This is a report of portfolio performance since 1981 and also for the year to date. 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 in 2005 are as follows:
 

    Details of the individual years are as follows:
 

B.  How has the portfolio performed during its life (1981- 2005)?
 
    Over the life of the portfolio it has performed in the following fashion:

         The most significant characteristic of these returns is that they were achieved with remarkably little volatility and that we achieved our goals in each of the periods. We do not expect, or guarantee, that we will always exceed our goals in the future in the shorter periods (i.e. 3 or 5 years), but we do expect to meet our stated goals in the longer time periods.

           As a reminder our stated goals are to achieve an annual return, through time, that exceeds the rate of inflation by 5% p.a. We have comfortably exceeded our targets in the last three years, the last five years, the last 10 years and over the lifetime of the portfolio. The goals, and their attainment, are vital as they form the backbone of our planning for your financial future.

            The targets might seem modest and easy to achieve, but the historical evidence suggests that they are actually, in real life, quite challenging targets for most market participants. The results of the Dalbar study were rather startling. It measured  the actual performance of individual investors during the period 1984 - 2002 which was a very positive period in the equity markets. The individual investors, in aggregate, compounded at 2.75% (with a lot of volatility) during that same period. Ouch.

           For more on this I suggest you read:             http://oakwoodgroupplanning.typepad.com/oakwoodgroupinvesting/_psychology/index.html
 

C. Blogs (Weblogs)

     Our two blogs are now up and running and I would encourage you to view them when you have a free moment. The web addresses are:

Nancy (financial planning): http://oakwoodgroupplanning.typepad.com/oakwoodgroup_financial_pl/

Mike (portfolio): http://oakwoodgroupplanning.typepad.com/oakwoodgroupinvesting/

      My blog will focus on all aspects of money management and on the management of the portfolio and Nancy’s blog will focus on all aspects of financial planning.
 

D. Taxes

       The tax loss selling has largely been completed although we will take advantage of any declines to execute more tax motivated sales. On the other side of the coin we are continuing to examine and buy, selectively, stocks and bonds that have been beaten down by year end selling.

         Nancy has just mailed to you instructions for your estimated tax payments for the 4th quarter and advised you whether to pay them in 2005 or to defer them until January 17th 2006. It is vital that these payments are made on time as the IRS has NO sense of humor. She explained in detail why some of the payments may elicit an “Ouch!”. It is partly a function of our success and partly a function of the tightening grip of the dreaded alternative minimum tax. I do feel that we may get some relief soon on the alternative minimum tax, but I also feel that we are probably at a low point on the relative taxation of investment income. We are planning with those thoughts in the back of our minds.

E. Summary

        We are conservative value based investors with the following attributes:
 

• The portfolio returns are unpredictable over shorter periods of time. We recognize that we cannot control price movements and we cannot control what will outperform in the next month or even the next year
• It is extremely unlikely that we will have significant losses and, even if we do, those losses would NOT be permanent. We expect a minority of our investments to be unsuccessful for a variety of fundamental reasons.
• We will have losing years. That is part of the process.
• It is highly likely that we will attain our longer term goals for the portfolio.
• Our investment management is carefully, and individually, integrated with our financial planning on your behalf. We maintain a diversified portfolio.

        I will provide a reprise of the portfolio in 2005 when I send your annual reports in early January. It has been, for us, a stable time with a lack of volatility and, thus far, a very satisfying year. We are, however, just as worried as we were several months ago about the instabilities in the world economy. We might be seeing some early warning signs with the rapid acceleration in the price of gold (always a safe haven) and with disquieting signs of the end of the housing boom both here and abroad. Something that I am watching very closely is whether the distress will occur in a normal pattern or whether the excess liquidity (the world is awash in cash) will just flow and create a new bubble elsewhere (much as the effect of the stock disaster here was dampened by the growth of the real estate bubble).
 
        The different outcomes have very different implications for every kind of asset and I am watching this closely. It will not, however, be a good thing if we do continue with serial bubble creation. The end when it comes will be very nasty OR very drawn out. Japan, which had the experience, has suffered through 15 years of agony.

      Please call if you have any questions or concerns. We are always available and are happy to talk, answer questions and, hopefully, to provide useful advice and answers.