Is Your Retirement Capital Portfolio In Independent Care, Assisted Living, Or Dementia Accommodation?

Includes: SPY
by: Peter F. Way, CFA


D-I-Y investors enjoy (and labor at) Independent Care for their own retirement capital, often with far better results than those who seek “Assistance”.

When that “assistance” is offered by the typical (average) mutual fund, the patient over a course of years often comes to find they are in need of Dementia Care.

Who is better motivated to get your capital to grow than the retirement beneficiary him/herself? But motivation alone won’t do what is needed.

The active investment of DIY personal time, as well as of capital, is well served by the experiences array offered on Seeking Alpha by folks that have “walked the walk”.

Coupling informed selections with the current-day unbiased insights of working market professionals to find productive, timely entry and exit points offers odds-on more rapid wealth-building.

Have you discovered you're not going to make it?

Over 25 million Americans either have come to that conclusion, or soon will, according to several credible estimates. They must then seek additional employment, help from family members, including offspring, acquire additional government assistance, or otherwise be humiliated by their circumstances.

Nobody intended to have it wind up this way.

Many thought they had investments providing security for years ahead.

But despite assurances, the investments grew little (or none) while ordinary living expenses grew a lot. Frugal savings got no investment boost. And the years escaped.

Medical advances ironically make the problem worse by lengthening the expense time and costs more than by enlarging the income time. One astute observer noted "they learned how to get us older, but not how to finance the longevity."

For some there is a practical, pleasant solution

But not for everyone.

It involves making investments far more productive than average history has witnessed, demonstrated on the basis of lengthy experience, net of manageable losses.

Yes, it involves capital losses, but minor ones under control by discipline that suppresses emotions and surprises. There are losses which are inevitable when making decisions under uncertainty. Not losses that run amok when untended or when driven irrationally by fear.

The real cost of the solution for many is the discomfort of having to follow an investment discipline far different from what has been consistently and forcefully propounded by 20th century investors for whom it worked, and by the marketing forces of an investment products establishment for whom it continues to work, at the expense of their customers.

If that discomfort is too great for you, then you will find yourself on the wrong side of a flow of wealth favoring those who will follow a discipline that recognizes how investment markets of the 21st century have dramatically changed their nature.

How have markets for stock investments changed?

They are far more price-volatile than they used to be. Day by day prices range widely from longer-term trends.

Look for yourself. Most stock quotation sources offer price ranges for the last 52 weeks on an issue-by-issue basis. Divide the high price by the low and subtract 1. Now you have the decimal percentage of the stock's recent annual volatility.

Then find the "street" analysts' average annual expected percentage growth in earnings per share over the coming 3-5 years. How many of those years' growth fit into the one-year percentage price range?

Any results you get greater than 1 [one] means that part of the year likely was spent with the stock declining in price.

For most stocks we find 5 to 12 years of EPS growth in a year's market price range. Lots of earnings growths being price-discounted from the stock's highs. Lots of EPS values being overpriced above the bargain lows.


Why now in this 21st century and far less so in the 20th century?

Advances in technology spurred EPS growth rates, making them harder to forecast. Advances in marketing technology encouraged more rapid competitive tactics.

Advances in competition, worldwide, created new, less foreseeable surprises. Advances in communications speeded up information availability. Advances in information technology made forecasting more aware of uncertainties. Aggressive merger & acquisition competition by the investment banking community increased the uncertainty of existence or progress of whole companies.

On the "buy-side" of the market, securities price expectations by major investment organizations, when attempting to make multi-million-dollar trade adjustments to billion-dollar portfolios, overwhelm the capacity of markets to find prices that will balance buyers with sellers. Prices reached in non-public "dark markets" when made public can seriously disrupt market attitudes of what to expect next.

Price expectations become paramount in managing equity investments. The score is kept in values of price-change accomplishments by securities held. The individual investor trying to build equity portfolio wealth has similar objectives. He/she has their own particular goals to reach, both in $ amounts, and time of accomplishment.

It should be evident that equity investing is a competition between players in a serious, difficult game. One where outcomes are the product of the decision actions of the participants. That is what makes the activity a game.

The equity market is not some statistical, impersonal slot machine where wins and losses are just matters of chance. It is a huge, complicated, rapidly changing poker-table where the players not only choose what cards to hold, but how to play them, depending on what they think the other players may do.

Today's giant losing "sucker" at the table is the 20th century buy and holder of cards he/she bought, expecting events to mature far out in time. Out beyond any reasonable hope to be able to forecast in today's technological and competitive maelstrom.

