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Greetings!
If you've called the office lately that new voice that occasionally answers the phone is J. Michael Kelly--a new advisor soon to be working at Chesapeake Investment Advisors Inc. Mike will begin working with new clients sometime later in August, but he has been lending a hand with the phones. Here's a little about Mike.
Mike served his country for 20 years with the USMC, a graduate of the Naval Academy he flew missions as a helecopter pilot over Vietnam in 1968 and 1969. Leaving the Corps in 1987 he began work in the financial business as stock broker with Alex. Brown & Sons, Inc. in Baltimore and Washington.
He left AB and became managing director for the Nasdaq Stock Market for 12 years on Wall Street. Having his fill of New York, Mike worked a number of consulting positions in the DC area. His wife Peggy logged enough years to take a retirement from the Virginia School system and the Kelly's decided to sell the Washington DC home and move to the more peaceful pace here in Chestertown.
Stop in and say hello to Mike, he is looking forward to getting back into the business and will bring a wealth of experience to his clients. We will post more on Mike on the website once he's officially here.
Marty |
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June and the Second Quarter
Hurray, hurray, we finally had a positive quarter. Not since the third quarter of 2007 when the S&P 500 eked out a 1.56%[i] return have we had a quarter that moved in a positive direction start-to-finish. While the month of June was basically flat, the second quarter--April 1 to June 30 produced the highest return on the S&P 500 since 1998, a 15% rise[ii].
The markets have not been kind since late 2007, so maybe we're just a little over-due for a ray of sunshine. I am a firm believer the market overshoots on both the upside and the downside; we don't know when it's happening, they don't ring a bell at the top or bottom, but when we look back from a distance we can tell it was oversold or overbought.
Like riding a roller coaster facing the wrong way, not knowing where you're going can be nauseating. And no matter how many times you tell yourself that the ride will end and everything will be OK, there is a strong urge to predict the next turn; most of the time we take action at our own peril. The command, don't just sit there, do something, should be, don't just do something, sit there!
So let's be thankful for a good quarter--but let's not try to predict the market's future either. If we like our portfolio, we should not change it based on one good quarter--only on a change in our personal circumstances. To paraphrase Vanguard's founder, John C. Bogle, in his more than 50 years in the business, he doesn't know anyone who can time the market, and he doesn't know anyone who knows anyone who can successfully time the market. Real earnings in the market come from time and good portfolios-not market timing or frequent trading.
We do know that over long periods of time market returns are positive. Averages are averages--things do revert to the mean, and we have been so far below the mean lately that the reversion to it will be like Christmas in July-whenever it comes. MK
[i]www2.standardandpoors.com/spf/xls/index/MONTHLY.xls
[ii]http://www.bloomberg.com/apps/news?pid=20601087&sid=agz5qLUIbp_o
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Another Quote from Benjamin Graham's The Intelligent Investor
Warren Buffett called it "By far the best book on investing ever written." Benjamin Graham's, The Intelligent Investor has been in print since 1947--has been revised and updated every five years or so. The edition I have was published in 1973 and updated by Jason Zweig in 2003.
Mr. Graham first entered Wall Street in 1914 and worked there until the mid-1970's. For our next few editions this last section will bring a Graham quote. There is nothing I could ever say about the market that wouldn't be better said by Benjamin Graham.
In the first chapter Mr. Graham (BG) seeks to differentiate between an "Investor" and a "Speculator." His definitions are as follows, "An investment operation is one which, upon thorough analysis promises safety of principle and an adequate return. Operations not meeting these requirements are speculative." (p.18)
BG does not condemn speculation per se, he merely wants the financial industry and investors and the media to differentiate the two; "There is intelligent speculation as there is intelligent investing. But there are many ways in which speculation may be unintelligent. Of these the foremost are: (1) speculating when you think you are investing; (2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and (3) risking more money in speculation that you can afford to lose."
Speculation has its place in today's markets--it helps provide liquidity to the marketplace and helps fledgling companies gather capital--companies like Amazon.com needed speculators to get them cash required to execute a business plan that needed many years to turn a profit.
As investors, we must keep separate in both our minds, and our portfolios the money we are speculating with and money which we are investing. Marty |
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| Concept of the Week:
Let's Talk (more) about a Budget Part III
Now that you have your fixed and variable expenses and your income written on paper or in a spreadsheet, it's time to make sure your take home pay is taking you home.
Please don't forget to add a line-item under the fixed expenses for the emergency fund--remember in the last edition we said you should have 3 to 6 times the monthly fixed expenses sitting in a safe and liquid investment--for emergencies. Until you get to that level begin a monthly contribution to the E-fund.
Absolutely half the battle is just knowing where you are spending money--the other half is developing the discipline to cut back on the unnecessary purchases long enough to pay off some debt. Paying down debt reduces the drain on your monthly income.
Like a diet, a budget only works if you actually live it.
A short period of monitoring is often enough to recognize bad spending habits--things will slowly get easier once you reign in destructive and unnecessary spending.
MK
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| Book I am reading now: A Farewell to Arms
by
Ernest Hemmingway, Scribner, 9th Ed. 6-1-95
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| Still have the office for rent in our Chestertown Location--the office right above mine--beginning in August--fully furnished, about 12' x 18', $400 per month--utilities included. | |
