May 4, 2004
Below are some fairly recent emails we have sent to clients. By recent, I mean within this year.

The following sequence is quite long, but I think it would give you an opportunity to further explore our firm and our investment philosophies. The email is links and some recent discussions on our views of the financial world. I have included a series of recent emails, which discusses our views to clients and prospective clients.

Hi ,

Very quick, personal update.

Portfolios are taking a nice shiner. Can’t say when it will end, but it looks like interest rates will rise, which will cause portfolio to look closer to the 98/99 year.

some quick thoughts.

1. higher interest rates, ultimately good for you. you will get more dividends and interest. yet, remember when you gave your son painful medicine, it was probably hard for him to realize that it was good for him (think peroxide on an infected cut).

2. your portfolio is down 4.65% for the year. not great, not awful.

3. you are exposed to stock market, net about 19%, excluding precious metals and utilities. I like that exposure.

4. global incomes and fixed income taking a hit. interest rates rising and discounts widening. we like big discounts in fixed income, as we will be scooping up as others panic. no need to be concerned as credit qualities are high, and maturities are low. that is a nice recipe for tumultuous markets.

5. Precious metals getting creamed. Yet, for now we keep them. I like having a safe haven, just in case. kind of like an insurance policy.

Any questions, please call or email. I’m sorry for poor grammar and lack of capitals. I hope you don’t mind.

On a positive note, my research has never been greater. just a confusing time. For info, read as much as you can about Warren Buffett. He doesn’t know it, but he and his partner Charlie have been long time mentors. they both tell it like they see it, and both are incredibly intelligent.

Family is great ! I’m coaching my little guy (Dylan who is 5) in Soccer and t-ball. Our soccer team is looking great for kindergarten kids. We have them focused on passing and not bunching up. We did that with my daughter when she was younger and she now consistently has assists on here travel team (that is when you pass and it leads to a score). We really stress that passing and not bunching up is very important. Dylan is 5 and his favorite sport is Tae Kwon Do. He is now a yellow belt. Even their dad is keeping in shape 🙂 I have been running for close to a year now. I have been running anywhere from 4 to 12 miles at a shot. Hope to do a 1/2 marathon before the end of summer, and if I keep it up, maybe a marathon within the next year 🙂 . I was certainly inspired by my sister and brother-in-law in that area 🙂

Be well,


Any questions, please let me know.

I hope to hear from you soon.



They responded last night :

Hi, Ron:

So, you heard our mental wheels turning and sent your reassuring missive, just as we needed it! Last night I was thinking about our portfolio in January as compared to now and it is a big reduction. I will definitely panic once our numbers go under 300,000. Hopefully Greenspan (it might be tomorrow?) will go ahead and raise interest rates. In any case, thank you for your analysis of our portfolio at this particular time – I’ve printed it out and will keep looking at it.

It was great hearing about Dylan at only 5 years old and in soccer and Tae Kwan Do!
Good for you, too, with your running. They say there is nothing better for a person. Believe me, the years from 40 to 50 go by in a flash and suddenly 60 gets close, so its good you’re not waiting until “later” to do things.

We are fine, but busy. I’m off to Portland early tomorrow morning and back on Saturday. Mr. John Doe will be going to Japan any day now to help his only niece close down and sell her home. He’ll probably be with her about three weeks. is there anything you and Kim, or the children would like from Tokyo?

All the best,
Mrs. John Doe


What was 98/99…..I thought that wasn’t a very good time?


I wrote back last night:

Hi Mrs. John Doe,

writing from home. thanks for the really nice words. Just a few things.

1. Please don’t panic based on portfolio value. Even cds are getting hit now, so please, remain patient.

2. don’t forget that rising interest rates are good for long term performance of your portfolio. If rates rise, your portfolio will probably reduce in value over short to mid term. we cant time these things, so just let it be and ride it like a surfer rides a rough wave.

3. your next email mentioned 98/99. Yes, those were difficult years, just like it is now.

4. please be thankful that we got the cushion of excessive gains from last year.

5. you never know what fed will do, but i certainly dont expect a rise in rates tomorrow. Incidently, short term rates have already been rising. Greenspan doesnt control all rates, just fed rates, yet they set the tone for all others.

thanks for the offer from Tokyo, but nothing we would need. thanks very much.

