Issue 12 • May 2008 

May Newsletter

Does Investment Philosophy matter? And seeing both sides of the market.

In this issue we follow up on last months brief comparison of active vs. passive investment strategies along with some helpful advice on not following the media.

Investment Philosophy? :

I was listening to the radio recently when a caller phoned in to a Consumer talk show to discuss the beating she had taken in the market. This particular caller's investment account had dropped 20% from October 2007 to March 2008 (5 months). It got me thinking about my personal investment philosophies compared to the what consumers hear from other investment institutions and the media.

"Buy and Hold" & "Invest for the Long term", two phrases you have heard quite often as an investor and hear even more when the market is dropping. [How's this for a statistic: The S&P 500 index was 1111 on April 30,1998 and 10 years later closed at 1385 (yesterdays close) for a grand return of 2.23% per year]. My feeling is that most consumers hear this advice from their brokers because the brokers don't know any better. Let's face it, a lot of the folks in the investment business don't know of any other strategy. So their unfortunate clients are left without any real guidance or plan of attack.

My philosophy for managed accounts is that first and foremost clients deserve proactive communication. Clients need to understand what is happening in the market along with what our investment strategy should be. Should we be completely long biased? Should we hedge the account or build cash? Should we adjust our allocation? Instead of the typical "hang in there, your in it for the long term" response, my philosophy is that it's the advisors responsibility to be proactive with clients so that each has an investment plan.

Does it always work correctly? No, I am first to admit that sometimes investment strategies aren't perfect and biases toward market direction may be wrong. However, if at the end of the day each client feels like someone is proactively watching their accounts and looking for ways to help them make money, then investment philosophy does matter.

Herd Mentality:

I have long preached to anyone that will listen that the market is a leading indicator. Despite what the media reports or what the analysts and economists say, the market has already priced in the information. How much doom and gloom has been reported in the news, magazines and by so-called experts over the past 6 weeks? Over that same period the market has risen. Why? The stock market is a leading indicator. It prices in bad news before it hits the nightly news and it rebounds long before any good news gets reported.

I contrast the rise in the market amidst the bad economic reports with the saturation of the media by folks saying gold is going to $2000. After gold had risen 50% the guru's came out of the woodwork telling folks buy - buy- buy this year! And that was with gold trading at $950 to $1000 an ounce. Now those same gurus are telling folks hold on it's just a correction as gold quickly drops 20%. Can gold go to $2000? Maybe. But the moral of the story is don't chase a sector that has already run up so fast. If everyone on television is saying the same thing, be careful.

Have you visited myVizer yet?

Check out the weblink above for helpful calculators, articles and links that I update weekly. It's all about financial education.

James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.

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