A Q1 letter to clients: Bernanke, Buffett and Siegel on the Prospects Ahead

Wednesday, April 4th, 2012

Each quar­ter since 2008, I have posted a tem­plate for a let­ter to serve as a start­ing point for advi­sors look­ing to send clients a sum­mary of what’s hap­pened in the past 90 days; and the out­look for the period ahead.

Advi­sors have told me that they’ve got a great response to these quar­terly let­ters and the tem­plates rank among my most pop­u­lar arti­cles. This let­ter goes into more depth on global growth fore­casts than past tem­plates. If this is more detail than you think your clients will be inter­ested in you can eas­ily delete this section.

Just a reminder that if you’re going to use this let­ter, take the time to cus­tomize it and put it into your own words, so that it truly does rep­re­sent your point of view.

An overview of Q1 2012 mar­kets: Bernanke, Buf­fett and Siegel on the prospects ahead:

The first quar­ter of 2012 rep­re­sented the strongest start for the U.S. stock mar­ket since 1998; with Japan turn­ing in its best first quar­ter gains in 24 years. This was largely dri­ven by a reduc­tion of fears about an extremely neg­a­tive out­come in Europe, as well as stronger eco­nomic data in the U.S.

Of course, there are some for­mi­da­ble issues still to be addressed. This let­ter pro­vides per­spec­tive on some of these issues, and out­lines some thoughts on what we can expect for the bal­ance of 2012 and beyond. As part of that, I have tapped into recent com­ments from Ben Bernanke and War­ren Buf­fett, as well as Chris­tine Lagarde; man­ag­ing direc­tor of the Inter­na­tional Mon­e­tary Fund and the Whar­ton School’s Jeremy Siegel, today’s lead­ing mar­ket historian.

Before get­ting into their views, here’s a sum­mary of mar­ket per­for­mance in the first quar­ter, all in local cur­rency so as to exclude cur­rency fluc­tu­a­tions. Even with strong first quar­ter returns, most mar­kets with the excep­tion of the United States are under­wa­ter over the past 12 months. Its resource expo­sure has meant that Canada has been a par­tic­u­lar lag­gard over the past year.

The IMF’s view: A reduced fore­cast for global growth:

The sin­gle fac­tor that more than any other will drive stock mar­kets over the mid-term is the path of global eco­nomic growth; Europe in par­tic­u­lar remains a ques­tion mark. In early Jan­u­ary, the Inter­na­tional Mon­e­tary Fund reduced its fore­cast for global growth, and pre­dicted that con­ti­nen­tal Europe would see a mild reces­sion in 2012. Here are excerpts from the IMF’s Jan­u­ary fore­cast for eco­nomic growth:

Eco­nomic Growth:

Bernanke & Lagarde: Sign of improve­ment … but efforts must continue:

Since this fore­cast was released in Jan­u­ary, actions by global gov­ern­ments have changed the Euro­pean out­look for the bet­ter. Indeed, it was greater opti­mism about a res­o­lu­tion to Europe’s issues that fueled the first quarter’s strong mar­ket performance.

There is still much work to do, how­ever. March 20^th fea­tured a press con­fer­ence by Chris­tine Lagarde, Man­ag­ing Direc­tor of the Inter­na­tional Mon­e­tary Fund and, for­merly Finance Min­is­ter in France. She painted a more pos­i­tive but still cau­tious pic­ture. Here’s how her remarks began:

“In terms of global eco­nomic out­look, we are cer­tainly not, and I do say not in as bad a sit­u­a­tion as we were only three months ago; and there have clearly been some sig­nif­i­cant improvements.”

“Cou­pled with an uptick com­ing out of the United States of Amer­ica, it gives an over­all pic­ture (for Europe) that is slightly more pos­i­tive than it was three months ago; not to say that all the dif­fi­cul­ties have been cleared. If I have one mes­sage, it’s that the reforms and the efforts under­way in advanced economies have to con­tinue and that the same vig­or­ous rigor has to be applied by Gov­ern­ments in the pro­grams and the efforts that they have undertaken.”

The very next day, Ben Bernanke spoke to the House Com­mit­tee on Over­sight and Gov­ern­ment Reform about the Fed­eral Reserve Board’s views on Europe. He pointed to improve­ment in Europe and focused on three pos­i­tive steps on the con­ti­nent to increase sta­bil­ity. He also dis­cussed favourable results of stress tests of banks in the event of a severe pull­back in the U.S. economy.

