Our Newest Commentary
2011 Year End Commentary December 29, 2011 As we near the end of 2011, I find myself reflecting over my 30+ years in the business and how investment philosophies have changed dramatically. I am amazed when I see several of the larger mutual fund companies continuing to use, what I believe is an outdated comment “it is time in the market, not timing the market.” Unfortunately, our feeling is that this buy and hold mentality will no longer work unless you have an 80 year time horizon. We should expect the volatility we see in the markets today to be the norm going forward. As investors, we must be quick on our feet and properly diversified3. If all of your investments are moving in the same direction at the same time, then you are not properly diversified. It is no longer enough to have only stocks and bonds in a portfolio. In today’s unpredictable and volatile environment, we believe portfolios, when appropriate, should also include alternative investments which do not fluctuate with the day to day drama found in the equity markets. We believe alternative strategies2 can serve as an important hedge and diversification3 tool. I recently saw a comment by Saumil Parikh, a managing director at Pimco, in which he states: “We are transitioning into a world where policy makers and politics will become the predominant drivers of investment returns.” This means that a company’s fundamentals may no longer be the driving factor for a stock’s performance. It may become more important for a manager to be in tune with the political landscape and what fiscal action may be taken. This would put us in a very different investment environment than we’ve ever experienced. Our markets continue to swing in both directions depending on the daily news out of Europe. What remains to be seen is whether the stronger countries will come to the aid of the others. This is a more difficult issue than many realize. If the stronger countries do come to the rescue, they endanger their banking systems who have loaned significant amounts already to Italy, Greece and Spain. This could affect our banks that have significant exposure to the banks of those core countries. For the US economy to improve, more people need to be put back to work. As of this month, the unemployment rate is approximately 8.6%1(although that does not include the significant underemployment that exists today). Continuing to reduce our unemployment situation could also help revive our real estate market. It may also prompt the consumer to become more positive which would translate into more contributions to our GNP. My wish for this holiday season is for Congress to craft a fiscal policy that reduces deficits in the long run while supporting the recovery in the short run. Finding a long-term solution for the US debt could change everything. Money can be made during these uncertain times and rest assured we are always looking for those opportunities that might be suitable for each client’s situation. In closing, as always our entire team is available to answer any of your questions. Please do not hesitate to call. From all of us at Bernard Wolfe & Associates, Inc, have a happy and most importantly a healthy holiday season and 2012. Best regards, Bernie 1“Labor Force Statistics from the Current Population Survey” Bureau of Labor Statistics, December 2, 2011 2Alternative investments involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees Alternative investments can be volatile. Often managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently higher risk. There is often no secondary market for an investor’s interest in and none is expected to develop. There may be restrictions on transferring interests. These products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S.markets. Additionally they often entail commodity trading, which involves substantial risk of loss. 3Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.
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