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The formula for success is simple: practice and concentration then more practice and more concentration. — Babe Didrikson Zaharias Hey Folks, Happy holidays! You all sure don't need me to tell you that we are in some crazy times (New Year's Resolution #1-speak more plainly). The incredible breadth of items in the news has many investors' heads spinning. I figured that instead of rehashing all of the details here (New Year's Resolution #2-improve time management), I would tell you that you can call or email me with your questions concerning the economy, the markets, or investing, and I will do my best to answer them. I can promise you that I will NOT have all the answers. (New Year's Resolution #3-Realize that NO ONE has all the answers!) I'll venture to say, however, that I bet I can help. It is certainly no stretch to call the investing/tax- management/retirement funding/estate planning/paying for college world a complex place these days! My phone number is (252)480-9535, email will@darecapital.com. I may include selected questions (with the names changed, of course) in future newsletters. I hope that you're working on ways that you can improve yourself for 2003. (Heck, we all can use some improvement!) One of the ways that I am going to improve myself is by passing along well-written observations from others in the investment and/or life planning communities, as opposed to feeling that I have to write all of my content myself. (New Year's Resolution #4-try to temper my inner perfectionist when it's appropriate to do so.) I do not receive any compensation from these providers, and their inclusion in this newsletter does not constitute an endorsement of them as qualified investment advisors. I simply want to pass along timely and relevant observations from material that I read in the interest of helping my readers gather investment knowledge. Excerpts will be credited to the author and a web link or phone number for the author's firm or business will be listed. Also, please take an extra minute over the holidays to say a quiet word for our leaders, our armed forces, and our country. In this issue: 1. Market Metrics
Chart is courtesy of and with thanks to Fixed Income Securities and Stone and McCarthy 2. Excerpts from Portfolio Manager’s Diary by Robert Loest. Robert Loest, Ph.D., CFA, is the manager of the IPS Millennium Fund. I do not currently use him as an investment manager, but I very much enjoy his economic commentary. He is a growth manager and is more bullish than I am at this point, but is always worth a read. The excerpt below is from the December 21 Portfolio Manager Diary. The IPS website is www.ipsfunds.com What's Ahead For 2003? I have stressed several times recently that the Oct. - Nov. rally doesn't show any signs yet of broadening out into a genuine bull market, that recent rallies have been driven primarily by short covering in money losing, risky companies, and that we have continued to be cautious. While that's true, the earliest stage of a new bull market is indistinguishable from a bear market head-fake. These both are typified by a far stronger rally in the riskiest companies compared with well-run, profitable companies. We will know that it has become a legitimate new bull market when the rally broadens out into well-managed companies, and begins to make distinctions between well-run, profitable companies in the highly risky stocks, and those that are not either profitable or growing. We have not yet seen this, but it doesn't mean it won't happen. Eventually, of course, it will. The question is, when is "eventually?" We will go into a lot more detail about the historic precedents and performance statistics from various comparable periods in history in our 2002 Annual Report to you soon, but the unassailable fact is that as far as we have good data, there has never been a 4-year bear market in stocks. In bonds, yes; stocks no. If we have a bear market in 2003, it will be the first time (probably - some data is missing for the early and mid-1800s) since the beginning of the Industrial Revolution in 1800. While there are other more fundamental factors we believe make stocks cheap here, like outrageous free cash flow yields for some very good companies that are in the teens as a percentage yield on the current stock price, history alone provides us with a pretty compelling one. Millennium Fund is now fully invested... This is up from about 70/30 a few months ago. We will continue to shift assets to the aggressive end of the barbell over the next few months as opportunity offers, and as we see evidence that the rally is rewarding and broadening out into well-run companies. History offers few examples during structural recessions and bear markets of 'normal' returns. Whether you look at the extended structural recessions of the 1870s, the 1930s or the 1970s, returns for any particular year are almost always either very high or very low. There was only one year from 1930 - 1946, for instance, where returns were not either awful or fantastic. There is extraordinary volatility year-to-year during such periods. Crashes of the magnitude and duration we have recently experienced have always been followed by monster bull markets. While I can't predict one for certain this time, if it doesn't happen in 2003, it will be the first time in the history of the Industrial Revolution that it hasn't.... We have had a very hard 30 months or so of the worst bear market in the post-Depression era. I have been fairly pessimistic about what this means for the decade in which we find ourselves, which comes hard for me because I'm an optimist on human nature, history and the (more or less) steady progress of technology and living standards. Nevertheless, we are due for an extended period of some