But his clos­ing com­ments echoed Chris­tine Lagarde’s note of cau­tion about the need for fur­ther action to address Europe’s struc­tural issues:

“The recent reduc­tion in finan­cial stress in Europe is wel­come given our impor­tant trade link­ages. The sit­u­a­tion how­ever remains dif­fi­cult and it’s crit­i­cal that Euro­pean pol­icy lead­ers fol­low through on their com­mit­ment to achieve a last­ing sta­bi­liza­tion. I believe our Euro­pean coun­ter­parts under­stand the chal­lenges they face and they’re com­mit­ted to take the nec­es­sary steps to address those issues.”

Should you be inter­ested in watch­ing them, here are links to the com­ments from Ben Bernanke (CLICK HERE) and Chris­tine Lagarde (CLICK HERE).

Also, you can CLICK HERE to go to the IMF’s most recent global growth forecast.

From my own point of view, it’s worth not­ing that given Euro­pean issues and a slow­down in China, there is broad con­sen­sus that the next five years will see “2, 6 and 4” growth; an aver­age of 2% in devel­oped coun­tries, and 6% in emerg­ing economies, lead­ing to 4% global growth over­all. It’s this diver­gence in growth between devel­oped and emerg­ing coun­tries that is dri­ving increased focus by multi nation­als on faster grow­ing emerg­ing economies.

War­ren Buf­fett: “America’s best days lie ahead:”

In the face of chal­lenges for devel­oped economies, there is a per­sis­tent view of Amer­ica as an “empire in decline.” This was rein­forced by last year’s down­grade of US debt and by the stale­mate in Con­gress over deal­ing with America’s deficit and debt challenges.

As I look at for­mu­lat­ing rec­om­men­da­tions for my clients, I don’t sub­scribe to the view of a declin­ing Amer­ica. With­out dis­miss­ing its issues, the biggest com­pet­i­tive advan­tage for United States is its vital­ity and capac­ity for change and inno­va­tion. It con­tin­ues to dom­i­nate in high tech, and remains a mag­net for the best and bright­est tal­ent from around the world.

I’m not alone in this view. Here’s an excerpt from War­ren Buffett’s annual let­ter to investors released in Feb­ru­ary:

“In 2011, we will set a new record for cap­i­tal spend­ing, $8 bil­lion and spend all of the $2 bil­lion increase in the United States. Money will always flow toward oppor­tu­nity, and there is an abun­dance of that in Amer­ica. Com­men­ta­tors today often talk of “great uncer­tainty.” But think back, for exam­ple, to Decem­ber 6, 1941, Octo­ber 18, 1987 and Sep­tem­ber 10, 2001. No mat­ter how serene today may be, tomor­row is always uncertain.”

“The prophets of doom have over­looked the all-important fac­tor that is cer­tain: Human poten­tial is far from exhausted, and the Amer­i­can sys­tem for unleash­ing that poten­tial, a sys­tem that has worked won­ders for over two cen­turies; despite fre­quent inter­rup­tions for reces­sions and even Civil War remains alive and effec­tive. We are not natively smarter than we were when our coun­try was founded, nor do we work harder. But look around you and see a world beyond the dreams of any colo­nial cit­i­zen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead.”

You can read War­ren Buffett’s full let­ter to investors HERE.

A long term per­spec­tive on valuations:

While eco­nomic growth enables long term increases in cor­po­rate prof­its as a whole, in the short and mid-term we have to pay a fair value for the com­pa­nies we buy. Any­one who invested at the peak of the U.S. mar­ket val­u­a­tions in 2000 learned a hard les­son about the per­ils of los­ing focus on what we pay for a dol­lar of earnings.

There are few more hotly debated issues on Wall Street than whether today’s mar­ket is over­val­ued, under­val­ued or priced just right. In look­ing at all the avail­able data, my own con­clu­sion is that the mar­ket is roughly fairly valued.

That’s not to say it doesn’t face some speed bumps in the period ahead. But I was inter­ested to see a March 29 inter­view with Jeremy Siegel of the Whar­ton School. Author of Stocks for the Long Run, which exam­ined almost 200 years of mar­ket data, in this inter­view Siegel looks at his­tor­i­cal prece­dent; and sees sig­nif­i­cant upside poten­tial at today’s stock val­u­a­tions. To see his inter­view, CLICK HERE.

What this means for your portfolio:

While all port­fo­lios are cus­tomized to clients’ spe­cific needs, there are three guid­ing prin­ci­ples to the advice that I offer.

