of specific types of transactions. A secondary objective is to protect the majority of investors from themselves.

SIBORAP includes these ten specific sections: (1) Product Transparency, (2) Regulation and Education, (3) Protection from Speculators (4) Control of Hedge Funds, (5) Brokerage Account Statements, (6) Retirement Account Investments, (7) Executive Compensation, (8) Corporate Financial Statements, (9) Taxation of Investment and Retirement Income, and (10) Transactional Greed and Fear Controls.

Section One: Product Transparency.

All individual investors, regardless of size, tax status, or educational achievement have the right to see precisely what securities are inside any investment product they purchase, and not only in terms of the top ten positions and asset allocation. All securities within the portfolio must be visible electronically, and updated daily. The top ten holdings would typically represent less than 30% of the portfolio.

Investment Companies shall create no products that contain more than one level of content identification, or whose make-up would artificially or inappropriately impact the market valuation of the securities it contains. A product containing individual negotiable securities of any kind, either equity or income based, may not become a part of any other product or publicly traded security.

This rule would outlaw all multi-level derivatives such as funds-of-funds, index funds that purchase more than 100 shares of the stocks they track, CDOs, and other multi-level gambling devices so popular within the derivative markets.

It will also allow shareholders and regulators to see if any illegal or undisclosed activities or processes are being used in-between standard reporting periods. (Note that funds, corporations, and brokerage firms would no longer be required to send quarterly or annual reports to anyone, so long as the documents are available on line.)

Full disclosure, always in laymen's terms, is required for all gain-enhancing/risk-in... activities such as leverage, options, and futures transactions.

Section Two: Regulation and Education.

Since the investor community has grown to include nearly all employed persons, and because such persons may have a limited understanding of investing, they have the right to expect government regulators to protect their interests.

Incidentally, and because approximately 99.9% of "middle class" members are investors, the tax rules associated with SIBORAP Section Nine will be effective retroactive to the 2007 tax year--- for middle class families and small business taxpayers only. The resultant tax credit will be applied to withholding taxes.

A well-regulated securities industry is needed to assure that the risks associated with securities are clearly identified and labeled. Investors have the right to clear, non-legalese, explanations of risk, particularly when their selections involve other than stocks and bonds.

Specific risk assessment for individual securities and derivatives (securities whose value depends upon the value of other securities) is more important than disclosure of company operations and affiliations. If Registered Investment Advisors (RIAs) have no weapons of mass financial destruction (WMFDs) to sell, no mass financial destruction will recur.

Section Two (Regulation and Education) is continued in Part Two of the SIBORAP report. Part Two also includes Sections Three (Protection from Speculators) and Four (Control of Hedge Funds).


Steve Selengut
www.sancoservices.com
www.kiawahgolfinvestme...
Professional Investment Management from 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"

Eight Value Stock Picks

Yard Sale!

Investment Grade Value Stocks At Ten Year Lows

There has never been a correction that has not proven to be an investment opportunity. While everything is down in price, there is actually less to worry about than when prices are historically high. More money has been lost by people who bought into last year's markets than by those who will buy into this one, at this stage of the correction. When the going gets tough, the tough go shopping.

Every correction is different, the result of various economic and/or political circumstances that create the need for adjustments in the financial markets. This correction is worse than most that I've experienced, but the doom and gloom scenarios many have been pushing are unlikely to come to fruition. Once the media elects a new president, they'll just have to start reporting better news: 96% of all mortgages are current sounds a whole lot better than 20% of all sub-prime mortgages are in trouble.

Some fundamentals in many excellent companies have eroded significantly (due in part to accounting rules that are being changed), but for the most part, interest payments are being made and few dividends have been cut. Bargain prices abound in both the equity and fixed income markets and interest rates are historically low.

A cocktail of credit market laxatives is working its way into a constipated world economy. Relief is on the way. Today's prices may well be looked at as the lowest of the next ten years! Here's a list of things to think about or to do while Investment Grade value Stock prices are at ten-year lows:

Don't beat yourself up by looking at your account market value. You should expect it to be down significantly because all security prices have fallen. Look for ways to add to your portfolios---that's what the smart guys are doing.

Keep in mind that someone is buying the individual shares that the others are selling. The buyers will hold on until they can turn a profit, and the cash on the sidelines will eventually find its way back into the markets as prices rise.

There are no crystal balls, and no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is nearly as important to long-term investment success as selling too soon is during rallies.

