News from ABACC

Many of us are looking forward to this winter's Olympic Games. We will cheer the triumph of participants who have overcome tremendous adversity and watch in stunned disbelief as seemingly unbeatable athletes give up medal opportunities through careless mistakes or poor strategy. Successful investing has much in common with a successful bid for an Olympic medal. We watch in amazement as athletes who have trained since childhood focus their efforts and come together only once every four years to determine the outcome of years of preparation.

Olympic downhill skiers must learn to correctly read the course and determine exactly how much time they can spend riding the fall line and still make their gates. Like Olympic athletes, institutional investors must develop a system that helps them realize their goals and achieve investment success. Understanding the following three basic investment principles can help improve ministry stewardship and ultimately lead to a successful investment program.

Investing should not be synonymous with speculation, and is more an endurance race than a sprint. During a 20 year period from 1982 - 2002 an investor who remained fully vested in the S&P 500 would have attained an annualized return of 12.61%. However, missing the 5 best days over this entire 20 year period resulted in an annualized return of 10.95% and missing the best 15 days resulted in an annualized return of 8.53% over the same period (Ned Davis Research & Oppenheimer Investments). While a difference of four percentage points may not seem like much, compounded over twenty years with an initial investment of $1,000 the difference is staggering: $5,146 vs. $10,768; less than 50% of the optimal result is retained if one misses less than 1% of the investment period. Clearly, a focus on long-term results, a consistent investment strategy and the power of compounding are essential for program success.

The second leg of our strategy for successful investment is built upon the avoidance of common mistakes. Like athletes many investors fail, not through lack of preparation, but through carelessness or over-exuberance. Between 1995 and 2004 the S&P 500 Index produced an annualized return of 12.1%, however the average equity mutual fund investor achieved an annual return of only 6.2% (Dalbar). This stunning differential is primarily attributable to investor's focus on short term performance. Investors chase hot performing funds only to invest just as such areas are peaking and consequently often experience only the declines associated with such highflying situations.

Finally, investors should remember that patience is one of the great keys to investment success: "If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes," a wise axiom once offered by Warren Buffet. While this may be somewhat of an exaggeration the concept is sound. Most investors abandon sound investment strategies too soon. They either fire their manager due to short term underperformance or they feel they are missing the party and completely change strategies in an effort to capture elusive returns. For example, many investors sell when the market declines dramatically. However, a survey of past Bear markets reveals the following: the average market decline for post WWII Bear markets excluding the 2000-2002 Bear was -26.18%. The average one year return following such a debacle was +23.23 while the two year return was +46.64 indicating that if investors simply hold on they will recoup the majority of their losses inside of a three year time period. The recent "Great Recession" and market decline from October 2007 through the bottom in March 2009 led many investors to throw in the towel. Yet from the low set on March 9^th, 2009 the S&P 500 Index has rallied nearly 70%, earnings continue to improve and it now appears that a sustainable economic expansion is in progress. What a difference a few months can make. Investors who lost sight of their long term goals during this extremely difficult and trying period have done irreparable harm to their investment portfolios and have potentially sabotaged their long term goals. However, all is not lost, like an Olympic athlete renewed focus, the elimination of costly mistakes, and a commitment to a consistent plan can redeem even the most challenging circumstances and lead to successful goal achievement. Institutional Investors must utilize such experiences to review their asset allocation, strengthen their commitment to a documented investment process, and restructure investment goals as necessary to insure the successful attainment of ministry objectives.