1. The first relates to the allo­ca­tion between stocks and bonds, and comes from Ben­jamin Gra­ham; the Colum­bia pro­fes­sor who was War­ren Buffett’s teacher, and who is con­sid­ered the father of value invest­ing. In a recently dis­cov­ered 1963 talk, Gra­ham had this to say on asset allocation:

“In my nearly fifty years of expe­ri­ence on Wall Street, I’ve found that I know less and less about what the stock mar­ket is going to do but I know more and more about what investors ought to do. My sug­ges­tion is that the min­i­mum amount (of the investor’s) port­fo­lio held in com­mon stocks should be 25% and the max­i­mum should be 75%. Con­se­quently the max­i­mum amount held in bonds would be 75% and the min­i­mum 25%; any vari­a­tions should be clearly based on value considerations.”

2. The sec­ond prin­ci­ple relates to, bar­ring a sig­nif­i­cant change in cir­cum­stances, stick­ing within the invest­ment frame­work that we’re decided upon.

Some of you may recall my advice in early 2009, as we faced what appeared to be an end of the world sce­nario and some stocks hit lows they hadn’t seen in 20 years. At that time, I urged clients to main­tain a core level of equity expo­sure. Recently, I have had ques­tions from clients about increas­ing equity weight in port­fo­lios, given low inter­est rate and strong stock per­for­mance in the first quarter.

While I am always happy to dis­cuss this on a case by case basis, given the level of uncer­tainty that still exists, I gen­er­ally advise against increas­ing equity allo­ca­tion from the level that we had going into 2012.

3. The final prin­ci­ple relates to the role of cash flow from invest­ments. In an uncer­tain envi­ron­ment for eco­nomic growth and equity returns, we con­tinue to place pri­or­ity on the cash yield from invest­ments. In my view, the returns on some REITs, cor­po­rate bonds and div­i­dend stocks in selec­tive sec­tors con­tinue to make these attrac­tive rel­a­tive to the avail­able alternatives.

Should you have any ques­tions on any­thing I’ve cov­ered in this note or on any other issue, please feel free to con­tact myself or one of the mem­bers of my team directly. And as always, thank you for the oppor­tu­nity to serve as your finan­cial advisor.

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Tags: 24 Years, Ben Bernanke, Christine Lagarde, Currency Fluctuations, Economic Data, First Quarter, Global Growth, Growth Forecasts, Historian, International Monetary Fund, Jeremy Siegel, Leading Market, Managing Director, Market Performance, Negative Outcome, Outlines, Quarterly Letters, U S Stock Market, Warren Buffett, Wharton School
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Articles You Can Send Clients (August 26, 2009)

Tuesday, August 10th, 2010

Dur­ing the last week there has been a great deal of inter­est­ing and unusual but pos­i­tive com­men­tary about the upturn in the mar­ket and the economy.

In our first selec­tions this week, Las­zlo Birinyi, who runs an excel­lent asset man­age­ment shop, a long-time con­trib­u­tor to Forbes Mag­a­zine, and runs Tick​ersense​.com, com­ments that the mar­ket rally is a sig­nal that the eco­nomic recov­ery will be far stronger than fore­cast­ers’ con­sen­sus esti­mates. In a fol­low up arti­cle, Birinyi says that wait­ing for an econ­omy Roubini can believe in means miss­ing rally.

Birinyi Says Stocks Rally Sig­nals Eco­nomic Rebound, August 24, 2009, Bloomberg​.com

Birinyi said on May 20 that the S&P 500 would climb to a record 1,700 in the next two or three years, a 66 per­cent gain from its cur­rent level. The index has ral­lied 14 per­cent since his fore­cast. The bench­mark for U.S. stocks may rise 6 per­cent to 1,087 within the next three months “if it con­tin­ues to progress at the rate it’s been pro­gress­ing,” he said

Wait­ing for Econ­omy Roubini Can Believe In Means Miss­ing Rally, August 26, 2009, Bloomberg​.com

“We’re look­ing at a bull cycle in phase one,” Las­zlo Birinyi said in a tele­phone inter­view yes­ter­day. Birinyi was the top-ranked Dow Jones Indus­trial Aver­age fore­caster for most of the 1990s on PBS’s “Wall Street Week with Louis Rukeyser.” “No one wants to come out and say, ‘This is a bull mar­ket.’ Everyone’s just danc­ing around the term,” he said.

John Lip­sky, First Deputy Man­ag­ing Direc­tor at the IMF states that there are ‘Clear’ signs of a global rebound under way.

