October 2007

Investing in the financial markets entails a significant degree of risk, a fact that during the heady days of the late 1990s many otherwise rational people forgot (or, worse yet, never learned). Judging by the recent pronouncements of happy-talking investment pundits, analysts and financial writers, not much has been learned over the past four years: the same disregard for risk prevails today.

Buying or selling stocks, bonds, or mutual funds requires no particular talent. Anyone can do it. Managing risk, however, is altogether different: it requires knowledge, expertise, a healthy dose of skepticism, and discipline. These are attributes that many of today’s so-called investment professionals seem to lack.

We do not trade or gamble with our clients’ money. We are investment advisors. That means that we pay a great deal of attention to the fundamentals of a proposed investment and spend a significant amount of time analyzing whether it’s in our clients’ best economic interest for their money to be invested there and why, and what they may reasonably expect in return.

Whether the financial markets go up, down, or sideways is of very little consequence to us since we have no control over their movement. Our task as financial advisors is to make sure that our clients are prepared for the unexpected.

A home built to last a lifetime is designed to withstand the unexpected. An investment portfolio should likewise be designed with the same degree of care that goes into constructing a home: it must have a solid foundation, sturdy walls, a roof that won’t collapse in a gale storm, and good drainage. And just like a well built home, an investment portfolio must be periodically maintained and kept in good repair.

We don’t know what the future holds for the financial markets. Rather than trying to guess where the markets will be in a month, in a year, or in three years, we encourage our clients to periodically, unemotionally and thoroughly review their goals, and either reaffirm them or modify them in light of their financial condition and any change in circumstances. Having done that, the next step is to take a long, hard, cold, and dispassionate look at their investment portfolio, examine its risk profile, and take appropriate action to bring the portfolio in line with their goals and level of tolerance for risk.

We have said many times and we will repeat it again and again: investing in the financial markets just for the sake of investing is foolhardy. Money is not a goal in itself but simply a tool that can help us achieve a goal. Thus, it is critical that we clearly articulate our goals and that we thoroughly understand what it will take to reach them, fully considering how any storm that may come our way could affect our ability to reach those goals. If the most prudent way to achieve a certain goal is to invest in the market, then understanding its risks and knowing how to manage them is the key to investing successfully.

We stand ready to assist you in this process.