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Greetings!
Welcome to the Winter 2007 edition of my
newsletter.
I am sharing with you the Annual Letter I sent out to
clients with their 2007 Investment Performance Report.
Many financial advisors try to make money
management very complicated. Instead, I try to keep it
simple by sticking to a broadly diversified very low cost
portoflio that is rebalanced twice a year at set intervals
and always keeping Uncle Sam in mind. Nothing
fancy, no proprietary computer models around here or
short reverse collar hedge like techniques...Just a very
disciplined and cold blooded process leaving
emotions and crystall balls out of the decision making
process.
Another Gems section follows with just a few very
insightul quotes.
On a personal note, we decided to take advantage of
the local Ann Arbor real estate slump and purchased
a nicer house behind Arborland Mall. So we moved
and I must say that I will likely not move again, they will
have to carry me out of this house! We really like it
and the new neighborhood.
As stated in earlier editions, I only send this out
about four times a year and your email address will
never ever be given to marketers or anyone else! If
you prefer not to receive my newsletter you can easily
unsubscribe by clicking on the "SafeUnsubscribe"
button at the bottom left of this email or simply click
reply and just type "remove".
If I could be of any help in the future please do not
hesitate to contact me.
Thank you for reading.
Sincerely,
George
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| 2007 Investment Review Year End Letter |
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- S&P 500 3.5% --- 500 US Large
Cap
Stocks
- Dow Jones Industrial 6.4% --- 30 US Large
Cap Stocks
- DJ Wilshire 5000 3.9% --- All US Stocks
- NASDAQ 9.8% --- Large Cap
Tech
Stocks
- Russell 2000 -2.7% --- US Small Cap
Stocks
- EAFE 11.17% --- International
Stocks
- Investment Grade Bonds 4.4%
This was a year when we all learned about sub prime
credit. It referred to so many people thinking they can
borrow their way to riches because there was no way
to lose in real estate. Well, real estate did reverse
itself and has been in a very deep slump that still
shows no signs of stabilizing. Lots of
these "investors" ended up losing their homes in a
rampant wave of foreclosures. Just like the internet
stocks back in the go go days you should remain very
wary of "can't lose" schemes out there.
Lots of these credit issues spooked the market
throughout the year and there were more than a dozen
one-day drops of more than 2 percent. The regular
days of mild volatility of past years were not present in
2007 at all. Still, the markets were doing very well for
the first half of the year when the first signs of credit
problems appeared in the summer. I quote a local
business writer who described 2007 as "It started out
with the earnest hopes for a good time, soared to
artificially induced highs, then stumbled into the gutter,
only to wander home in confusion and wake up hung
over and pretty much where it started".
As far as your specific investment portfolio, my take on
continuing to have a very healthy exposure to
International stocks continued to pay good dividends.
The exposure to mid cap and small cap stocks did not
help this year as much as it has done over the past
five years and that is understandable. Absolute
performance in 2007 was nothing to write home about
but considering the circumstances and the fact that
every client beat the S&P 500 with much less risk is
comforting.
It is still remarkable that we are now in a fifth straight
positive year for the broad stock markets! One of
these years we will have a negative year and it will be
great to position your investment portfolios to have
another big run up, just like we did in those down
years of 2001 and 2002 which resulted in some huge
gains in 2003 that we are still digesting.
And now some of the same themes I have been
saying over and over again:
The beauty of having a diversified portfolio is that we
will capture most of the upside. The REAL beauty of
having a diversified portfolio comes when all hell
breaks lose we will simply not lose as much as
everyone else! Just like in the bubble years of the late
nineties, your results were not at the top of the best
performing equity asset class. If they were, that would
mean that I had everything in international stocks
because my crystal ball told me so. Sorry, I have no
crystal ball, no one does!
I like this quote: "Diversification is the price you pay for
not making a killing in exchange for not getting
killed".
Investing is not a sprint but a marathon. In fact, the
first week of 2008 has been very negative and the
numbers you see in your annual report are already
outdated.
What to expect in 2008? I have no idea. Expect
surprises as always and the only thing I can
guarantee for this year is that the markets will
fluctuate:-) Regardless, I will continue to manage your
money in the same disciplined manner and always do
the following:
· The asset allocation plan dictates the
investment moves we do ALWAYS, not the endless
noise coming from the media! Asset allocation plan =
diversification.
· We always watch to keep portfolio
expenses and taxes as low as feasibly possible
(utilizing very low cost index funds/ETFs, minimizing
trading costs, taking advantage of tax loss
opportunities through out the year, etc.)
· We rebalance at least twice a year, no
exceptions!
I will spend lots of time keeping your portfolios
properly diversified in very low cost funds, rebalancing
regularly, keeping turnover low and letting the chips
fall where they fall. I want to remind you that financial
markets do regularly go down unexpectedly and the
question is not if but when this will happen again.
Seeing a sixth consecutive up year is not common but
it is possible. Seeing a decline up to 30% is also
possible too! Again, anything is possible in the short
term; we ALWAYS take the long term approach and
stay disciplined and humbled. Let me worry about
this stuff and stick to my approach and you
concentrate on your family, career, hobbies,
spirituality, charity, etc. This is part of what you pay me
for anyway.
Thank you for allowing me the opportunity to be your
financial advisor, I really appreciate it. If there is
anything else I can do to help you out in any way
please never hesitate to ask.
Sincerely,
George
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| Gems |
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- Quote
"Too many people spend their health gaining wealth,
and then have to spend their wealth to regain their
health"" by A.J. Reb Materi
- Quote
"A simple comparison, based solely on U.S. financial
centers, makes the point. In 1957, the market value of
stocks in the S&P 500 had soared to $1.2 trillion and
the newly created S&P futures outstanding were
valued at $206 billion and S&P options at $232
million. But by the close of 2006, with the S&P 500
valued at $12 trillion, futures contracts on the Index
had reached $5 trillion and options contracts had
soared to $15 trillion, together an "expectations
market" valued at almost double the value of the "real
market itself "by John Bogle in his speech titled "Black
Monday and Black Swans" to the Risk Management
Association Conference on October 11,2007.
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