I have been so busy working with portfolios and research. I really have had no time to write a letter to our clients. My goals are to express our views, but time doesn’t always allow for such expression. Ultimately, our views are expressed in the composition of your portfolios. I have been immersed in various research and hopefully that research will produce future long time rewards for our clients. What follows is a letter, not yet reviewed in full, but still, after sitting on my desk for 5 weeks, at least I can deliver some thoughts to our clients.


May 12, 2005

We appreciate the continued confidence you are placing in our firm. Our intent is to always handle your investments with care, diligence and competence. This note will identify our current investment and portfolio thoughts. Please visit our website www.rbcpa.com for continued updates. If you do not have access to the web, please just call. We could always fax or mail you our recent writings.

If mid term interest rates rise, fixed income investments will fall in value. Please keep in mind that 10 year rates are relatively unchanged since Mr. Greenspan has started raising short-term rates. Over this same period, the discount rate has risen from 2.50% to 4.00%. We do not pretend to know where rates are going. With that said, we continue to focus on shorter-term durations and also focus on bonds of high credit quality. We will not time the market. Our fixed income exposure is at the lowest levels since our inception. You will notice that our fixed income components are traded in a more frequent manner than our core investments. This frequent trading of our fixed income investments is based on several reasons:

A. We see income opportunities elsewhere. This is often based on pricing
and our interpretation of value.

B. We often buy fixed income components as a temporary position. Typically
a fixed income investment will be sold in an effort to reallocate capital.

We have reduced our allocation to petroleum during this run up of oil prices. We were not comfortable with the current valuations of our oil holdings. We totally eliminated our long time position of Occidental Petroleum (OXY) during 2005. We would not be surprised to see OXY as a core holding once again in the future. We like the company, along with its management.

We are focused on a handful of companies. These companies often have strong fundamental financial structures. The companies often pay a dividend. We attempt to invest in companies where we trust the management. Often but not always, if our views of management turn negative, we will sell our position.

Currently, approximately 50% of our entire typical portfolio is made up of about 10 companies. If you would like to discuss our reasons for ownership, or any of your views on theses companies, please just let us know. When we invest in common stocks, we are typically long-term investors. We do not believe that we can predict short-term price movements of a company. Historically, we have bought companies during a period falling stock prices. Historically the price continues to go down during our “accumulation stage.” This is a text book value investor scenario of buying on bad news, or falling prices. Our typical allocation to common stocks is at its highest point since our inception.
We like to understand the fundamental aspects of a company we invest in. We like to project future earnings, cash flows and business continuity. We like to tear apart company’s financial statements. Much of this type of analysis is currently available on our website. We realize that our analysis is ever changing and we attempt to adjust to these changes. Generally the process is an adjustment of our mid-term to long-term valuations of these companies.

We continue to carry precious metals as a small part of most portfolios. Our precious metals allocations are also near our historic lows. This allocation is based on interpretation of value. The contrarian philosophy in our investment discipline has caused us to retreat from our previous overweight position in precious metals.

We often study the financials of a company extensively. We look to find potential areas of concern in the financials. We use our accounting background to attempt to formulate our financial statements analysis. We often continually look for errors in our analysis and our interpretations of value. We are not at all embarrassed or ashamed to admit errors.

Although investing with us has generally provided positive returns in a consistent fashion over the last 10 years, we are not immune to losses. We do not view portfolio declines as broken investing. We often view declines in prices of companies as a welcome event. While declines occur, your portfolio may be guilty of lack of performance, as well as generating negative returns. When this occurs our firms revenues will also decline.

I am currently reading a book to my 6 year old son. The book is about forest fires. The book explains how forest fires are often caused by nature. The book explains that natural forest fires are actually a fertilizer for future growth. We view value investing is a similar view.

We ask that our clients judge our performance over the long term. If you worked with us since 1995, you will recall that our approach to investing, as well as our philosophies, have not shifted over the years. We consider long term investing to be a 5-year or longer period. We plan on continuing to invest our monies in what we consider to be a value approach. We will continue to exercise doubt, scrutiny, responsibility and respect in our decisions.

Thank you very much for reading this letter. Please call or email us with any questions, comments, concerns or such.