IntelligentValue Newsletter™: The only stock market newsletter you will ever need!

The IntelligentValue Newsletter™ utilizes a merger of two investment approaches: value investing and trend trading. We call this approach 'Dynamic Value Investing.'

Our overall investment thesis starts with a comprehensive view of the stock market over the last 200 years to determine the market's current position in the big picture. Then we narrow the scope to the major 15-year secular trends, then further narrow the scope to the 4-5 year business cycle, and finally to overbought and oversold cycles that typically last 2-4 months. After identifying our current position in that timeline and the important characteristics of these secular and cyclical periods, we form a strategy to produce outsized returns (alpha) on our investment funds.

The stock market moves in major, generational trends, characterized by 15-year (average) secular bull markets followed by 15-year (average) consolidation periods. Using this analysis (as shown in the 108-year chart of the Dow Jones Industrial Average below), there has only been one true secular bear market (so far) which followed the market highs reached in October, 1929.

IntelligentValue's 'Dynamic Value Investing' method utilizes a 'big picture' view of the
market over the last 200 years. The original technical analysis of the 100-year DJIA was first presented by tuttleassetmanagement.com. Historical P/E ratio analysis by Dr. Robert Shiller.
Click to enlarge the 108-year DJIA chart above.

Towards the end, 15-year secular bull markets are characterized by hubris; dramatically increased use of leverage, massive amounts of liquidity, commodity and asset prices that are overblown, overpriced commercial and residential real estate, and average price/earnings ratios for stocks that are sky high. This has been the case for more than 200 years. These overdone 15-year bull markets are then followed by difficult (for buy and hold investors) 15-year consolidation periods.

Consolidation periods consist of 4-6 year, range-bound cyclical bull and cyclical bear markets that coincide with the business cycle (i.e., the bull market that started in 1998 and the bear market that ended in October, 2002). Cyclical bull and bear markets move within a confined range of prices during a 15-year consolidation period.

The last great bull market started in 1982 and concluded in 2000. We are currently about halfway through the following range-bound consolidation period that started in 2000. As of December 2008, we have another 6-7 years of consolidation ahead of us. That doesn't mean we can't make money in the next 6-7 years. In fact, consolidation periods can be very profitable for those who know what they are doing.

I find it humorous that many market commentators are saying that 2008 was the year that "buy and hold went to die." Most of these people are fairly young, and probably have only been involved in the market since the early 1980s at most. From 1982-2000, buy and hold was a 'no-brainer' investment method. Now they are challenged because their 'proven investment method' doesn't work any longer. Buy and hold only works during secular bull markets. The next period that you can throw you money into the Dow 30 stocks and forget about them for another 15 years will likely begin again in 2015.

Currently, the Dow Jones Industrial Average is struggling around the 8,000 mark. The first bottom of the current consolidation was on October 9, 2002 at 7,286. That bottom should hold, give or take 5%. If the DJIA plunges through 7,300 with momentum, it will signify the likelihood of another Great Depression. With all the money being thrown at the economy by the world's governments now, that scenario is not likely. Government has learned from the mistakes of the 1930s, when the government pulled back, rather than stimulating the economy.

The 15-year consolidation periods (which we are in now) are characterized by a volatile stock market that trades within a strict range and is always accompanied by a steadily declining price/earnings ratio. As you can see from the chart presented here, each time the stock market entered a consolidation phase, P/E ratios for the major indexes were exceptionally high (35-40) and steadily moved down to a P/E ratio of 8-10 before another bull-market phase began.

Cyclical bull markets usually gather momentum over the course of 4-5 years, but unwind much faster, usually in a year or two. We have experienced a dramatic, 14-month decline of about 45% in the major market indices. We are currently in a cyclical downturn. The Dow Jones Industrial Average has moved from a high of 14,000 in October, 2007 to a low (so far) of about 7,500. The low of 7,286 in 2002 should hold through the second half of this consolidation period (through about 2015). Therefore, the market is currently at or near a bottom, assuming we do not breach the 2002 low of 7,286.

In addition to primary, 4 to 5-year cyclical trends (the 'business cycle'), there are secondary, cyclical overbought and oversold periods that can last for several months. That's where our 'Dynamic Value Investing' method comes into play.

Our proprietary market trends indicator identifies the intermediate-term trends based on when the market begins to rise from an oversold level, or to decline from an overbought level. These trend identifiers dictate the times when we switch from a long orientation to a short orientation.

By identifying periods when the market is oversold, we can purchase deeply undervalued stocks that should rise in price at a much faster pace than the general stock market. When the market is overbought, we sell short positions in the most overvalued stocks, or, alternatively, we can go to cash or buy contra (short) Exchange-Traded Funds (ETFs).

Markets have always moved from oversold conditions to overbought conditions and back again. It is simply part of the human condition to feel greed or fear, especially when it comes to matters of money. The environment we are in today is creating a great deal of fear and there is truly is blood in the streets. But what today's investors don't realize is that many savvy people got wealthy during the Great Depression. There are always opportunities to make money in the equity markets. Because of human nature, markets invariably go to extremes that are ripe for profitable exploitation.

As I said previously, the world is not coming to an end. As a nation, we have always been creative and innovative and responded to crises in a way that pulled us out of those crises. Although the current recession is difficult and ugly, it is creating opportunities that may be unprecedented in our lifetime.

To determine value, we use a proprietary ranking system to find stocks that demonstrate a far higher Return on Equity than their peers - but which are selling for far less than their peers as related to Price/Book, Price/Sales, Price/Earnings, Price/Free-Cash-Flow, etc. Our objective is to identify companies whose stock is undervalued and has a substantial margin of safety.

By combining the two approaches, market trends and value investing, we achieve results far greater than either when used alone.

Easy to Follow Method: Each day, we track a proven indicator of oversold and overbought market conditions. When this indicator reaches these points, it triggers the issuance of a buy alert or a sell alert. When an alert is triggered, we let you know and provide you with 5-10 stock picks. These positions are held for an average of 2.5 months.

As these positions reach a profit of 50%, it triggers a sell alert. Extensive database

backtesting as well as actual investment results have demonstrated that profit-taking after a gain of 50% produces the highest returns. As the market gradually moves from oversold to overbought conditions, our portfolio stocks are sold and not replaced. This allows cash to build and we are underinvested when the market invariably becomes overbought. This steady sale of profitable positions prevents drawdowns that invariably damage overall portfolio returns.

Results: The results of this stock-choosing method shows our ability to

outperform the market indexes, mutual funds, and virtually all stock-market newsletters. If you are ready to invest with a newsletter that provides you with outstanding returns and incredible credibility and transparency in its numbers, then you are ready for IntelligentValue! Please see the results page for details on our current results and subscribe today to begin getting this successful investment growth for yourself!

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