Sorry, guys & dolls, that's just real investment life now in the 21st century. Want (need?) to play? Then be prepared to learn how to follow disciplines that exploit your advantage.

Do individual investors really have advantages?

Yes, indeed they do.

The equities marketplace is geared to serve small trades quickly and cost-efficiently. You have the advantage of picking entry and exit times, along with selection of issue, precisely based on price prospect comparisons. Your relatively small trade is needed to be part of the other side of some other transaction that has different driving motivations. Don't worry about what they are, just take what the circumstances provide for your benefit, and move on to the next opportunity - quickly.

What you need in this contest is an insight into what cards the other players hold, and what prices knowledgeable players think they could be bought at or sold for in the next few weeks or months. Remember, agility of presence and absence is your advantage, and it allows the power of compounding achievements many times in each year.

Price [cost] going in and Price [target] coming out is one of the two things that matter. The other is the TIME investment being made in parallel with the capital. Compounding is the leverage time provides. The less cost to attain a target price payoff, the larger the capital gain. The less time invested in attaining the capital gain, the larger the RATE of gain on an annualized basis (CAGR = compound annual growth rate). Time has more power than capital.

Where can the essential insights be gotten?

The billion-dollar fund managers need help in making holdings adjustments to their portfolios. Their own internal research people identify stock opportunities to buy and less-promising holdings to be sold. Their reasoning has specific price expectations kept carefully to themselves.

But to make meaningful impacts on a portfolio of 50 $20-million holdings (and that's only one $ Billion, many have several) a couple of $20-million programs have to be pursued with smaller trade pieces over several days to minimize spooking the current prices.

They need help in locating other players who may have an interest in taking "other-side-of-the-trade" positions. Every one has to be carefully negotiated, so that each whole transaction can be done on a "block" basis at one price for all the shares, announced publicly at one time. Market-making [MM] divisions of investment banking firms provide this kind of service hundreds to thousands of times a day for long-standing clients.

The MMs usually are not able to fully assemble the other side of the trade, and so they may commit their firm's capital temporarily to establish a price balance and "fill" the client's trade order within the usual tight time constraints specified.

But putting firm capital at risk of market price moves only will be done if a hedging deal can be accomplished to limit the possible risk. What is paid by the MM, and the way the protection is structured, tells just how far the seller of the hedge and the MM buying the protection believe the price of the subject security in the block trade may be likely to move.

Peter Way Associates, a private family firm, has for several decades performed the analysis deriving these price range expectations on over 2,000 widely-held and actively traded stocks, ETFs, and market indexes. In the 20th century those expectations were provided to major buy-side institutions. Now they are being exclusively reserved for do-it-yourself [DIY] individual investors.

The expectations information is best used in a simple portfolio management discipline which exercises the advantages of transaction agility, special market insight, and time compounding. It is known as TERMD, the acronym of time-efficient risk-management discipline.

TERMD requires capital be constantly and continually invested in an investor-chosen number of capital threads run independently within a portfolio. Each thread is a single holding of an equity security purchased by investor choice among a competition of 20 or more similarly-described alternatives as to capital gain target prospect price, prior similar forecast capital gains, worst price drawdowns, odds of profit vs. loss, average holding period and net CAGR experiences.

The discipline is that the holding be sold at the first instance of the target price being achieved, or if that has not occurred in 63 market days (3 months) sold regardless of gain or loss. In either case the full proceeds are to be reinvested the next day in the most attractive available contestant security.

Market-Maker Intelligence Lists of the top-ranked 20 stocks or ETFs are published every market day for individual subscription. A compilation of the accumulated gains (and losses) of all securities reaching their targets or time limits since 12/31/2015 is shown in Figure 1.

Over 6,500 instances are accounted for there, accumulated live as they are happening. Over 72% of them produced gains at daily holdings rates 3 times those of the 28% with losses. Parallel holdings in the S&P500 index ETF (NYSEARCA:SPY) on a buy&hold basis in this roughly year and a half have a CAGR of +13.2%. The TERMD profits (green) minus losses (red) are compounding (yellow) at CAGRs of over 5 times the SPY rate.

Simply buying and selling SPY at its prices on the same dates of all other transactions (purple) more than doubles the SPY buy&hold gain accumulation (black).

Figure 1


The combination of Market-Maker Intelligence Lists and the TERMD portfolio management discipline provide a forceful acceleration in the rate of capital gains in a consistent manner through the whole period. Such performance is being achieved by hundreds of subscribers to the Intelligence Lists and should be of interest to investors confronting time-pressured capital gains needs.

Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.

We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided. Our website, has further information.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.