January 13, 2014

Greetings All,

We are again astounded by how fast another year has passed. If we could create a device that slowed time and gave us more to reflect and realize events as they transpire around us, we might have the corporate structure for the next Microsoft or Apple.

Last year was a crazy one in terms of my recollection. Fueled by the Fed’s easy money policies and an improving economy, U.S. stocks closed their best year since 1995 and prior to the final day of trading for 2013, the Dow Jones Industrial Average was up 29% with dividends included and the S&P 500 was up 32%.[source: Seeking Alpha report printed on January 1, 2014] Now these are not investment strategies that any of my clients use solely and certainly not after the financial crisis of 2007 – 2009 (crisis) but these stock market indexes have improved significantly since March of 2009, are well above the norm for a single year and certainly higher than they were prior to October 2007.

This year, the U.S. stock market enjoyed gains during the first four months. Then in May, the market had a downturn up until October with heightened volatility probably caused by the looming political fiasco and peaking during the government shutdown. While this decline and volatility was by no means severe it demonstrated that markets don’t necessarily have to sell off to consolidate. In this situation, the markets simply moved frustratingly sideways. All throughout this period most investors were waiting for a correction but it did not come in the form they expected. This “correction” if you want to call it that was this aforementioned sideways consolidation which seemed to end as evidenced by 1) the resumption of our Government and 2) the 1205 point move in the Dow Jones Industrial Average from October 17 (date the US Government resumed operations) to December 31, 2013; a 7.84% rise (Source Dow Jones News Service).

There is an old Wall Street adage. It states, “All bull markets climb a wall of worry.” There certainly was a huge wall of worry during the last half of 2013. I cannot state definitively that the wall of worry is behind us but I still see tremendous forward momentum within the economy, improvement in economic fundamentals and the recovery since the crisis. Concerns over valuations must still be considered but the risk of a major correction may be overstated. The big question is, “what happens to the economy when the fuel the Fed is supplying is gone completely?” Part of the answer to this question may lie in the 292 point Dow Jones Industrial Average climb on December 18, 2013; the day the Fed officially announced it would begin tapering its stimulus program. This might be a statement by the Fed that the economy is healthy and is continuing its improvement.

So what may transpire in 2014? I am not sure but one viewpoint comes from a Blackrock Asset Management analyst, Russ Koesterich, and he states in his December report, “My guess is we’re likely to see volatility rise and more of a bumpy road for stocks. It doesn’t mean stocks won’t have a decent year, but I think that year is going to be accompanied by more volatility.” Because of all the variables out there affecting investments, I agree and my efforts are going to try and assess that potential volatility and address with my clients how it will affect their portfolios.

My take on all of this has to remain optimistic and forwardly confident. Why? Let’s examine what has been and is going on around us. The Federal Reserve feels confident enough to begin slowly withdrawing the huge economic stimulus the central bank has been pumping into the economy. Unemployment is the lowest in five years with the Fed reporting a slightly improved outlook for 2014. Economic growth has recently picked up. The housing sector continues to show signs of improvement in sales, prices and construction. Auto sales have recently demonstrated their strongest growth since 2006. Gas prices have fallen dramatically this year and interest rates remain low; favorably supporting our nation’s capitalistic and entrepreneurial spirit.

I am not saying that we have to make any drastic changes but as each client is different it may be prudent to consider the risk such a powerful 2013 market movement may have upon your personal portfolio going forward. My recommendation is that we reassess your risk tolerance and asset allocation and determine if your existing portfolio is still appropriate.

I have always professed a long term focus. Think back to late 2008, many investors were in a state of deep concern (read: fear) regarding their investments and rightly so but staying the course and maintaining a close focus on a personally appropriate investment plan was the right action. Maintaining that along with a long term focus has now been demonstrated to be a recognizably sound strategy. Albeit, an investment strategy during this period that was not easily experienced as an investor but we can now see that it can be successful.

Now, a new year and we begin the process of sifting through the minutia of the future prognostications the media will create. Most of that speculation is worthless yet it does create focus and awareness! What I want to concentrate upon in 2014 is reviewing, evaluating and implementing new goals, if necessary, or maintaining your existing ones and how they are matched by your present portfolio. Please call the office at your convenience and lets set-up an appointment to review and discuss. Many of you have been my clients for over 20 years. Things have changed dramatically over the past 5 years, let alone the past 20, so now we should revisit your investment situation and portfolios and make sure you are on the right path.

I want to thank you again for the numerous referrals that you are sending our way. Please keep them coming as the accolades we are getting tell us that our guidance and experience can help others navigate the process of investing more confidently. Our doors are open everyday, Monday through Friday and our phones are on 24/7. Please never hesitate to contact us as your financial confidence is a top priority and answering your questions is an honor. I send my best to you, your family and friends for 2014 and I will report again in April.

Regards,

Martin

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Measures the difference between a portfolio’s actual returns and its expected performance, given its level of risk as measured by Beta. A positive (negative) Alpha indicates the portfolio has performed better (worse) than its Beta would predict. Measures a portfolio’s volatility relative to its benchmark. A Beta greater than 1 suggests the portfolio has historically been more volatile than its benchmark. A Beta less than 1 suggest the portfolio has historically been less volatile than its benchmark. Asset allocation does not ensure a profit or protect against a loss. No strategy assures success or protects against loss.

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