IMF’s Lip­sky Sees ‘Clear Signs’ of a Global Rebound, Bloomberg​.com, August 24, 2009

The global econ­omy is show­ing “clear” signs of a rebound and cen­tral banks are unlikely to raise bor­row­ing costs for many months, the Inter­na­tional Mon­e­tary Fund’s No. 2 offi­cial said.

“The signs are clear — if still ten­ta­tive — of renewed growth,” John Lip­sky, the IMF’s first deputy man­ag­ing direc­tor, wrote today on its Web site. “With infla­tion threats dis­tant, there is lit­tle doubt that cen­tral bankers intend to keep pol­icy inter­est rates very low for some time to come.”

Ken­neth Rogoff, for­mer Chief Econ­o­mist, IMF and Har­vard U Prof says “There is no ques­tion the global econ­omy is heal­ing and emerg­ing from reces­sion,” in an Bloomberg TV inter­view August 21, 2009.

World Econ­omy Emerg­ing From Worst Reces­sion Since World War II, Bloomberg, August 22, 2009

The global econ­omy may be com­ing out of the worst reces­sion since World War II as record-low inter­est rates and tril­lions of dol­lars in fis­cal stim­u­lus spur demand.

Sales of exist­ing U.S. homes jumped in July to the high­est level since August 2007, and Ger­man ser­vice indus­tries expanded this month for the first time in almost a year, reports yes­ter­day showed. The Japan­ese econ­omy grew for the first time in five quar­ters, accord­ing to a report ear­lier this week.

Next, and most dear to Cana­dian investors, there has been excel­lent news on the retail sales and bank­ing front at home. Stew­art Hall, Econ­o­mist for HSBC Canada says “All in, the month of June is shap­ing up nicely with man­u­fac­tur­ing, whole­sale and now retail sales all post­ing upside sur­prises and sug­gest­ing that the econ­omy is sta­bi­liz­ing and begin­ning to tran­si­tion over to the recov­ery phase.”

Surg­ing retail sales lift hopes for Canada econ­omy, Thom­son Reuters, August 24, 2009

Cana­dian retail sales grew much faster than expected in June, the lat­est in a series of upbeat eco­nomic num­bers to raise hopes the econ­omy is pulling out of recession.

Sales jumped 1 per­cent from May, far sur­pass­ing fore­casts for a 0.2 per­cent increase, Sta­tis­tics Canada said on Monday.

But much of the gain was due to ris­ing prices, espe­cially for gaso­line, while the vol­ume of sales inched up by just 0.4 percent.

Sales were down 4.4 per­cent from a year earlier.

The report points to a recov­ery in con­sumer demand dur­ing the sec­ond quar­ter, after two straight quar­ters of sharp declines in spending.

“All in, the month of June is shap­ing up nicely with man­u­fac­tur­ing, whole­sale and now retail sales all post­ing upside sur­prises and sug­gest­ing that the econ­omy is sta­bi­liz­ing and begin­ning to tran­si­tion over to the recov­ery phase,” said Stew­art Hall, an econ­o­mist at HSBC Canada.

Our long stand­ing love affair with our banks stocks have been war­ranted all along despite last year’s losses. BMO’s report today indi­cates that  loan defaults have peaked, as BMO reported lower than expected loan loss pro­vi­sions and $1 per share in today’s earn­ings report.

BMO Shows Credit Storm is Pass­ing, Andrew Willis, Globe and Mail, August 26, 2009

Better-than-expected loan per­for­mance at Bank of Mon­treal is expected to boost all the Cana­dian banks, as ana­lysts pre­dict indi­vid­ual loan defaults have peaked.

Bank of Mon­treal (BMO-T) turned in earn­ings of $1 a share on Tues­day, well above the con­sen­sus fore­cast of 90 cents. Ana­lyst John Aiken at Dundee Secu­ri­ties said: “The big sur­prise in the quar­ter was spe­cific pro­vi­sions of $357-million, well below expec­ta­tions of above $400-million.”

Finally, a video fea­tur­ing George Vasic, ana­lyst from UBS:

Div­i­dend Stocks: Get Paid to Wait for a Rebound, George Vasic and Rob Car­rick, August 19, 2009

You also get tax ben­e­fits and sta­bil­ity, says George Vasic, equity strate­gist at UBS Securities.

If you have any arti­cles to con­tribute to our weekly “Arti­cles You Can Send to Clients” fea­ture, please for­ward them to info@greenlightadvisor.com.

