There is a reason I start every Investment Portfolio Review meeting telling clients not to fall in love with the highest number their own investment portfolio has reached because it may be a while before we see that number again. Every year since 2002 I have also been telling clients that it is very unusual to keep posting positive stock market numbers for four years in a row. In 2007 it was the fifth straight year we had a positive year! So it is no surprise that this year is shaping up to be a down year. Nothing unusual, we have seen this movie before!

Let's throw some numbers out first for the record. We are now in official bear market territory as we are about 20% off the October 2007 high in the Dow. The second quarter of 2008 was the third straight quarterly decline and the worst second quarter since 2002. The Dow also suffered its worst half since 1970. This is very different than the last bear market we had between 2000 and 2002 which was dominated by the collapse of the tech stocks (which we mostly avoided). The carnage this time is across the board and it includes the S&P 500 and the NASDAQ stocks. During the last bear market we continued to be buying (when everybody was discovering no money down ARM loans to buy houses to flip because you "could not lose with real estate", we all know what happened there!) equities and when the inevitable turnaround came we enjoyed great performance returns (especially in 2003).

I am often asked the question "what do you think of the stock market, is it good time to buy?". And my response is: "I have no idea, but I know one thing for sure, the best time to buy was thirty years ago, the second best time to buy is now¨. Predicting short term stock market performance is pointless and a colossal waste of time. We avoid the noise from the media and "experts", we stick to our LONG TERM plan to maintain a diversified low cost portfolio and rebalance it at least twice a year. At times like these we instinctively are on buying mode; selling is absurd and likely to be a huge mistake. In investing, patience and perseverance can have its rewards.

A brief history of bear markets follows: There have been nine declines of over 20% since 1960. The average bear market has lasted about 14 months and has taken stocks down 31% before they hit bottom. The mildest bear market was in the early 1990s with a 21% Dow decline and the worst, during the 1970s oil crisis, was a 45% drop. They also take about 12 months from their bottoms to regain the lost ground.

All bear markets are different. We truly do not know what is going to happen. I tell people who ask me where the stock market is going and whether it is going lower: "If you can't stand the heat, stay out of the kitchen!". I am pleased to report that I had clients calling to ask me "when and what are we buying?" and we in fact have been making some selective purchases pretty much across the board lately. This validates my emphasis on choosing to work only with clients who truly have a long term horizon and do not have a trader mentality or are performance chasers. They understand what is happening is normal and it may take a long time to reach previous highs. In the meantime, we concentrate on what we can control (keeping portfolios diversified, keeping costs low, rebalancing at set intervals, sticking it to Uncle Sam when the opportunity presents itself, saving and earning more) and let the market do its thing. From time to time the market will suffer unexpected and sharp dips and scare the crap out of investors causing lots of them to sell and find another "investment" to buy at a high. We are not in the timing business, we are and we will always be long term investors.

To illustrate how ludicrous market timing is, consider the following example:

If you invested $10,000 in the unmanaged S&P 500 Index, over the past 10 years ending December 31, 2007, and you had:

-Stayed in all 2,514 days, your investment would have grown to $15,131.

-Tried to time the market and ended up missing just 10 of the best days, your ending account value would have been $9,534, or more than $400 less than your original investment.

We are likely nowhere near out of the woods yet. There is no doubt we are having some major issues to work through and it appears it may take a while to get past these challenges. The surge in oil prices is playing to investors' worst fears about inflation and recesion. Other commodity prices are also at record prices. The credit markets are still not functioning properly and real estate remains in a major funk. Unemployment is up and consumer confidence is down. The auto industry and especially the Big Three in Detroit are reeling. The tax rebate checks will likely appear to have a negligible effect. Remarkably, even though it feels like one, we are not officially in recession yet as the economy's GDP grew about 1% over the first half of 2008. There is no doubt that banks, home builders, airlines, auto companies and brokerage companies are undergoing major issues with their business model and have been restructuring which is always painful. It appears our economy is undergoing a tough transition of learning how to function with less borrowing, a process known as "deleveraging¨. For institutions this will eventually mean healthier and less aggressive/risky balance sheets; for individuals, it will mean less spending which is best for the long term health of the economy because Mr. Smith, you did not need to take a home equity loan to blow it on a boat or go on that Hawaii vacation:-)

Eventually we will work out the problems and we will have a turnaround and we intend to be there when it happens. When will that be? My crystal ball remains fuzzy and we are prepared to wait a long time for it.

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Quoted in the following media:

-Financial Advisor, June 2008 in an article titled "Linking Up" in the Business Management: Technology section.

-Investment News, February 11, 2008 in an article titled "TD Ameritrade execs apologize to advisers".

-Investment News, February 4, 2008 in an article titled "Janus rebound in works". For the record, I totally disagreed with the reporter and rightly ripped Janus!

-Bloomberg Wealth Manager, February 2008 in a story titled "Technology: The Future".