Circumstances in the market from time to time require us to “suck it up’ and seek some firm grounding to allay the anxiety we experience in watching our portfolio values sink month-after-month. We reviewed our own historical trip to the philosophical well in Foresight, and noted such occurrences previously, in the Fall of 2002. We track and monitor the annual returns of all portfolios. This was last reported to you in the Fall of 2007. Since that time, we saw a few more months of successful returns, and then things turned down from January 2008 onwards. That said, while the average returns have been negative, the unpleasantness has been held to average returns of +1% to –3% through June. The first important lesson relearned here is the sacred benefit of fixed income allocation when the equity markets turn bad. Imagine experiencing a tsunami squall, whose driving wind seeks to deliver you inland from the shore several miles, while fixed income is like the firmly planted palm tree to which you hold onto for dear life… all-the-while horizontal to the ground, but rooted. We recently have added some programmed calculations into your annual report which calculate the current year’s annual return on your fixed income component. Typically, that return has been 7-8% this year, to counteract the single and double-digit negative returns in your equity component. And so, major storms pass by as light gusts.
Secondly, as discussed in a Fall 2007 article, long term compound returns can give us solace to face short term disappointment. For instance, a –2.34% return this year (to June 30) for a particular portfolio dropped the 12 year compound return by 0.92% from the 8.15% for the 11 years before. Another portfolio which returned -0.29% to June 30th caused the 14 year compound return to drop by 0.7% from 9.08% for the 13 years before. These two portfolios coincidentally both carry 40% allocations to fixed income.