March 3, 2009                                                     Keeping in touch during a difficult economic period

Investors across the globe are having incredible concerns about the economy and their portfolios. A question we have heard is, “I previously asked you, when are we getting out of this mess? Is 3% on a CD not better than losing 3% a day in this mess? Warren Buffett says this market will be in shambles for a long time.”

Each situation is different and please do not interpret this note as specific investment advice. We are merely putting a note out so clients are familiar with our thinking.

Our plan is to continue to invest in quality investments for the long-term, allocated to stocks and fixed-income securities, as we continue to avoid the noise and emotions of the times. We are not “waiting for a better time” to invest. We believe that most of our investments are well capitalized companies that we think are severely undervalued. Is the bottom now? We don’t know. In theory, the markets could go lower. In time, we wouldn’t be surprised to see our investments selling at substantially higher prices than they are now. Until then, their dividends remain at levels that are typically in excess of current CD rates.

We are maintaining our focus, and are continuing to use the same long-term value principles that we have practiced for many years. We continue to be diligent in our studies of both company specific and economic events. We continue to study The Great Depression, past bear markets, the current situation and our companies. We can only control our value process and approach. We can not control or forecast the market over the short term.

Buffett did not say in his 2008 annual letter, “this market will be in shambles for a long time.” He said, “We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.”

We believe we own companies that will survive and thrive. Many of these companies currently have strong balance sheets that we expect will allow them to weather this financial storm. To answer the question mentioned above, we don’t know when we are “getting out of this mess.” We think, yet do not promise, that it is a great time to invest. Buffett continues to invest and, as always, is not timing the market. He discussed in his annual letter, that he expects treasury bonds to be the next bubble. Here is an excerpt from his 2008 letter:
“When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning close to nothing and will surely find its purchasing power eroded over time.

Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns.” Here is a link to his letter

We are doing the best we can for you. If you want to come in or speak on the phone, please let us know. We will be happy to address any of your concerns or thoughts. We realize how large a responsibility we have. We fully understand and feel your concerns and fears.



Ron Redfield                                                                       John O’Shaughnessy

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