working capital

Discussion of why changes in working capital is not required when calculating free cash flow and owner earnings.

So, a better question, concern, or observation during a rally (Yes, Virginia, seven consecutive months to the upside is a rally.), given the extraordinary performance scenario that these investors acknowledge, would be: What can I do to take advantage of the market cycle even more effectively--- the next time?

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.

Before Wall Street conned investors into thinking of calendar quarters as "short-term" and single years as "long-term", market cycles were used to test investment strategies. Performance analysis was a test of management style and overall methodology, not a calendar year horse race with one of the popular averages. Bor-ing, yes--- but meaningful.

The Working Capital Model looks at investment performance differently, less emotionally, and without much concern for short-term market value movements. Security market values are used for buy/sell decision-making. Working capital figures are used for asset allocation and diversification calculations.

The reality of corrections is one of the few certainties of the financial markets, a reality that separates the men from the boys, if you will. If you fixate on your portfolio Market Value during a correction, you will just give yourself a headache, or worse.

My wife was trying to sleep and she's waking up and saying "What's wrong with you?" What could I tell her, that I was cracking up over a financial book? ---I've got to tell you, there were times when I had some of the best laughs I can remember in recent memory, like when you're telling the accountant you can save him taxes by not paying his fees.

Unfortunately, investors are a lot like teenagers. They know everything; expect instant gratification; take unnecessary risks; fall in love easily; ignore voices of experience; prefer the easy approach. Lessons of the past just can't apply to what's going on now. Duh, dude!

Today's obsession with short-term blinks of the investment eye is Wall Street's attempt to take the market cycle out of the performance picture. Similarly, total return hocus-pocus places artificial significance on bond market values while it obscures the importance of the income produced. WCM users will have none of it; the investment gods are angry.

Crash! The 2007 thru 2008 financial crisis halved 401(k), IRA, and Mutual Fund values in a matter of months. For many, retirement dates had to be pushed back; for others, new jobs had to be found. The tragic flaw? No income allocation in the investment program. Market value builds egos; income pays the bills.

Most people enter the investment process tip first. They hear something, grab an idea from a popular blog, accept a Cramerism or some motley foolishness, and think that they are making investment decisions. Rarely, will the right-now, instant-gratification, Internet-generation speculator think in terms that go beyond tomorrow's breaking news.