Update - August 23 at 9:00 A.M.

Performance Report

This is a report of portfolio performance in 2009. The rates of return reflect the overall rate of return on all the funds that I have managed since 1981.

Statistics

Details of the overall portfolio are as follows:

Portfolio Return-actual 10.50 % (16.2% p.a.)
Portfolio January 1, 2009 $110.90 million
Portfolio August 23, 2009 $128.50 million
Investment earnings 2009 $11.95 million
Investment Earnings 1981-2009 $79.4 million

The portfolio is currently invested in the following fashion:
July 23
August 23
Stock
16%
12%
Oil
5%
3%
Real Estate
3%
1%
Gold
4%
3%
VR Bonds
3%
3%
Bonds
1%
1%
Cash
68%
77%
TOTAL
100%
100%

Planning

We are in the process of wrapping up the final group of financial planning summaries and this process should be completed by the end of September. This is also integrated, if possible, with a client meeting and it has been wonderful to see so many of you over the past two months. I have two expected planning trips to Pennsylvania and New York State and I expect to complete those trips by the end of October and, at that point, we will have had a chance to meet nearly all of our clients.

Practice

It has been a long time in gestation but we are finally almost ready to switch the practice to an LLC and, as you can guess from the longstanding name of our website, the name will, almost certainly, change from Mike Crew, Investment Advisor to Oakwood Group LLC. There is a very small possibility that we might find another name, but I suspect we will stay with our original choice. The changeover will occur in the final quarter of 2009 and will have no effect on how we operate and how we manage your funds or perform our financial planning functions. The name change reflects the reality that we are very far from being a one man band and that we have a team working here on your behalf. So, reluctantly, we are relinquishing the cult of personality. :)

Portfolio

There are a number of points to be made:

  • The year is, extraordinarily, turning out to be a good year for the portfolio and I certainly wouldn’t have predicted that after the carnage of the first quarter. The huge infusions of liquidity seem to be re-inflating the stock market and this mini bubble is probably also a function of the unattractiveness of virtually all of the other alternatives. The fact that everything else is unattractive does not make stocks, etc. a bargain except in relative terms. When I buy I focus on absolute and not relative, bargains
  • The movement in the stock market since its lows in March is certainly, for many participants, a welcome respite but, to put things in context, the markets are at levels first reached in 1997. That is NOT a misprint. In other words a simple buy and hold approach over the last 12 years would have produced abysmal returns.
  • We have been an extraordinarily heavy net seller of every type of asset (except cash) over the last month as the risks started to equal and, in some cases, exceed the potential rewards. Our cash holdings are at record levels ($99 million) and 77% of the portfolio. This isn’t predictive of any near term market movement, but it does suggest that the plentiful bargains of the spring have disappeared. As is always true, I invest our hard earned money when the odds of a successful outcome are, significantly, in our favor. I can be extremely patient when faced with a neutral or unfavorable environment.
  • Returns on an aggregate basis in common stocks over the last 10 years have been negative.
  • It is our opinion that the increase since March (after the catastrophic year before that date) was based on defensible fundamentals and a reasonably good risk/reward ratio (i.e. our chances of a successful outcome were really quite good). It is also our opinion that any increase from this point is based on shakier ground and the risks appear to outweigh the potential rewards.
  • I will continue to manage your money using the time tested value approach that I have employed with some success over the past 29 years.
  • My best case scenario is that the world economy bottoms out in the next 12 months and then makes an agonizingly slow recovery over the next few years.
  • I believe only a small % of the official Government statistics as they have been, for political reasons, altered over the last 30 years (both parties are equally to blame) so that they bear little resemblance to the statistics of the period from 1920-1975. A number of thoughtful observers have been highly critical of the changes wrought on the consumer price index and the unemployment data. The unadjusted unemployment data paints a scary picture more reminiscent of the 1930’s than the 1990’s.

Summary

Most participants in the marketplace are constrained by financial or administrative impediments. Virtually all of our competition is in the unenviable position of still being burdened by significant losses in the last 18 months, having a disgruntled clientele and in having minimal or negative compound returns over the last decade. They desperately need “green shoots” and need to be aggressive to replace the lost funds.

We are in a very different position and we will continue to operate using a conservative value based approach. In the last five years we have witnessed a credit boom, worldwide, of epic proportions and it would be extremely unusual if we proceed smoothly into a recovery. Even the best case, at these prices, offers lukewarm long term returns and the worst case suggests a lot more pain in the months ahead.

To summarize:

Please don’t hesitate to call if you have questions.

p.s. We have been asked regularly this year whether we are accepting new clients and the answer is, regretfully, that we are currently at full capacity. We will let you know if this changes and we are creating a waiting list so if you wish to suggest our name to anyone we would be glad to place them on the newly formed waiting list.