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Tags: Central Banks, Consensus Estimates, Dow Jones, Economic Rebound, Economic Recovery, Forbes Magazine, Forecasters, Global Economy, Imf, International Monetary Fund, John Lipsky, Laszlo Birinyi, Market Rally, Phase One, Roubini, Telephone Interview, Time Contributor, Upturn, Wall Street Week, Wall Street Week With Louis Rukeyser
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Warren Buffett on investing in a climate of fear – a Q1 letter to send clients

Tuesday, March 30th, 2010

An impor­tant note:

Over the past 18 months, the quar­terly tem­plates for a client let­ter have ranked among the most pop­u­lar fea­tures on this site.

Research with investors has iden­ti­fied the five ele­ments of an effec­tive client let­ter. It has to be:

1. bal­anced in outlook

2. candid

3. short enough for clients to get through com­fort­ably but long enough to be substantial

4. sup­ported by facts

5. indica­tive of the advi­sors voice and personality

On this last point, if you like the basic struc­ture of the let­ter, you MUST take the time to cus­tomize it to your own phi­los­o­phy and out­look — I can’t empha­size this strongly enough.

April 12, 2010

“I have no idea what the stock mar­ket will do next month or six months from now. I do know that, over a period of time, the Amer­i­can econ­omy will do very well and investors who own a piece of it will do well.”

War­ren Buf­fet in an inter­view on CNBC on Fri­day, Octo­ber 10, 2008

After the mar­ket roller coaster of 2008 and 2009, the first quar­ter of 2010 has been bless­edly unevent­ful by com­par­i­son — the mar­kets ended the first quar­ter about where they started the year, although up almost 60% from their lows of a year ago.

That said, there is still a cloud of uncer­tainty that is mak­ing many investors nervous.

Causes for con­cern … and for optimism

Even with the sta­bi­liza­tion of the global econ­omy, there’s no short­age of short term causes of concern:

… con­tin­ued ques­tions on the direc­tion and tim­ing of the eco­nomic recov­ery in the United States and Europe

… US hous­ing prices that are stay­ing stub­bornly low and unem­ploy­ment lev­els in North Amer­ica and Europe that are stub­bornly high.

… and in late March the deputy direc­tor of the Inter­na­tional Mon­e­tary Fund made head­lines as he talked about the need for advanced economies to cut spend­ing in order to reduce deficits.

Here’s a New York Times arti­cle about the IMF’s views: http://www.nytimes.com/2010/03/22/business/global/22imf.html?scp=1&sq=lipsky%20imf&st=cse

The good news is that there are off­set­ting pos­i­tives, even if the media head­lines that fea­ture them aren’t quite as prominent:

… on Mon­day March 22, the Wall Street Jour­nal ran a story about div­i­dend hikes as a result of ris­ing prof­its by US com­pa­nies. The arti­cle also men­tioned that cash on hand on US cor­po­rate bal­ance sheets was at the high­est level since 2007.

… on the same day the Finan­cial Times ran a sim­i­lar story about div­i­dend increases in Europe

… and there’s grow­ing atten­tion to the impact that Germany’s empha­sis on man­u­fac­tur­ing pro­duc­tiv­ity had in shel­ter­ing it from the worst of the eco­nomic down­turn — and ques­tions about whether  this might be a model for other coun­tries. In March the Econ­o­mist ran a 14 page fea­ture on how Ger­many posi­tioned itself for success.

Fore­cast­ing the future

Whether you choose to focus on the pos­i­tives or the neg­a­tives, there’s broad agree­ment that the steps taken by gov­ern­ments sta­bi­lized the finan­cial cri­sis that we were fac­ing a year ago — and there is almost no talk today of a global depression.

So the issue is not whether the econ­omy will recover, but when and at what rate –and whether there might be another stum­ble along the way.

If you look for invest­ing advice in the news­pa­per or on tele­vi­sion, the dis­cus­sion tends to revolve around what stocks will do well in the imme­di­ate period ahead … this week, this month, this quarter.

We refuse to par­tic­i­pate in that spec­u­la­tion — when it comes to short-term pre­dic­tions, whether about the econ­omy or the stock mar­ket, there’s one thing we can say with vir­tual cer­tainty: Most of them will be wrong.  Quite sim­ply, no one has a con­sis­tent track record of suc­cess­fully fore­cast­ing short term move­ments in the econ­omy and markets.

Which is why in uncer­tain times such as today, one of the peo­ple I look to for guid­ance is War­ren Buffett.

