Details of the overall portfolio are as follows:

The portfolio is currently invested in the following fashion:

Very little has changed in the past month to alter any of my opinions stated in the last two reports.

In summary and in no particular order:

• We were a heavy buyer of common stocks in the first quarter of this year as bargains were obvious and abundant. In April, we had a very significant commitment to undervalued common stocks.


• By August, the bargains had all but disappeared and in subsequent months the undervaluation had morphed into a marked overvaluation. Our current common stock holding is one of the smallest on record.


• The Governments of the world have been pouring money into the economy pushing up asset prices on a worldwide basis. Unlike the gains from March though August, these gains aren’t based on valuation but, rather, on a torrent of money. We do not buy because prices might go up. We buy because assets, on any reasonable basis, are undervalued.


• When bargains do not exist, we stand aside and keep your funds in safe short-term instruments. We invest when the odds of a successful outcome are significantly in our favor and we wait, patiently, through those times when too much risk is in the marketplace.


• When bargains do not exist, we stand aside and keep your funds in safe short-term instruments. We invest when the odds of a successful outcome are significantly in our favor and we wait, patiently, through those times when too much risk is in the marketplace.


• It is interesting, and a measure of public disgust, that the public have not been net buyers of common stock mutual funds this year despite the significant rise in the indices. As is often true in times of low interest rates the focus had been on yield (dividends and particularly interest) and this has meant a FLOOD of money into bond funds of all types. THIS WILL NOT END WELL. In several years investors will look back on this and say “What were we thinking?” We have nothing in this segment and although we are certainly early, we are not wrong.


• The flood of Government money has temporarily propped up some of the hardest hit sectors in the economy, but I am not at all convinced this will be enough although there is a small chance it could succeed. The odds suggest a messy and troubled future but, as always, we are prepared for most eventualities. We, as a country, will eventually muddle through with, I fervently hope, meaningful reform in all of the vital areas of the economy and Government that have failed us over the last 15 years

We try to see the world as it is and act accordingly.

To summarize in managing your money:

• We will remain calm


• Expect portfolio fluctuations. They are a normal part of the process. I usually respond to declines by making additional purchases.


• Our basic value methodology is unchanged.


• Our own money is invested, in its entirety, in exactly the same fashion as the portfolio.


• The goal of our portfolio is, through time, to earn a rate of return that exceeds the rate of inflation by 5% p.a. Over the last 29 years we have not only achieved that goal but also avoided the periodic disasters that plague the long term investor and play havoc with longer term plans (see the appended chart).. We are continually adapting to the changing environment but our core conservative value methodology remains intact and this has seen us through a very turbulent era.


• The return goals described above are an integral part of our long term planning. It is very pleasing to us that we have never, ever (nor do we ever intend to) alter financial plans because of faults in the investment side of the process.

A chart is attached that shows the actual versus the target portfolio returns. Please don’t hesitate to call if you have questions.