The Case for Value Stock Investing... What If?
By Steve Selengut
Professional Investment Portfolio Manager since
BA Business, Gettysburg College; MBA Professional Management
Johns Island, SC, U.S.A.
Wall Street Institutions pay billions of dollars annually
to convince the investing public that their
Economists, Investment Managers, and Analysts can predict future price
movements in specific company
shares and trends in the overall Stock Market. Such predictions (often
presented as "Wethinkisms" or
Model Asset Allocation adjustments) make self-deprecating investors everywhere
scurry about transacting
with each new revelation. "Thou must heed the oracle of Wall Street".
not to be confused with the one
from Omaha, who really does know something about investing. "These
guys know this stuff so much better
than we do" is the rationale of the fools in the street, and on the
What if it's true, and these pinstriped super humans
can actually predict the future, why do you transact the way you do in
response? Why would financial professionals of every shape and size holler
"sell" when prices move lower, and vice versa? Would this pitch
work at the mall? Of course not. Now lets bring this phenomenon into focus.
Hmmm, not one of these Institutional Gurus ever doubts the basic truth
that both the Market Indices and individual issue prices will continue
to move up and down, forever. So, if we were to slowly construct a diversified
portfolio of value stocks (My short definition: profitable, dividend paying,
NYSE companies.) as they fall in price, we would be able to take profits
during the following upward cycle. Also forever. Hmmm.
Let's pretend for a (foolish) moment that broad market
movements are somewhat predictable. Regardless of the direction, professional
advice will always fuel the perceived operative emotion: greed or fear!
Wall Street's retail representatives (stock brokers), and the new, internet
expert, self-directors, rarely go against the grain of the consensus opinion.particularly
the one projected to them by their immediate superior/spouse. You cannot
obtain independent thinking from a Wall Street salesperson; it just doesn't
fill up the Beemer. Sorry, but you have to be able to think for yourself
to stay in balance while pedaling on the Market Cycle. Here's some global
advice that you will not hear on the street of dreams (and don't get all
huffy until you understand what to buy or to sell as well as when to do
so): Sell into rallies. Buy on bad news. Buy slowly; sell quickly. Always
sell too soon. Always buy too soon, incrementally. Always have a plan.
A plan without buying guidelines and selling targets is not a plan.
Predicting the performance of individual issues is a
totally different ball game that requires an even more powerful crystal
ball and a whole array of semi-legal and completely illegal relationships
that are mostly self serving and useless to average investors. But, again,
let's pretend that a mega million-dollar salary and industry recognition
as a superstar creates Master of the Universe quality prediction capabilities.
I'm sorry. I just can't even pretend that it's true! The evidence against
it is just too great, and the dangers of relying on analytical opinions
too real. No one can predict individual issue price movements legally,
consistently, or in a timely manner. Face up to this: the risk of loss
is real; it can be minimized but not eliminated.
Investing in individual issues has to be done differently,
with rules, guidelines, and judgment. It has to be done unemotionally
and rationally, monitored regularly, and analyzed with performance evaluation
tools that are portfolio specific and without calendar time restrictions.
This is not nearly as difficult as it sounds, and if you are a "shopper"
looking for bargains elsewhere in your life, you should have no trouble
understanding how it works. Not a rocket scientist? Good, and if you are
at all familiar with the retailing business, even better. You don't need
any special education evidentiary acronyms or software programs for stock
market success. just common sense and emotion control.
Wall Street sells products, and spins reality in whatever
manner they feel will produce the best results for those products. The
direction of the market doesn't matter to them and it wouldn't to you
either if you had a properly constructed portfolio. If you learn how to
deal unemotionally with Wall Street events, and shun the herd mentality,
you will find yourself in the proper cyclical mode much more often: buying
at lower prices and, as a result, taking profits instead of losses. Just
Steve Selengut: http://www.valuestockbuylistprogram.com
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"
Published - February 2006