I hope you both enjoy your respective trips. Maybe Mr. John Doe could write about the Japan economy. as you are aware, we are invested somewhat in it, with APF.

I had once asked about Japanese land prices, and don’t remember you commenting on this graph.


Warmest regards,


They wrote back :

Hi, Ron:

Thanks again for the input and notes of caution.

We, in fact, looked again at your Japan Land sales graph just the other day. Tsuyoshi said it was just exactly correct…and even the lowest price on the graph is lower now. The housing market is all on the buyers’ side.

Best regards,
Mrs. John Doe

This is an email we sent to someone regarding notes we took from a conference with them on April 1, 2004.


It was nice to speak with you today. I look forward to our meeting on Wednesday, April 7th. I hope we can begin a mutually beneficial association.

The following are some notes I took and the items we discussed.

Quick conference with XXX

* 60 years old
* planning on retiring in a few months
* commercial real estate worth around 1.2m. we did not discuss if there was debt or not.
* few thousand in banks and 401ks
* has a profit sharing and pension plan at work. does not know expected benefit. has been there for 14 years. I advised to check with benefit department to see what benefits and options will be. I explained that lump sum is generally (but not always available) the way to go. Generally rolled over into an IRA. Other options, which are generally less desirable are monthly payments based on either retirees life, or life of retiree and spouse. I explained that we can help with that decsion.
* owns 2 businesses, looking for 3rd
* I suggested he search our site for the term “real estate”. explained that we are not experts, but to consider, only consider the possibility that real estate may be currently overvalued.
* will get severence of $50 to $60K
* has around $100 to 200K looking to consider investing.

Suggestions :

a. read around our site.
b. we will send investment book, explained at a minimum to read maybe 5 minutes worth. That would give him an idea of our philosophy and help him make a decision as to whether our philosophies mess with his.
c. explained that he should sit with several advisors, and only use one that he is comfortable with.

2. Here is a link to our contract. It has been slightly revised, but only in the wording of our fee. Our fee is 1% annually, or 1/4 of 1% every quarter.


The Following are a collection of recent emails and thoughts of ours. I thought it may be helpful to you in relation to real estate and your due diligence in researching our firm

a. Here is the article on real estate and some current thoughts I had mentioned to you. i will follow with another email, which will link you to some other information that may be helpful to you in making a decision. Please keep in mind that the portfolios I discuss below, are all successful portfolios. They have typical annualized returns in excess of 10% for the last 5 years, and last year made in excess of 50%. We do not guarantee that will continue.

1. Here is the most recent article I posted at our site. The article discusses a generic method of valuing real estate. I am not agreeing or disagreeing with Mr. Russell, but I found the article interesting. Of course, when people speak in generalities, there is great exposure to misinterpretation (ouch, I feel like I sound like chairman Al with such words). Anyway, here is the article : invindex.html

” February 9, 2004 Interesting Blurb from Richard Russell on simple formula for real estate investing.”

Now I want to say something about real estate. My father was in real estate all his life. Dad was a civil engineer, and prior to the Depression he was a builder. He knew building from the foundations to the elevators to the roofs to the electrical systems.. Then the Depression hit, and construction stopped dead. Nobody built a damn thing — wait, the government built post offices and roads, mainly to give people jobs.

During the Depression and afterwards, my father went into management. He managed building for Tishman Co. and these were all New York City Apartment houses — many on Park Avenue. In those days, times were was so tough that you had to negotiate a lease on an apartment. In other words, you had to sit down with a prospective tenant, and try to get him to sign on the dotted line. Believe me, it wasn’t easy, and my dad would often come home exhausted after getting someone to signs a one-year lease.

My father had a “formula” that he used when buying a house, any house. He insisted, “No matter what you buy, figure it’s going to cost you 10 percent to carry. That includes loss of interest on your the money you put down, property taxes, wear-and-tear, repairs, extras — your cost will ALWAYS come to 10 percent.” I’ve checked these figures over and over again, and my father war correct. When you buy real estate, think 10 percent!

