WEALTH PLANNING & MANAGEMENT, LLC REPORT TO CLIENTS AND TO PROSPECTS For The Third Quarter 2003
Convention requires reporting of investment results, but Mr. Convention does not help us to make sense out of the nonsensical. Performance numbers, the percentage rates of return earned, on average, by all accounts, during different time periods, are so radically disparate as to defy analysis. For example, the first quarter of this year, as viewed from early April, was terrible, down over 7 %, but then the second quarter went off the charts, producing a six month composite rate of return of over 16 %, a momentum impossible to continue. The last three months were moderate, about 3 %. Look again at those numbers: -7 %, + 16 %, + 3 %. In the short term, chaos reigns, which is why we suggest that clients read all of our reports on this web site. Reading just one misleads.
Still, Mr. Convention demands attention, so here goes:
For the nine months ending September 30, 58 portfolios managed by WP&M earned a cumulative composite rate of return of 9.33 %. When the data is modified to eliminate fixed-income and other specialized securities, the rate of return was 11.30 %. This is what our stocks earned. For the same period, The S&P was up 13.20 %, reaffirming a hypothesis that we outperform the S&P in down markets (see past reports), and under perform in up markets. (This hypothesis has enough exceptions to challenge its credibility. In investment markets, all hypotheses are suspect. The principle is, "once we understand how to play the game, they change the rules.")
Here is a statistic we love, obtained by conscious data mining. For the twelve months ended September 30, our stocks earned 21.11 %, compared to 22.16 % on the S&P. The results for full portfolios, the statistic that includes fixed income and other specialized securities, is 15.56 %. Bonds, real estate investment trusts and cash are included in this second number, producing a correct impression of moderation and low volatility. In down markets, the presence of these types of securities enhances returns relative to stocks.
Bottom line: everyone is happier this year, than last.
We do not report composite results of our accounts invested only in tax exempt securities. First, the apparent rate of return is low. However, when a specific rate is earned in a particular account, and the tax savings in a client's tax circumstance are applied to that rate of return, the result is good, hundreds of basis points better than money market or savings account rates. Second, comparisons of our composite tax exempt rate of return to someone else's composite, or to results of a specific account, lose meaning because of the number of variables: risk tolerance, rating requirements, maturity limitations, personal tax bracket, appropriate bench mark, and so on. On the other hand, our clients invested in tax exempt bonds are content with their relatively stable results.
WP&M added a new balanced growth account this quarter, a referral from a client whose family has invested with John for over 30 years. No accounts departed. Two accounts are declining rapidly in value. One is utilizing margin borrowing at a rate over $10,000 per month. This is to finance personal expenditures. Another is withdrawing more than $20,000 per month to fund personal health care. In both cases, past savings and investment earnings produced values that now serve to improve day to day lives.
jwg 11-9-2003
Wealth Planning&Management, LLC John@wpam.com ----- P.O. Box 982 Nancy@wpam.com
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