Shareholder Letter

Dear Fellow Shareholders

Stocks were strong during the first quarter of 2012, continuing to recover. After reaching a low point three years ago, major indexes like the S&P 500, the Dow Jones Industrial Average and the Russell 2000 are now approaching their highs of five years ago.

Investors who held a steady asset allocation have largely recovered from the worst stock decline in recent history. But many investors fled equities in an attempt to stem losses. We know that human beings are strongly loss adverse. So during periods of extreme market loss even the most seasoned investors feel compelled to try to stop the pain.

The past 12 years has been the worst period for stocks ever, so it’s understandable that investors are cautious, but it is also critical to be realistic. Risk is a reality, both in our portfolios and in the world. Stocks will be volatile. Some companies will fail, and certain sectors and regions may fall out of favor for years at a time.

But remember that reward is also a reality: historically, stocks have been a great long-term investment. The average 20-year return from stocks, as measured by the S&P 500 Index, is better than the best 20-year returns for bonds, as measured by the Barclays Aggregate Bond Index, or cash.

So step back, review your personal situation with risk and reward in mind, and make sure your investments match your goals and needs. A balanced account should help cushion market volatility and help keep you invested for the long term. To find the right balance, start by thinking about when you will need the money. We believe that assets that will not be used for 20 years should be allocated to stocks. (See the long-term growth chart of stocks vs. bonds.)

Finally, realize markets change. Leadership is passed from sectors and styles to new areas as conditions change. We believe flexibility and responsiveness are key. Our active, disciplined investment approach seeks to take advantage of changes in market leadership. In each of our funds, we hold a diversified portfolio of underlying funds and ETFs because funds and ETFs offer what we believe is the most efficient way to capture market leadership. We carefully monitor the fund portfolios and systematically adapt and adjust our positions as new trends take hold.

Thank you for giving us the opportunity to serve you,

Janet Brown

President and Portfolio Manager

The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Dow Jones Industrial Average Index is a price-weighted average of 30 actively traded blue chip stocks as selected by the editors of the Wall Street Journal. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Barclay's Aggregrate Bond Index is a market-capitalization-weighted index of investment-grade fixed-rate debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of at least one year. You cannot invest directly in an index.

Diversification does not assure a profit or protect against loss in a declining market.

Publication Date:

  • Upgrader Quarterly: Spring 2012