Investor's Corner for February 28, 2005

Investor's Corner Newsletter

By Will W. Woodard, III, CFP®
President, Dare Capital Management & Advisory
February 28, 2005

"This was supposed to be "The Summer of George!" ...Jason Alexander, "Seinfeld"

In this newsletter:

Model Portfolios update

Investment themes for 2005

Charts-S&P 500, Ten year Treasury note

Global equity markets ended 2004 on an upbeat note, with the US market putting together a double-digit rally in the last seven weeks of the year. 2005 has started cautiously--as investors weigh the benefits of being invested in equities (owning pieces of very good businesses, attractive tax treatment for qualifying stock dividends and long-term capital gains) versus the potential pitfalls of such an investment strategy (possible slower corporate growth in the months ahead, global unrest, and the effects of high gas and commodities prices on the economy).

So far in 2005, investor sentiment has swung around fairly dramatically--the "highs" of news like the successful Iraqi vote being countered with "lows"-data that seemed to indicate higher inflation for the US economy. As for the opening quote, President George W. Bush has a bit of political capital having been re-elected-it will be interesting to see how he attempts to "invest" it, and how that "investment" will affect financial markets. Stay tuned!

Model Portfolios Update:

As regular readers know, I keep track of several different model portfolios-thereby allowing various investment themes to be tracked over time. The portfolios were initiated on January 15, 2003, tracked through February 28, 2005, and all include reinvested dividends.

The best performing of the model portfolios was the Gibson-Woodard "Modified" Portfolio, with a cumulative return of 60.03% over the reporting period, versus 35.22% for the S&P 500 over the same time frame. Strong international equity returns (due in part to the strength of international currencies against the US dollar) as well as commodities, real estate investment trust (REIT) and smaller company exposure fueled the portfolio's results. Interestingly, the S&P 500 index (representing US large capitalization companies) was the weakest-performing component of the portfolio over the time frame.

The Gibson "Pure" Portfolio returned 52.69% over the period. While not having access to several of the hottest market sectors that the Modified Portfolio had, the Gibson "Pure" nonetheless rode favorable conditions in its component markets to a nice gain-besting the S&P by over 17%.

The Challenge Portfolio--an individual stock portfolio built in response to an "Outperform the S&P 500 if you dare" challenge by a fellow investment advisor--returned 41.72% over the reporting period. Exposure to a select number of smaller market capitalization companies, basic materials ownership, and a value orientation helped the portfolio outperform. (Side note-Something like 90% of the actively-managed mutual fund universe DOES NOT beat the S&P 500 over time!)

Finally, the Bond Fund Portfolio returned 9.16% over the reporting period.

Investment Themes for 2005:

Preparation and hard work play important roles in success throughout life. Investment success is certainly no different! Here are some themes to for investors to consider in 2005:

Finding fundamental value - Simply put, pay attention to the price you pay for an investment. We are not in a "rising tide lifts all boats" market. Professional investors are being very picky about the prices they're paying for their investments--you should be, too.

Focusing on earnings growth - A company's ability to grow its earnings is very important in any market, but especially so in the current environment. Companies where sales and earnings growth is decelerating or problematic are going to have their share prices pounded, so it will be critical to pay attention to trends in sales and earnings for the companies that you own.

Realizing that "the trend may be your friend" - Energy, basic materials, and commodities stocks have recently been very strong. It may be worth following the institutional money flow and hitching a ride on selected issues in those sectors. Pay attention to price paid, however, and recognize that popular sectors of the market can be subject to more emotional momentum other areas. Tread carefully!

Understanding market psychology/thinking "outside the box" - Astute investors recognize that financial markets frequently do whatever they can to make the most people wrong at any given point in time. Market attitudes tend to swing too far to the bullish side, overshoot, correct, swing too far to the bearish side, overshoot, correct, repeat. It's just part of how the whole crazy market works.

Consequently, market professionals constantly monitor investor sentiment, looking for tradable emotional extremes. I cringed when confronted with a late 2004 parade of brokerage house talking heads on financial TV telling us how good a year 2005 was going to be in the stock market. One "market strategist" (and I use that term loosely) even went so far as to call 2005 "The Year of the Stock." We'll see about that….One thing is for sure--training oneself to selectively "Zig" when a market is emotionally "Zagging" can be a successful, and potentially profitable, strategy.

D. Charts

1. 10 Year Treasury note:

2. S&P 500:

4. Worthwhile links:

CERTIFIED FINANCIAL PLANNER™ Board of Standards - http://www.cfp.net/default.asp

NAPFA, the National Association of Personal Financial Advisors - http://www.napfa.org/

The Financial Planning Association - http://www.fpanet.org/public

The FPA's Hampton Roads chapter - http://www.fpahamptonroads.com/

Dare Capital Management & Advisory home page - http://www.darecapital.com/

Go Tarheels!

Will W. Woodard, III, CFP®
Dare Capital Management and Advisory
PO Box 1138
Kill Devil Hills, NC 27948-1138
252.480.0156
will@darecapital.com
www.darecapital.com

Will W. Woodard, III, CFP® is president of Dare Capital Management & Advisory, a Registered Investment Advisor and fee-only financial planning firm with offices at 2518 S. Croatan Hwy, Suite E, Nags Head, NC 27959. Dare Capital Management & Advisory offers ongoing investment management services and fee-only financial planning. Mr. Woodard, his firm, or his clients may own the investments mentioned herein. Contact Will at (252) 480-0156 or learn more about the firm at Will@darecapital.com

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)480-0156 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. Mr. Woodard, his firm, or his clients may own the investments discussed in this newsletter. Past performance is no guarantee of future returns.

The information presented herein and 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.