We are a full service, independent financial planning and investment management practice founded in 1981. Our expertise supports our clients in all aspects of their financial life and in the attainment of their goals. With our fee-only compensation, we are able to offer competent advice on an array of topics without any conflicts of interest. Our investment philosophy is value-oriented and conservative with a concentration on long-term returns. Our job is to help our clients enjoy life and minimize worries. We take pride in working with families and individuals who share our values and appreciate our many unique services.

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Performance Report

This is a brief update of the portfolio as of October 4, 2011.

Portfolio

Details of the overall portfolio (YTD) are as follows:

• Our portfolio (YTD) has declined 4.8%.
• The S&P 500 index has declined 11.7%.
• International markets have suffered mightily in 2011.
• The very best Value funds are down, on average, around 15% in 2011.

The record of the S&P 500 since May is as follows:

May	-1.35%
June	-1.83%
July	-2.15%
August	-5.68%
September	-7.18%

The first trading day of October, yesterday, was miserable and it appears today will be a similar day. There is quite a bit of panic and forced selling seems to be occurring. We are a net buyer and a very careful buyer.

We are calm.

My Thoughts

The facts, as listed above, are disquieting to anyone who lived through the debacles of the Technology crash and the 2008 crash, unless they were already part of our client base. For the old timers, this isn't pleasant, but it has been something they have lived through before and realized it is just part of the value process. A process that requires considerable patience, but also offers considerable rewards. So this is mostly addressed to our newer clients who have nothing but bad memories of one, or both, of the crashes of the last decade.

The most important thing I can impart is in the attached chart, which shows our progress from 1981 as we navigated the crashed in question and of course, the late unlamented crash of 1987 and the International crisis in 1998. The markets are currently at levels first reached in 1999, or earlier, and, as you will see, we have made steady progress throughout the last thirty years. We expect the uneven, but upward, path to continue.

I have the following additional thoughts:

• I said previously, "If panic ensues, we will be calm and, more importantly, a net buyer". Panic did, indeed arrive and it continues to arrive at irregular intervals. We are, apparently, in the midst of yet another bout of panic. It is very important to emphasize that we are still quite conservatively invested with 40% of our portfolio effectively risk-free.
• You can probably expect wild swings to persist in the marketplace and milder swings to persist in our portfolio.
• I am really getting quite excited about the potential of our current portfolio in the medium and longer term. It all sounds pretty awful, but, actually, this is where we do our best work. I do emphasize the medium and longer term. In the short-term, anything can, and probably will, happen.
• The quality of our portfolio is without precedent over the last 31 years. We usually own the downtrodden and misunderstood, but our current portfolio is downtrodden and misunderstood (of course!) :), but also of exceptionally high quality. It truly is a very strange time and in another report, when I have more time, I will give my thoughts on why this has occurred.

We still have a very large cash position (40% of the portfolio on a net basis), which is invested, in the main, in risk-free, short-term treasury bills. If we are presented with additional bargains, we won't hesitate to utilize some of our large cash holdings.

Summary

In the last reports, I wrote:

"I am worried about Europe and also about the possibilities of both European and domestic bank failures (Bank of America?). Of course, domestic bank failures would be in the form of Governmental takeovers so the effects would be controlled, but the outcomes certainly would be very negative for the shareholders of the banks in question."

This worry has increased since my last email. We, essentially, have less than 1% of the portfolio in the financial/banking sector.

"I am worried about the longer term effects of the record breaking disparity between the "haves" and the "have nots" throughout the developed world."

"I am not worried about the debt downgrade, the possibility of the U.S. defaulting on its obligations and I am not worried about the corporate sector, which is in surprisingly robust health. I am also not worried about the long-term future of the U.S.A."

"I am not worried about our ability to navigate through these treacherous waters. Our current portfolio is of excellent quality with a large margin of safety and the stock component has a dividend yield of 4.4%. None of that will shield the portfolio from price declines in the event of additional panic, but the price declines will not be permanent."

We will continue to be net buyers as prices decline.

I want to thank you for the trust you have placed in myself, and of course, in Nancy. The last 31 years have been full of challenges and we expect no less in the years ahead. We look forward to the challenge. We scour the markets of the world every day, on your behalf, searching for value with a significant margin of safety.

Please call if you have any questions or concerns. Nancy is always available and I will be available as markets permit, but I will certainly get back to you the same day.

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