Advice from War­ren Buffett

In an invest­ment indus­try poll a cou­ple of years ago, War­ren Buf­fett was voted the great­est investor of all time; among the run­ners up were Peter Lynch, John Tem­ple­ton and George Soros.

Buffett’s returns are a tes­ti­mony to the power of com­pound­ing.  From 1965 to the end of 2009, the growth in book value of his invest­ments aver­aged 20% annu­ally. As a result, $10,000 invested in 1965 would cur­rently be worth a remark­able $40 mil­lion. By con­trast, that same $10,000 invested in the US stock mar­ket as a whole, return­ing just over 9% dur­ing this period, would be worth $540,000.

In one of his annual let­ters to share­hold­ers, War­ren Buf­fett wrote that it only takes two things to invest suc­cess­fully — hav­ing a sound plan and stick­ing to it. He went on to say that of these two, it’s the “stick­ing to it” part that investors strug­gle with the most. The quote at the top of the let­ter, made at the height of the finan­cial cri­sis, speaks to Buffett’s dis­ci­pline on this issue.

I try to apply that approach as well — putting a plan in place for each client that will meet their long term needs and mod­i­fy­ing it as cir­cum­stances war­rant, with­out walk­ing away from the plan itself.

Boom times such as we saw in the late 90’s and scary con­di­tions such as we’ve seen in the past two years can make that dif­fi­cult — but those con­di­tions can also rep­re­sent oppor­tu­nity. Indeed, in his most recent let­ter to share­hold­ers Buf­fett wrote that “a cli­mate of fear is an investor’s best friend.”

Five core prin­ci­ples that shape our approach

On bal­ance, I share War­ren Buffett’s mid term pos­i­tive out­look, not least because many of the pos­i­tives that drove mar­ket opti­mism two years ago are still in place, among these the con­tin­ued emer­gence of a global mid­dle class in devel­op­ing coun­tries like Brazil, China, India and Turkey. This edu­cated mid­dle class will fuel global growth that will make us all bet­ter off.

In the mean­time, here are five fun­da­men­tal prin­ci­ples that we look for in money man­agers and that  drive the port­fo­lios that we believe will serve clients well in the period ahead.

1. Con­cen­trate on quality

The record bounce in stock prices over the past year was led by com­pa­nies with the weak­est credit rat­ings. Some have referred to last year as a “junk rally”, with the low­est qual­ity com­pa­nies doing the best.  That’s unlikely to con­tinue– that’s why I’m focus­ing my port­fo­lios on only the high­est qual­ity com­pa­nies, those best able to with­stand the inevitable ups and downs in the economy.

2. Look to dividends

His­tor­i­cally, div­i­dends made up 40% of the total returns of invest­ing in stocks and have also helped pro­vide sta­bil­ity through mar­ket tur­bu­lence. Two years ago, qual­ity com­pa­nies pay­ing good div­i­dends were hard to find — one piece of good news is that today it’s pos­si­ble to build a port­fo­lio of good qual­ity com­pa­nies pay­ing div­i­dends of 3% and above.

3. Focus on valuations

Hav­ing a strong price dis­ci­pline on buy­ing and sell­ing stocks is para­mount to suc­cess — his­tory shows that the key to a suc­cess­ful invest­ment is ensur­ing that the pur­chase price is a fair one. Investors who bought mar­ket lead­ers Cisco Sys­tems, Intel and Microsoft ten years ago are still down down 40% to 70%, not because these aren’t great com­pa­nies but because the price paid was too high.

4. Build in a buffer

Given that we have to expect con­tin­ued volatil­ity, we iden­tify cash flow needs for the next three years for every client and ensure these are set aside in safe invest­ments. That buffer pro­tects clients from short term volatil­ity and reduces stress along the way.

5. Stick to your plan

In the face of eco­nomic and mar­ket uncer­tainty, another  key to suc­cess is hav­ing a diver­si­fied plan appro­pri­ate to your risk tol­er­ance — and then stick­ing to it. It can be hard to ignore the short-term dis­trac­tions, but ulti­mately that’s the only way to achieve your long term goals with a man­age­able amount of stress along the way.

In clos­ing, let me express my thanks for the con­tin­ued oppor­tu­nity to work together.  Should you ever have any ques­tions or if there’s any­thing you’d like to talk about, my team and I are always pleased to take your call.

Name of advisor

P.S. If you’re inter­ested, here’s a link to War­ren Buffett’s 2010 let­ter to investors:                        http://​www​.berk​shire​hath​away​.com/​l​e​t​t​e​r​s​/​2​0​0​9​l​t​r​.​pdf

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