Take a look at the future. Nope, you can't tell when the rally will come or how long it will last. If you are buying quality securities now, as you certainly should be, you will be able to love the rally even more than you did the last time--- as you take yet another round of profits.

As, or if, the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely so that you can add to them safely later. There's more to "Shop at The Gap" than meets the eye, and you may run out of cash well before the new rally begins.

Cash flow is king, so take smaller profits sooner than usual as long as there are abundant buying opportunities. Today, nearly eighty percent of all Investment Grade Value Stocks are down more than 15% from their 52-week highs.

In looking at your income securities, cash flow is the primary concern; as long as it continues unabated, the change in market value is merely a perceptual/emotional issue. A loosening of the credit markets should move CEF prices back into normal ranges.

Note that Working Capital keeps growing in spite of falling prices. Examine your holdings for opportunities to average down on cost per share or to increase your yield on fixed income securities.

Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on Investment Grade Value Stocks; it's easier, generally less risky, and better for your peace of mind.

Stop examining your portfolio's performance in market value terms--- it leads to fearful, often frantic, decision-making. Keep your asset allocation and investment objectives clearly in focus and try to think in terms of market and economic cycles as opposed to calendar quarters and years. The Working Capital Model provides a calmer way of dealing with portfolio dislocations during severe corrections.

So long as everything is down, there is really less to worry about. This is the result of panic selling by ETF and open-end mutual fund owners and the beginnings of year-end window dressing by fund managers.

Corrections, regardless of cause, will vary in depth and duration, but both characteristics are only clearly visible in rear view mirrors. The short and deep ones are most lovable; the long and slow ones are more difficult to deal with. If you over-think the environment or over-cook the research, you'll miss the after-party.

Unlike many things in life, Stock Market realities need to be dealt with quickly, decisively, and with zero hindsight. Because amid all the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never been a correction/rally that has not succumbed to the next rally/correction.

Get out there and buy low for a change.


Steve Selengut
www.kiawahgolfinvestme.../
www.valuestockindex.co...
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"

10 Investment Mistakes To Avoid

Preventing Investment Mistakes: Ten Risk Minimizers



Most investment mistakes are caused by basic misunderstandings of the securities markets and by invalid performance expectations. The markets move in totally unpredictable cyclical patterns of varying duration and amplitude. Evaluating the performance of the two major classes of investment securities needs to be done separately because they are owned for differing purposes. Stock market equity investments are expected to produce realized capital gains; income-producing investments are expected to generate cash flow.



Losing money on an investment may not be the result of an investment mistake, and not all mistakes result in monetary losses. But errors occur most frequently when judgment is unduly influenced by emotions such as fear and greed, hindsightful observations, and short-term market value comparisons with unrelated numbers. Your own misconceptions about how securities react to varying economic, political, and hysterical circumstances are your most vicious enemy.



Master these ten risk-minimizers to improve your long-term investment performance:



1. Develop an investment plan. Identify realistic goals that include considerations of time, risk-tolerance, and future income requirements--- think about where you are going before you start moving in the wrong direction. A well thought out plan will not need frequent adjustments. A well-managed plan will not be susceptible to the addition of trendy speculations.



2. Learn to distinguish between asset allocation and diversification decisions. Asset allocation divides the portfolio between equity and income securities. Diversification is a strategy that limits the size of individual portfolio holdings in at least three different ways. Neither activity is a hedge, or a market timing devices. Neither can be done precisely with mutual funds, and both are handled most efficiently by using a cost basis approach like the Working Capital Model.



3. Be patient with your plan. Although investing is always referred to as long- term, it is rarely dealt with as such by investors, the media, or financial advisors. Never change direction frequently, and always make gradual rather than drastic adjustments. Short-term market value movements must not be compared with un-portfolio related indices and averages. There is no index that compares with your portfolio, and calendar sub-divisions have no relationship whatever to market, interest rate, or economic cycles.



4. Never fall in love with a security, particularly when the company was once your employer. It's alarming how often accounting and other professionals refuse to fix the resultant single-issue portfolios. Aside from the love issue, this becomes an unwilling-to-pay-the-t... problem that often brings the unrealized gain to the Schedule D as a realized loss. No profit, in either class of securities, should ever go unrealized. A target profit must be established as part of your plan.



5. Prevent "analysis paralysis" from short-circuiting your decision-making powers. An overdose of information will cause confusion, hindsight, and an inability to distinguish between research and sales materials--- quite often the same document. A somewhat narrow focus on information that supports a logical and well-documented investment strategy will be more productive in the long run. Avoid future predictors.