very good stock market returns, or history is worthless as a guide, and my education has been wasted. And that I am not willing to believe. RS 3. Let's Manage Our Emotional Assets Well In 2003 -- By Tobin Smith Tobin Smith is president of ChangeWave Investment Strategies, www.changewave.com. He is also a regular on the Fox Network's '"Bulls and Bears" show. This article came from his firm's December 23rd e-newsletter. I am just scratching the surface of Mr. Smith's prodigious investment-related writings. I am impressed with some of what I've read. The article excerpted below seems especially appropriate for year-end. Long-time...subscribers are familiar with an idea I call "emotional asset management." The theory is simple: I believe that when it comes to the amounts of fulfillment and "happiness" we desire for our lives, our time and energy is better spent accumulating and managing what I call the "emotional assets" of life rather than the singular pursuit of financial assets. I've come to believe that the same principles of asset management we use to grow our financial assets apply to the prime source of our overall well-being -- our emotional assets. After 25 years of working with (many wealthy) people, I've learned one lesson above all others. When it comes to what psychologists call "subjective well-being" (read:one's overall state of happiness), it is the emotional assets of our lives -- the people (including ourselves) that we love and love us, the passions we discover and pursue, the things in our lives that bring us joy, and the professions we love and practice --that actually deliver the joy and genuine fulfillment of spirit and heart we call happiness. When it comes to actual real-life matters, your accumulation and stewardship of your financial assets only plays only a minor role. It's the "dividends" you receive from your emotional assets that feed your level of fulfillment, joy and happiness in life. Based on the behavior I observe in my weekly travels, this paradox of wealth is not well understood. For example, most people believe the Bible says, "Money is the root of all evil." It does not. The actual verse in 1 Timothy 6:10 says, "The LOVE of money is the root of all evil." To me the love of money causes people to neglect and poorly manage their emotional assets to the detriment of their happiness. My observations find that the phenomenon of financial wealth accompanied by emotional bankruptcy repeats itself over and over again. Without the development of emotional wealth or assets equal to or in excess of one's financial wealth, there is no happiness -- only stuff. For so many people I observe, this basic principle of life -- that it's the exertion, the challenge, the PROCESS of getting rich that delivers the happiness, not the money itself --was somehow missed. My empirical evidence and curiosity in this subject is not without support. Over the last few years a whole group of scholars, psychologists and neurobiologists have pursued the study of what makes people happy under the overall scope of "hedonic psychology" -- the study of what makes people happy. Hedonic research into identical twins, lottery winners, the formerly poor, and thousands of people over decades comes to the same conclusion -- money correlates to happiness about as powerfully as good looks and intelligence. In other words, not much. That money correlates to happiness so weakly compared to VERY strong correlations -- like marriage (very high), friends, community support, free time, church going, helping others and, my personal favorite, dancing -- should not be a surprise to anyone who has spent any amount of time around the rich. The point of all this? Take some time this week and think about your emotional asset portfolio, not only your financial one. Think about the amount of "dividends" or joyful, fulfilling things that come into your life on a regular basis. Do you have enough emotional assets to keep those dividends coming? Are you investing enough time and resources into your emotional assets? Could you get more dividends out of your emotional asset "portfolio" if you eliminated some and replaced poor earning emotional assets with high return emotional assets? I find this is a very refreshing way to look at one's life around the holidays. Using the familiar context of business or asset management to look at our non-financial or business lives is a quick (and sometimes painful) way to see where we are deficient in our emotional wealth. Without a doubt, 2003 is going to be a great year to become a better emotional wealth manager. Of one thing I'm convinced: The better you and I get at managing our emotional assets, the happier and more fulfilling our lives will become. T.S. 4. Charts:
Good investing, Will W. Woodard, III, CFP® Will Woodard is president of Dare Capital Management and Advisory, an independent Registered Investment Advisor and fee-only financial planning firm based in Kill Devil Hills, NC. Will's firm specializes in independent, impartial, objective, and professional financial advice. He, his firm, or his clients may own the investments mentioned herein. The fine print: This newsletter can be reprinted or forwarded--however, it is requested that reprints of any material in this newsletter include credit to Dare Capital Management and Advisory (252)480-9535 and an email link to will@darecapital.com. Thanks for spreading the word! All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Will W. Woodard, III and Dare Capital Management and Advisory, and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. The information presented herein and on the company's web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future results may vary for many reasons. To unsubscribe, hit "reply" on your browser and type "unsubscribe" on the subject line. |
