The data is as follows:

The portfolio is currently invested in the following fashion:

The portfolio was established in 1981 and it has compounded at an annual rate of 10% p.a. During the last 29 years inflation has averaged 3% p.a. Our financial planning has been based on a rate of return that exceeded the average rate of inflation by 5% p.a. It was also based on a portfolio that would not be subject to wild, and potentially destructive, gyrations.

We are very pleased that we have consistently attained these goals, but the success hasn’t created any complacency. We have no illusions about the difficulties we face in the months and years ahead.

We are noting a renewed burst of optimism amongst the public and much discussion of “green shoots” in the economy. The market has gone up dramatically in the last three months, but this needs to be put into context:

• The broad market is only up 2.6% for the year.
• The markets, as a whole, are at levels first seen in 1998.
• Most market participants, despite the recent gains, still need gains of 45-70% to regain their 2008 highs.

I spend very little time examining economic forecasts and short-term economic data as I strongly believe they add no value to the investment process. I do pay attention to market price movements, not for guidance, but rather to see whether assets are being offered, for a variety of reasons, at attractive prices. A schizophrenic market with emotional participants is our friend as we can, with our longer view, take advantage of the waves of fear, greed and confusion.

As I noted before, although we invest as always with a strict adherence to our basic value principles, we have also adapted to the new, schizophrenic, environment. Our holding periods are often short as valuation changes that used to take a year seem to occur in a matter of days.

A variety of factors have created the current environment of wild swings, including hope and despair and irrationalities that abound in all sectors of the market. It is full in equal parts of opportunity and extreme danger and uncertainty. We will continue to be cautious as we navigate these tricky waters.

We will continue to be extremely risk averse and to focus on the avoidance of permanent capital loss. This does NOT mean that the portfolio will be free of fluctuations and, in fact, we hope it isn't, as fluctuations provide opportunities. Based on my experiences over the last year, the only thing I can be sure of is that our portfolio allocations will change dramatically in the months ahead.

The large cash positions can, and frequently do, change dramatically and they reflect the current dearth of attractive opportunities. The latter are opportunities where the potential rewards dwarf the potential risks and where the worse case scenario is acceptable.

I wrote this in the last report and I think it is even more relevant now:

“We are now at a very dangerous junction as the economy, under massive stimulation, faces wildly divergent potential outcomes”.

We have produced about 50% of the financial planning statements and they should all be completed by July. In many cases we have also arranged for meetings and we hope to meet with the majority of our clients by the early fall.

We have also dramatically revamped our web site capabilities (courtesy of my newest employee Alex Crew) and each client will have a dedicated and secure section of the site ,which will include their tax returns, investment policy statements and other useful information. Each will be activated as we send out your individual financial planning statement. We would welcome your comments on any improvements that you would like to see on your new web page.

If you have any other questions or concerns, please don’t hesitate to call any of us. We are here to help.