6. Burn, delete, toss out the window any short cuts or gimmicks that are supposed to provide instant stock picking success with minimum effort. Don't allow your portfolio to become a hodgepodge of mutual funds, index ETFs, partnerships, pennies, hedges, shorts, strips, metals, grains, options, currencies, etc. Consumers' obsession with products underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; investors select securities.



7. Attend a workshop on interest rate expectation (IRE) sensitive securities and learn how to deal appropriately with changes in their market value--- in either direction. The income portion of your portfolio must be looked at separately from the growth portion. Bottom line market value changes must be expected and understood, not reacted to with either fear or greed. Fixed income does not mean fixed price. Few investors ever realize (in either sense) the full power of this portion of their portfolio.



8. Ignore Mother Nature's evil twin daughters, speculation and pessimism. They'll con you into buying at market peaks and panicking when prices fall, ignoring the cyclical opportunities provided by Momma. Never buy at all time high prices or overload the portfolio with current story stocks. Buy good companies, little by little, at lower prices and avoid the typical investor's buy high, sell low frustration.



9. Step away from calendar year, market value thinking. Most investment errors involve unrealistic time horizon, and/or "apples to oranges" performance comparisons. The get rich slowly path is a more reliable investment road that Wall Street has allowed to become overgrown, if not abandoned. Portfolio growth is rarely a straight-up arrow and short-term comparisons with unrelated indices, averages or strategies simply produce detours that speed progress away from original portfolio goals.



10. Avoid the cheap, the easy, the confusing, the most popular, the future knowing, and the one-size-fits-all. There are no freebies or sure things on Wall Street, and the further you stray from conventional stocks and bonds, the more risk you are adding to your portfolio. When cheap is an investor's primary concern, what he gets will generally be worth the price.



Compounding the problems that investors face managing their investment portfolios is the sensationalism that the media brings to the process. Step away from calendar year, market value thinking. Investing is a personal project where individual/family goals and objectives must dictate portfolio structure, management strategy, and performance evaluation techniques.



Do most individual investors have difficulty in an environment that encourages instant gratification, supports all forms of speculation, and gets off on shortsighted reports, reactions, and achievements? Yup.







Steve Selengut

www.sancoservices.com

www.kiawahgolfinvestme...

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"

Why I'm Against Fixed Income ETFs

All Index funds are risky, especially income funds. Use Managed Closed End Funds instead. Here's some recent research with real ife investment portfolios:

Good News For Income Investors



Looking for good news in today's markets is like searching for the proverbial needle in a haystack. Needless to say, practically all investment grade equities and nearly all closed end funds that specialize in providing regular recurring monthly income have been reduced in market value by this prolonged correction. The quake has spread in all directions from its financial epicenter, and the mounting doom and gloom has taken its toll on even the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities' market values---



So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.



In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.



The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.



(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.



(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.



First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.



Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.



The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.





Steve Selengut

www.sancoservices.com

www.kiawahgolfinvestme.../

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"

Long and Junk Bond ETFs: Stepchildren of Fixed Income Investing

Good News For Income Investors

Looking for good news in today's markets is like searching for the proverbial needle in a haystack. Needless to say, practically all investment grade equities and nearly all closed end funds that specialize in providing regular recurring monthly income have been reduced in market value by this prolonged correction. The quake has spread in all directions from its financial epicenter, and the mounting doom and gloom has taken its toll on even the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities' market values---

So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.

In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.

The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.

(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.

(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.

First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.

Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.

The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.


Steve Selengut
www.sancoservices.com
www.kiawahgolfinvestme.../
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"

What's Wrong with Today's Value Investing?

When All Stocks Are Value Stocks - Think QDI

Value stocks are those that tend to trade at lower prices relative to their fundamental characteristics than their more speculative cousins, the growth stocks; they have higher than usual dividend yields and lower P/E and P/B ratios. So when all stock prices are down significantly, have they all become value stocks? Or, based on the panicky fear that tends to overwhelm media and financial experts alike, haven't they all taken on the speculative characteristics of growth stocks?

Well, to a certain extent they have, because the lower value stock prices go, the more likely it is that they will eventually experience the 15% ROE that typifies the classic growth stock. Interestingly, by definition, growth stocks are expected to be associated with profitable companies, a fact that speculators often lose site of. There are three features that separate value stocks from growth stocks and two that separate Investment Grade Value (IGV) stocks from the average, run-of-the-mill, variety.

