This is another of those occasional updates that I issue as a supplement to the regular performance reports, the individual investment policy statements and the financial planning summaries. The rates of return reflect the overall rate of return on all the funds that I have managed since 1981.

a. Statistics

          Details of the overall portfolio are as follows:
 
             RETURNS in 2000 YTD:
 

            SIZE OF THE PORTFOLIO:
 

 
            INVESTMENT EARNINGS:
 

            LIFETIME RETURNS:
 

        The marketplace has been very volatile in the last year and the volatility has increased in recent months. November was a particularly volatile month and, if you held technology and growth stocks, a truly horrible month full of carnage and despair. The NASDAQ index is now down 50% from its March high (and it takes a 100% increase in value from these levels merely to break even) and many individual technology stocks are down in excess of 80%.

         We are not worried but instead, encouraged by the current volatility. Most of the trends that were in place in the portfolio have continued and are in line with our thoughts expressed in 1999. We made one significant change and this was addressed in the last report. We firmly believe that the value sector represents an excellent multi-year opportunity and we expect to hold most of our funds and individual stocks for the medium and longer term. We may have some volatility in the portfolio, but it will be muted and we will be well rewarded over a multi-year time frame.

        During the year we have steadily added to the high quality value funds that we own and we have reduced, opportunistically, the individual small value holdings. We are continuing to add to the value funds domestically and internationally and we can no longer resist accumulating some of the individual value bargains that proliferate in the marketplace.

c. Securities and Exchange Commission

        We just completed a routine audit by the SEC. These audits occur every 4-5 years and are exhaustive and thorough checks of all our operating procedures. We expect to receive our usual clean bill of health and the departing agent intimated that our report, apart from the small things that bureaucrats have to find, would be satisfactory.
 
d. Summary

        After the stellar year of 1999, this year has been a disaster for the technology investor. As I said in previous reports I am positive about much of the marketplace, which has endured a grueling bear market over the last few years. I remain negative to neutral on the prospective market fortunes of the erstwhile favorites. I expect to hold our new individual purchases, our mutual funds and our long-term debt holdings over the medium term and I am increasingly positive about our prospects over the next year.

        I believe that what we own is markedly undervalued and offers a significant margin of safety and the prospects of excess returns without exposing us to excess risk. I believe that the major indices (S & P 500, Nasdaq 100) are fully valued or overvalued and this is despite, in the case of the latter, the fact that it has already declined 50% from its March high.
 
        I should emphasize several things:
 

• That I will continue to add to the JDN preferred issue, which is currently 6% of the portfolio, as it is well secured and offers a yield above 12% p.a. on an ongoing basis. (I expect this to be supplemented by capital gains over the next two years.) This is a large position and price movements prior to sale might have a material effect on reported earnings for any particular time period. Thus we have a potential for more volatility on paper, but we will be well rewarded for this small inconvenience.

• The new individual holdings (see our last report) were purchased as a unit and will be retained as a unit for the foreseeable future. Some of the individual holdings (Crown Cork and Xerox are the current offenders) may decline significantly in the short run and it is possible, although unlikely, that the declines will persist in some of these issues. This will not affect the overall strategy and we expect to retain these issues in the medium term (1-3 years) and we also expect to earn above market returns on the whole package of stocks treated as a unit.

• We are, on balance, positive about much of the marketplace and this is reflected in the current composition of the portfolio. We expect and want the marketplace to trend higher over the next few years. We believe that the upward movement will only be partially reflected in the popular indices (i.e. the reverse of the last few years when the indices moved ahead but the majority of stocks declined). We also believe that the US dollar is overvalued, that a recession is probably already upon us, that bonds in general are unattractive, that technology as a group is not yet cheap but is becoming interesting and, most importantly, that the next few years will require great vigilance as we navigate treacherous waters.  Although the portfolio reflects our biases, its most significant attribute is its flexibility.

        The portfolio is currently fairly evenly divided between cash equivalents, bonds and common stocks. I will keep you informed of any significant changes that we effect that move us away from that very balanced position.

        My oft-stated aim is to achieve superior risk adjusted returns without incurring excessive risk.  I target the portfolio to earn, in the long run, a rate of return that exceeds the long-term rate of inflation by 5% p.a. In simple terms $100,000 invested in the portfolio on January 1, 1981 (without any further additions or withdrawals) would have grown to $692,000 at the date of this report.