Mid-Year Client LetterPosted: July 5, 2010
We’re officially half way through 2010, and it’s time to take a look at our progress. We started out the year in a defensive posture, and we are continuing that same posture.
While much of Wall Street focuses on corporate earnings, we prefer to keep an eye on revenue. Earnings, many times are a shell game for companies, whereas revenues are more difficult to manipulate. We’re looking for companies to basically sell more goods and services. In very select instances, there is some revenue growth, but not for the economy as a whole, and certainly not enough to make us comfortable with the “recovery.”
Unemployment continues to be a major issue, and when you extend it’s influence beyond the obvious, you see where our concern lies. Unemployment affects the housing and banking industries through continued high-levels of foreclosures and the retail industry through lowered sales and consumer confidence. It also contributes to an overall negative sentiment that you can feel in our society now. We need to find inspiration, and get back to the belief that we can overcome anything.
I believe that our efforts on the socially & environmentally responsible front are now more vital than ever before. We see oil gushing into the Gulf of Mexico daily, the result of a company who chose profits over safety. The Supreme Court has ruled that it’s ok for corporations and unions to make political contributions, and many of the same people on Wall Street who created the current economic condition are still there. The focus on extra due diligence, realizing that it does make a difference how a company handles itself both socially and environmentally in addition to it’s financials.
Our composite core portfolio return for 2010 is -1.6 percent. The S&P 500 index is -7.9 percent.
Our composite core portfolio return for the previous 12 months is 10.2 percent. The S&P 500 index is 11.2 percent. This is not surprising, as our portfolio is designed to capture much of the market’s upside while protecting the downside as much as possible.
One indicator that we regularly monitor is the VIX or market volatility index. Normally, markets move in very small increments. If the average annual return over the past 50 years of the S&P 500 is about 9.5%, that equals about 0.792% per month. Recently, however, we have been seeing market movements of greater than 2% per day on a regular basis. When the market trades on fundamentals, it moves upwards slowly, but when it trades based on emotion, we see extreme volatility. That volatility will cause the market to trend downward.
So, as we have been saying for several months, now: Defensively positioned portfolios are the most prudent posture to take at this time. We will be continuing to monitor progress and when the time is appropriate, we will make adjustments.
Please mark your calendars, we will be having our mid-year conference call on Wednesday, July 21st at 2:00 pm. I will provide the call in numbers and access code as we get closer to the date.
I greatly appreciate all of my clients & friends support. We continue to receive referrals to great new people, and are excited about helping more folks new out in the 2nd half of the year. Thank you for your business, referrals and friendship. Please call me with any questions or concerns.