Today in the WSJ there’s a group (with pictures) of five houses that are listed as rental and income properties. The first house is typical. It’s in Sanibel, Florida, a two bedroom condo — price $1,150,000. The house rents for $39,000 for the year. OK, so the house cost you $115,000 to carry (10%), and you pull in $39,000. Loss $76,000.

Russell conclusion — This is an income property? It’s selling at near three times what it’s worth as an investment, in my opinion. And this is typical of almost all real estate today.

You want your own home and a roof over your head that you can call your own? Fine, buy a house, own a house. But if you think you’re getting a bargain today, forget it. Houses, like stocks, are overpriced. Period. The only economic reason to buy a house today is the thesis that inflation will bail you out. The only thing I don’t like about that reasoning is that the public has swallowed it hook, line and sinker. Too many people own homes today and far too many own them along with fat mortgages.”

3. The following are excerpts from several emails last week to a client. The client is an excellent person. He seems focused on short term results (and ours have been excellent), yet we try to educate our clients to look at long term performance (at least 3 to 5 years), but to always look at portfolio structure and philosophy. Here are some excerpts :

A. ” Your portfolio is hardly immune to short term gyrations (both up and down). Our goal is to preserve your money so that it will be there in the later years. We are often buyers of situations when Wall Street is destroying these situations. For example, we have been buying precious metals and shorting Bed, Bath and Beyond, as the masses of investors have been doing the opposite. This is part of our value discipline. It is not guaranteed to work, but I believe our methods are prudent. “

B. ” Here are my recommendations:

1. try not to pay such close attention to the short term swings of the market. Focus instead on your allocation and portfolio discipline.

2. realize that your portfolio is not risk free, but is being monitored by the second. We do not sell positions because they are dropping in price. We buy or sell positions based on our interpretation of long term value or lack thereof.

3. keep in touch with questions or concerns.”

C. ” Again, I want to thank you for contacting me regarding your concerns of fluctuation from January 20 through Feb 4, 2004. As I have always told you, I am not at all concerned with short term performance and I don’t focus on such. Nevertheless, your concern was the catalyst for a very rewarding exercise in my managing of portfolios. I would like to elaborate on some items that I feel are appropriate for the situation.

1. I attached your portfolios valued as of the close yesterday. As I have mentioned , and as you have witnessed over the last few months, we have been trimming our portfolios of common stock exposure. As much as clients don’t like hearing anything negative, I remain concerned with the financial infrastructure of the United States, and also most other developed countries. Hence, while I have that concern, I try to limit our risks and attempt to set up anchors for such possibilities. What have we done in your portfolio and all of our portfolios for that situation ? Here are some answers and observations.

A. We have built up a precious metals position. If world currencies are in fact week and potentially structurally unsound, precious metals have been a constant reminder of intrinsic value. Over time precious metals has always been the foundation behind currencies, but over the years as the printing presses of the currencies print money quickly, the currencies have not been backed by anything other than a government IOU. What we have done with our portfolios is complement the bonds and stocks with a precious metals position. In your case, the precious metals position is 14% of your entire portfolio. If I am incorrect (over the long term) on this, then only performance will falter. I am willing to accept that downside. I would not want to see your portfolio crash without that protection, and if the economy changes , then we have a much worse situation. Hence, if I am correct (and ultimately , I hope that I am wrong), your portfolio would theoretically survive a difficult climate, whereas earning powers might decrease and hence we would have created a nice hedge. Now, when I write that , I try to be careful in my words, as I know how upbeat of a person Bob is, and I respect that. But, it is my job to structure your portfolio around my discipline, and to certainly not be a “yes man”. Now , the best case scenario would be that I am incorrect. If that is the case, and financial infrastructures remain strong and boom, then of course , your portfolio would have been better off without this protection (please understand that I am brainstorming as I write this). Yet, if that is the case, then your financial life is perfect, and all that happens is you might say something like ” that $%^&#$ Ronnie, we could have had another $20k if he wasn’t so careful”. Ahh, to me that is a good thing. My goal is always that a worst case scenario is that someone is upset, but not financially hurt. Keep in mind as you read this that with these concerns we grew your portfolios by over 50% last year, and survived the decimation of the crash of 2000.

