Investment Performance: Part 1

Contrary to popular belief and media propaganda, investing is not a competitive event. Rather, it is a uniquely personal and goal directed activity that individuals must organize and control for themselves. Investing is a long-term enterprise best dealt with by using the fundamental principles of three disciplines: Investment,  Management, and Psychology. 

So as much as you love to hear quarterly growth numbers and comparisons with this or that average and index over short term blinks of the investment eye, you will not be accommodated here.

• That said, I know that those of you who have not read "Brainwashing" want to see some numbers. I  have complete 2008 figures produced by an outside agency, the broker dealer and custodian I use for my business. If you are interested in seeing the spreadsheet, please contact me by email (sanserveataoldotcom) or through Linked-In.

As explained in The Brainwashing of the American Investor, analysis of quarterly, and other calendar year numbers, accomplishes little while generating transactions that most often damage the health and long term viability of the investment portfolio. Still, I recognize that everyone (else) does it.

Performance statistics need to be apples-to-apples comparisons and no index alive will ever look like a properly diversified portfolio of investment grade value stocks (Google IGVSI), income generating, NYSE equities combined with an equally well diversified group of investment grade income securities.

In other words, if you plan your Investment Program properly by creating an Asset Allocation Model that makes sense for you, and fill it up with investment grade securities, there is just nothing to compare with except your own personal goals. Whoa, isn't that the way it's supposed to be? 

Most important of all for your investment comfort level is the development of reasonable performance expectations for the month to month direction of your portfolio's market value, based upon what's going on in the investment world around you. Most investor's have difficulty making this incredibly basic and important leap.

Here are some things to think about: In spite of what the averages and indices told you to believe about the investment climate from 2000 into 2005, it is my opinion that there was no reason to lose money. Speculations bombed, as they always do eventually, but Investment Grade Value Stocks rebounded.

Similarly, the crash of October 1987 has, to date, proven to be the 2nd biggest investment opportunity of all time --- the first being "The Great Depression". No great surprise either is the way that Investment Grade Value Stocks and quality income CEFs have outpreformed the market averages in every conceivable way through and beyond the great financial crisis/recession of mid-2007 thru mid-2010.

Why? The "NO" magic formula:  No NASDAQ, No Mutual Funds, No IPOs, No Multi-Level Derivatives = No Problem!

Similarly, there are three major realities in the Investment World that need to be understood before valid performance evaluation is possible.  

• The Stock Market Cycle (peak to trough to peak or vice versa) has no relationship at all to a calendar year, 

• The Interest Rate Cycle (low to high to low) has no relationship either to the calendar year or (believe it or not) the Stock Market Cycle, and 

• The Economic and Business Cycles have no relationship to the calendar year either.

Don't discount these simplistic observations. Their meaning, when appreciated, can improve your future performance significantly. Like golf, investing should be kept simple. A complicated swing is as non-productive as gimmicky investment products, and a nine-hole fixation on score in the short-run causes mistakes just as surely as quarterly bottom-line performance analysis.

Wall Street thrives on your obsession with short-term market value changes.

Click for Details --> Investment Performance: Part 2 <--