Market Commentary

If You Are Going Through Hell

October 2008

"If you are going through hell, keep going." - Winston Churchill

We write in the wake of continuing strong declines in the U.S. and global stock markets. While we are glad to be focused on providing personal advice and management of your investments, we also want to reach out with our perspective on your investments and the markets to all of our clients. Hence another update letter to you explaining what we see and how it affects you.

It is clear that we are in a time where fundamental structural shifts in the economy and in the capital markets have occurred. The U.S. government and other governments have now announced their intent to become investors in various types of investments in order to bring order to markets and shore up businesses that, were they to fail, could create yet more investment and economic harm to their citizens. Investment banks are now under the umbrella of or have become commercial banks, and investors' appetite for risk is rapidly diminishing. A decline over many days and unprecedented volatility in the stock market have left stock investors fearful and panicked. Many clients have relayed to us their feeling of concern about their investments, their financial plans, and how this financial market-driven fear will change what is happening in the world and in people's lives.

What this means for your investments, frankly and obviously, is that the value of your investments has gone down in the past weeks. Over the past two years, we built your portfolios with increasing amounts of caution in mind. So, it is frustrating to know that while we expected a bumpy ride, and true to our goal, your portfolios are generally better off than the stock market indices, they are still down this year, when stocks of all kinds are getting trounced. We know it is not easy to watch the value of your portfolios decline significantly, even if you are better off than the overall market, and we consider your portfolio declines to be significant.

In this uncertain environment, we want to remind you of the ways we have built shock absorbers in your portfolio. First, your bond positions, which are tilted to high quality and towards near-term maturities, provide stability in this market. Also, your stock investments are concentrated predominantly in the hands of managers who have a track record of delivering better than index performance in down markets; some of them have fairly large cash positions inside the funds, which offers a second level of shock absorption. We continue to reshape client portfolios to emphasize these managers.

One thing that is important is to consider your long-term financial goals and to ask the questions you need to ask about their acheivability now that this decline has happened. Is your retirement secure and under what spending and investment circumstances? Should you revisit questions about education funding or the purchase or refinancing of a home? We stand ready to help you with these and other analyses that can help you get grounded in where you are financially and that can influence decisions that really matter to your life and your goals. Please be in touch with us about these questions.

We don't advocate making radical changes to your asset allocation at this time. While Jim Cramer and other financial market pundits are saying 'sell' on CNBC, we continue to think that your investments are best invested over the long term so that your assets can grow in a way that outstrips inflation and taxes. And while your portfolio is down, it is not out, and we think it is prudent to remain invested at this time, with the shock absorption we have built into the portfolio. We notice that the best investor in the world, the widely watched and imitated Warren Buffett, in the past month has invested $10 billion of his conglomerate Berkshire Hathaway's $18 billion cash hoard on three separate and quite large investments. We don't think this means the market will rally tomorrow, but we are in agreement with him that our economy and capital markets are resilient, that deliberate government action can mitigate economic slowdown, and that investing in stocks and real estate remains the best way to reap long-term investment gains.

If you would like to hear in some detail Warren Buffet's thinking on markets, listen to his interview with Charlie Rose on Thursday, October 1, 2012. While it is long, we found it to be a clear antidote to shorter-term reactions that are dominating the headlines.

We know this is a difficult and stressful time for you. We thank you for your trust in us and for the opportunity to serve you As always, please be in touch with any questions or concerns that you have.

This is a general assessment of client portfolios and does not reflect the specific circumstance of every client.

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