B. If you look at both of the graphs on your portfolios, you will notice the diversification , allocation and hopeful limited risk of the portfolios. Your portfolios are basically net long to US Common stocks by under 20%, fixed income ( including utilities) of near 50 %, Asian Stocks (Japan, Australia, Koreas , China and Hong Kong primarily) by 14%, the difference of 16% is rounding and assorted other situations.

C. Your portfolio is not risk free, nor would I label it as conservative. Yet, it is how I think it should stand right now. When I think changes should be made, I will make them. I would be all over investments, if markets were to fall big time. We would quickly move and capture long term opportunities. The reason your portfolio is not risk free, is because we have over-allocated positions in Asia, Precious Metals and the short position of Bed, Bath and Beyond (of which I would like to talk with June on her Bed, Bath and Beyond retail experiences, and comparing those to the competition). If you are at all interested, please check out this link companies/BBBY_competitors.html . I wrote that merely because Bob mentioned that June shops at Bed, Bath and Beyond. Bob kidded that she should stop. Please continue shopping there, eventhough we are short, I very much prefer that the company and store stay very healthy and profitable and continues to grow. I merely think that Wall Street has put an unreasonable valuation on the stock. We have many stocks in your portfolio that we were formerly short or felt had severe overvaluation, for you or our clients. Some of those positions are, Lucent, Corvis, Corning, Avanex, Advanced Micro, Extreme Networks, ITXC corp, Motorola, National Semi and Sun Micro Systems. Most of those are great companies, but I just felt they were overvalued in the bubble of 2000, they dropped 90% and then we bought them.

Lastly, your portfolio is at $190,000. Swings will happen, yet the long term swings both up and down will be limited at this time because of defensive positioning. Keep in mind that the swing from 202 to 180 was short term and even with the portfolio structure today, those swings would have been similar. We have not changed any portfolio philosophies nor have we materially changed our positions. The change of your portfolio structure has been evolving over the last 8 months. It is interesting for me, because these changes in all our portfolios are now just about complete (yours is totally complete, until the next opportunity comes along).

Let’s talk next week about this letter and some views. I think a 1/2 hour or so conversation with the three of us, would be quite important to the proper management of your portfolio.

Again, thanks for being the catalyst of a very rewarding exercise for me. If you don’t mind, I would like to take out names and such, but perhaps use excerpts of this letter in a future public writing of mine.

Have a great weekend guys,


ron “

D. ” Here is why we sold Corvis and AES and then proceeded to buy back.

1. January 31, 2004:

If you look at your “common stock” (39.9%) , less the “bear market hedge” (7.0%) on January 31, 2004, you will see that your net exposure was 32.9% to US Common Stocks (excluding “precious metals” and “utilities”).

2. February 9, 2004

If you look at your “common stock” (33.1%) , less the “bear market hedge” (13.6%) on February 9, 2004, you will see that your net exposure was 19.50% to US Common Stocks (excluding “precious metals” and “utilities”).

You will see that we brought down the theoretical risk of your portfolio. We are concerned with the markets, and are adjust for such. If you would like, I could forward you excerpts of an email which I sent to another client, which explains our concern. I will only forward upon your request, but I think it would help shed some light on our current thoughts.

With that said, as I was trimming positions, I thought that Corvis and AES were candidates for reduction. Yet, there has been some further news on both of the companies, and I was feeling more comfortable in owning them with greater concentration in your accounts. Certainly, they both carry risks, but, I think the risk/reward ratio is favorable. Of course I could be incorrect, but that is how we positioned.

Corvis was 2.62% of your entire portfolio on January 31, 2004 and is a 3.33% position on February 9, 2004.

AES was 3.97% of your entire portfolio on January 31, 2004 and is a 2.61% position on February 9, 2004.

I apologize for the transactional activity, but I was happy with your portfolio position on February 2, 2004 (after the liquidations) and am happy with your portfolio position today as of February 9, 2004. I still have to relieve cash now of about 10K and will do that over the next day or so. The possibility exists that your monthly disbursement will be delayed a day or two, but I don’t expect that to be the case.

Please call and we can discuss your portfolio.

Warmest Regards, “

Thanks for your time today.