January 4, 2008
Happy New Year.
I wanted to share with you an email I have sent several clients in regards to their investment portfolios that we manage. We typically underperformed the major markets in 2007. We are solely long term investors, and as we have let you know for such a long time, we do not concern ourselves with short term performance. We hope to be sending you our annual letter within the next month or so.
Here are some quick thoughts:
1. Legg Mason Value Trust, managed by legendary Bill Miller has been a consistent index beating investment over the last decade plus. During 2007, Legg Mason Value Trust had a losing year.
2. Berkshire Hathaway’s stock price stayed at the same price from around June 1998 through November 2003. For over 5 years Berkshire was “dead money.” Yet, Berkshire was not broken. Berkshire can not control their share price, but they can control their operations. We are no different.
3. We finished the year with performance results after fees as follows (these are estimates as we are still tabulating, but probably fairly close):
|4.00% (+/- 3%ish)
|Tax Deferred Accounts
|(3.00%) (+/- 3%ish)
Our 5 year and longer performances have not yet been computed. I expect that our long term annualized performances for 5 and 10 year and longer to be the following for the period ended December 31, 2007
|Tax Deferred Accounts
The following are some excerpts from recent responses to a few client inquiries. The results vary in all portfolios, but the theme is probably quite close to your portfolio if you have been with us for over 3 years.
It looks like your portfolios closed the year down around 4.50%. We will be sending you performance reports later this month. Since you joined us it looks like your portfolios have gained an annualized return of around 16.50%. Please keep in mind that past performance is not necessarily indicative of future results.
We wish we made money last year, but we are only long term oriented, and all we can say is that we are doing the best we can. We do not think anything is broken in your portfolio. Even Bill Miller from Legg Mason Value had a losing year.
The following are some excerpts from various correspondences we have sent which bring light to our long term strategy:
1. We are only long term minded, as is evident by the following comments.
a. 2006_01_20.html We wrote, “Patience – portfolios, like children, take time to nurture. We are typically purchasing investments, which are being shunned by Wall Street. Examples of these types of purchases during 2005 included Pfizer, Merck and AIG.” We also wrote , “Drops in share prices are welcome – We prefer to have the prices of our shares that we are accumulating to be dropping and not rising. Keep in mind; we typically follow the companies that you own rather closely. If the share prices of any of these companies was to materially decline , we would probably look to increase our positions in these companies. We would welcome a market drop in the same fashion that a skier welcomes the winter snow. We hope that you all will be able to tolerate the psychological difficulties of bear markets. If you feel you will have difficulty with that philosophy, please call me, IMMEDIATELY.” “We are focused on the long term. – Again, we are not concerned with short-term performance. Our portfolios should be judged by performance of at least 3 – 5 years. We are focused on portfolio positioning and not short-term portfolio performance.”
b. We reiterated such at our 2006 conference (we do plan on having a 2008 conference) 2006_09_14.html
c. From our 2007 January letter, https://www.rbcpa.com/2007_01_11.html “Your portfolio is designed for the long-term. We should not be judged by short-term performance. A portfolio should be judged by a minimum of 3 years, and realistically, 5 years. It is our opinion that we should be compared to “Balanced Funds.” We have included performance results of two balanced funds, along with other comparative indexes, in your reports.
It is very possible, and at some point expected, that we will have a year, or a period of years, where we not only under perform comparative indexes, but also lose money at the same time.”
2. In our July 2007 letter we reiterated our long term approach. 2007_07_13_.html Here are some excerpts: “We take a long-term approach to investing. Our clients should not judge our performance for at least 3 to 5 years. We are value investors. We are typically buying investments that are being dumped by Wall Street. Since we are typically buying investments as they are dropping in price, our performance in the early years is often going to under perform other investments. We certainly suggest that our clients immediately judge us based on portfolio composition and philosophy. We welcome questions and comments on the investments and our approach. We are focused on portfolio positioning and not short-term portfolio performance. Warren Buffett wrote in a letter dated January 18, 1964 (appendix page 6), “It is to our advantage to have securities do nothing price wise for months, or perhaps years, while we are buying them. This points up the need to measure our results over an adequate period of time. We suggest three years at a minimum.”
We have no promises for the future, other than we will do our best on all accounts we handle.
This is your money, and we insist, no need to walk on eggshells with us or any financial advisor. We very much realize and respect the fiduciary responsibility we have to you and all of our clients.
Ronald R. Redfield cpa, pfs
Redfield, Blonsky & Co. LLC
15 North Union Avenue
Cranford, NJ 07016-1103
908 276 7226 phone
908 276 7274 fax