October 10, 2008

Dear Clients and Friends,

As we endure these trying times in the midst of financial upheaval, and as the stock and fixed income markets continue to decline and questions arise about the health of financial systems around the world, we thought it appropriate to send a brief summary of our current ideas. We write this knowing that you are feeling stress as you look at your accounts and read or hear press reports that are negative and note how poorly the economy is performing.

It is amazing that money market funds needed to issue statements asking investors for confidence and that the Federal Deposit Insurance Corporation had to set up a website for individuals explaining insurance coverage ( http://www.myfdicinsurance.gov ). In addition, the federal government (i.e., the taxpayers) had to rescue banks, mortgage entities and insurance companies. It is stunning to see that at the close on October 9, 2008 the S&P 500 index was down 41.9% from its high reached in October 2007 and down 29.1% from the beginning of September, just 6 weeks ago. Alan Greenspan noted that this crisis was a “once in one hundred year event” and a guest on CNBC noted that these events proved that “the unthinkable is now thinkable.”

Many clients and friends have recently asked about any changes in our investment approach and whether this is a time to invest further or to move into cash. We have kept our long-term philosophy and believe that the companies and the fixed income holdings in the portfolio are excellent investments that have been caught in these trying economic times. Assuming that you have a similar long-term philosophy, and can tolerate potential, and hopefully only, temporary losses, this has the potential to be a wonderful time to invest. We think the portfolios remain balanced with both common stocks and fixed income vehicles. “I think, but don’t promise, things will get better. This very well could be a great time to be invested, and we have money balanced in fixed income for deployment.” is an excerpt from a recent note to a friend/client.

“Be fearful when others are greedy and greedy when others are fearful” is one of our favorite investment philosophies. That statement was made by Warren Buffett. We were heartened to hear Mr. Buffett speaking last week and noting that he thinks we may look back in five or ten years and not believe the great bargains currently available. He also indicated that he could not be sure that there would not be greater bargains next month or six months from now and no one could tell you when the bottom was going to occur. As you may have read, he recently invested $3 billion in General Electric and $5 billion in Goldman Sachs.

In his book, Super Money, ‘Adam Smith’ noted that among the things Warren Buffett wrote to his partners each year was that he could not promise results. He could promise that investments were chosen on the basis of value and not popularity and that he attempted to keep the risk of permanent capital loss (not short-term “quotational” loss) to a minimum.

We continue to research and read. We are seeing individual stocks trade at extremely low levels and we think the current situation is presenting investors with a tremendous opportunity to invest in great companies. We agree with Seth Klarman, a well-respected value investor, who recently noted that as the market descends there will be tempting opportunities and an investor needs to sort out the true bargains from the value impostors. He said that many investors look to pull out of the market and wait for a clear signal of change but it is critical to remind your clients, investment team and, as often as necessary, yourself that only the investment process and approach can be controlled. Understand that you cannot control or forecast the short-term vagaries of the stock market. Invest in what you believe and what your research dictates. Notes to the conference we recently listened to can be located on our website Seth Klarman at Columbia Business School Conference

It seems as if logical thinking has been thrown to the side and fear has overtaken the financial markets. John Bogle, the former chairman of Vanguard, referred to the current environment as the end of speculation. It is at these times when it is important to focus on the fundamentals and look at the present opportunities. Historically, the best time to buy is when most have given up.

We encourage you to view the links below as they are reflective of our views. This first is a link of Vanguard’s John Bogle speaking recently:


As always, we are available to discuss your concerns.

Very truly yours,



Ronald R. Redfield, CPA, PFS                                         John O’Shaughnessy, CPA