Investor's Corner Newsletter

By Will W. Woodard, III, CFP®
President, Dare Capital Management & Advisory
August 5, 2005

"If you don't know where you are going, you will wind up somewhere else."     Yogi Berra

Model Portfolios update
Talking Points-Common Investor Psychology Mistakes
Charts-S&P 500, Ten year Treasury note
Worthwhile Links

Model Portfolio Update-The model portfolios that I track on an ongoing basis performed as follows from inception date of 1/15/03 through 8/04/05. (Note: portfolio data is compiled using Morningstar resources. All data includes reinvested dividends and, if applicable, capital gains)

*2003 data is from 1/15/03
**trailing 12 month yield=4.08%

Well, now-hasn't this been a nice few months in the markets? After reviewing my April 30 article, I realize I sounded pretty pessimistic-just the nature of writing a "snapshot in time" column against an ever-changing market backdrop, I guess. And--make no mistake about it--the tone in late April was pretty somber. I recall a couple of Thursday afternoons when there wasn't a buyer in sight! Fortunately, the underlying trend in economic output data has been stronger than anticipated, while inflation data has come in more benign than expected. Those Thursday afternoons turned out to be a short-term bottom, and a healthy market rally ensued.

Reflecting on the immediate perception and, later, the ultimate reality of the April situation got me thinking about humans' inherent frailties as decision makers. Specifically, I was able to identify five common mistakes involving human nature and/or psychology that all investors make at some time or another. The market is a great teacher--these have been learned or passed along over years of investing and certainly just scratch the surface of the topic. See if you recognize any of these in your portfolios!

1. Trying to flip in and out of the market in order to beat the market
2. Arguing with the market
3. Playing "Woulda, coulda, shoulda"
4. Assuming that a stock is a good value simply because it is cheap
5. Buying something simply because it is going up

1. Trying to flip in and out of the market in order to beat the market looks deceptively easy because it plays to investors' selective memories in several ways. It seems easy because we only remember the market calls that we got right--all of the wrong calls just conveniently vanish from our psyches. More important, every sell decision results in cash on the sidelines, necessitating making another buy decision or missing a market move. Forcing more decisions on an investor makes it harder for the investor to win--just ask the casino industry. Maybe poll the sidelines crowd as to how they feel about being in cash while the market has rallied the last several months, while you're at it.

2. Arguing with the market can play out in several ways as well. One common example of this is holding on to a stock that has lost significant value because it was bought higher and we simply don't want to admit that we were wrong. Thus, we are willing to forego better moneymaking opportunities to try to and recoup our initial investment in the fallen company. Ask owners of Lucent Technologies (LU) and Nortel Networks (NT) how this is working, as those stocks languish below $3 a share.

3. Playing "Woulda, coulda, shoulda" is so popular that it could serve as some folks' de facto avocations (Don't believe me? Ask anyone within earshot about the price and availability of oceanfront land on the Northern Outer Banks in the early 80's, then sit back and nod your head!) Every investment decision allows us the opportunity to learn and grow, but there is just no place for rejiggering old decisions in one's mind in order to affect a different outcome. Simply put, it's a complete waste of time-learn from the decision and move on!

4. Assuming that a stock is a good value simply because it is cheap can be a costly mistake. For every fallen angel that may actually pull a turnaround (Goodyear Tire (GT) at $7 a share in March of 2004 comes to mind-now trading at over $18) there are plenty of cheap stocks that are heading for obscurity or even bankruptcy. Does the market misprice stocks? Absolutely! Is a stock worthy of your investment capital simply because it is cheap? Absolutely not!

5. Buying a stock simply because it is going up plays to several emotions-desire to be part of the "in" group and fear of missing out/being left behind among them. A stock that is in a clear uptrend attracts momentum investors who will pile in to the stock, only to pile out at a moment's notice. The resulting trading swings can put a longer-term investor's position into the red quickly. Tread lightly in momentum plays!

Charts:

S&P 500:

10 Year Treasury note:

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/

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 www.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.

Copyright 2004 Dare Capital Management and Advisory-all rights reserved.