We dislike statistics, especially statistics that paint us in an unusually favorable light.

The averages, composites, and indexes of the financial industry mislead. In our case, the numbers make us look much better than we deserve. (On previous occasions, numbers have made us look much worse than we deserve.)

Our statistics are generated by a standardized composite-return program written and supported by Centerpiece, a portfolio management software system. According to Centerpiece, the composite return of 55 portfolios managed by WP&M was 4.93 % (annualized) since December 31, 1999 (18 months). The same number for common stocks only (excluding fixed-income securities) was 1.86 %. In comparison to the most widely-used standard, the S&P 500 index, we did extremely well, for during the same period that index declined 11.47 %.

For the six-month period ending June 30, our portfolios earned 1.51 %, and stocks alone earned 1.33 %, while the S&P returned a negative 7.26 %.

Are we doing a good job? Probably, but your view depends on where you sit. In the structuring of a composite, some portfolios have high rates of return, some low. The client who has a low return probably does not believe the composite number is accurate, while the client with a high return believes that we did something special for him/her. The truth is much simpler. The truth is that results within any composite are randomly distributed. Composites of actual returns, and indexes of theoretical returns (like the S&P), are only approximations of reality. Nevertheless, we will enjoy our moment of statistical supremacy, knowing that we also must maintain long-range humility.

During this quarter, Principal Managing Partner Nancy Haddock broke her ankle. No, she was not bungy jumping, skiing, rappelling or climbing Mt. Kilamanjero. Instead, one foot encountered a slick spot in her garage, while the other foot remained firmly in place. The result was two-hour surgery, placement of several ankle screws, and many weeks of immobility. Fortunately, portfolio management does not require mobility, and she continued her business normally every day, with one leg elevated, and two hands on the computer keyboard.

In June, we lost one account. This account had dealt with John over 20 years while John served as a nondiscretionary account representative. (Nondiscretionary means that all trading decisions are approved by the client/investor. Usually, nondiscretionary investors compensate advisors through commissions instead of fees.) Following creation of WP&M, the account sought financial planning advice that produced a detailed financial plan and reallocation of assets. During the planning process, John and the client agreed that insurance assets should be reduced because the client has no dependents. Over the next 15 years, this reallocation will produce a handsome excess rate of return that is not available in insurance contracts. At the end of the planning process, the client retained WP&M as a discretionary money manager for a portion of his assets. This was the first time the client ever had given discretion to someone else. When transactions were made without consultation, the client became uncomfortable. This feeling was exacerbated by the down market of the last 18 months. During his term with us, the client experienced above-average rates of return, not unlike the composite rates of return quoted earlier in this report.

WP&M welcomed three new accounts during the quarter. These are fixed-income accounts managed by Nancy Haddock. The accounts have not been with us long enough to report results. We will report results for these accounts in a separate category, because they are invested entirely in tax-exempt municipal bonds.

The three new accounts brought our total amount under management to over $28 million. This amount qualified us for registration with The United States Securities and Exchange Commission.

---jwg, 7-20-01