Value stocks pay dividends, and have lower ratios than growth stocks. IGV stock companies also have long-term histories of profitability and an S & P rating of B+ or higher. Would you be surprised to learn that neither the DJIA nor the S & P 500 contains particularly high numbers of IGV stocks? Still, since 1982, value stocks have outperformed growth stocks 62% of the time. So when an ugly correction has a makeover, it's likely that all value stocks transform themselves into growth stocks, at least temporarily.

Will Rogers summed up the stock selection quandary nicely with: "Only buy stocks that go up. If they aren't going to go up, don't buy them." Many have misunderstood this tongue-in-cheek observation and joined the buy-anything-high investment club. You need dig no further than the current lists (June '08) of "most advancing issues" to see how investors are buying commodity companies and financial futures at the highest prices in the history of mankind.

This while they are shunning IGVSI (Investment Grade Value Stock Index) companies that have plummeted to their most attractive price levels in three to five years. Many of the very best multinational companies in the world are at historically low prices. Wall Street smiles knowingly (and greedily) as Main Street hucksters tout gold, currencies, and oil futures as retirement plan safety nets. Regulatory agencies look the other way as speculations worm their way into qualified plans of all varieties. Surely those markets will be regulated some day--- after the next Bazooka-pink, gooey mess becomes history.

How much financial bloodshed is necessary before we realize that there is no safe and easy shortcut to investment success? When do we learn that most of our mistakes involve greed, fear, or unrealistic expectations about what we own? Eventually, successful investors begin to allocate assets in a goal directed manner by adopting a more realistic investment strategy--- one with security selection guidelines and realistic performance definitions and expectations.

If you are thinking of trying a strategy for a year to see if it works, you're being too short-term sighted--- the investment markets operate in cycles. If you insist on comparing your performance with indices and averages, you'll rarely be satisfied. A viable investment strategy will be a three-dimensional decision model, and all three decisions are equally important. Few strategies include a targeted profit taking discipline--- dimension two. The first dimension involves the selection of securities. The third?

How should an investor determine what stocks to buy, and when to buy them? We've discussed the features of value and growth stocks and seen how any number of companies can qualify as either dependent upon where we are in terms of the market cycle or where they are in terms of their own industry, sector, or business cycles. Value stocks (and the debt securities of value stock companies) tend to be safer than growth stocks. But IGVSI stocks are super-screened by a unique rating system that is based on company survival statistics--- very important stuff.

In the late 90's, it was rumored that a well-known value fund manager was asked why he wasn't buying dot-coms, IPOs, etc. When he said that they didn't qualify as value stocks, he was told to change his definition--- or else. IGV stocks include a quality element that minimizes the risk of loss and normally smoothes the angles in the market cycle. The market value highs are typically not as high, but the market value lows are most often not as low as they are with either growth or Wall Street definition value stocks. They work best in conjunction with portfolios that have an income allocation of at least 30%--- you need to know why.

How do we create a confidence building IGV stock selection universe without getting bogged down in endless research? Here are five filters you can use to come up with a listing of higher quality companies: (1) An S & P rating of B+ or better. Standard & Poor's combines many fundamental and qualitative factors into a letter ranking that speaks only to the financial viability of the companies. Anything rated lower adds more risk to your portfolio.

(2) A history of profitability. Although it should seem obvious, buying stock in a company that has a history of profitable operations is inherently less risky. Profitable operations adapt more readily to changes in markets, economies, and business growth opportunities. (3) A history of regular, even increasing, dividend payments. Companies will go to great lengths, and endure great hardships, before electing either to cut or to omit a dividend. Dividend changes are important, absolute size is not.

(4) A Reasonable Price Range. Most Investment Grade stocks are priced above $10 per share and only a few trade at levels above $100. An unusually high price may be caused by higher sector or company-specific speculation while an inordinately low price may be a good warning signal. (5) An NYSE listing--- just because it's easier.

Your selection universe will become the backbone of your equity asset allocation, so there is no room for creative adjustments to the rules and guidelines you've established--- no matter how strongly you feel about recent news or rumor. There are approximately 450 IGV stocks to choose from--- and you'll find the name recognition comforting. Additionally, as these companies gyrate above and below your purchase price (as they absolutely will), you can be more confident that it is merely the nature of the stock market and not an imminent financial disaster.

The QDI? Quality, diversification, and income.


Steve Selengut
www.sancoservices.com
www.kiawahgolfinvestme.../
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"