2/3/2010 Historical Post

From: Dale Beals <dpbeals@comcast.net>
Subject: Just a quick update on my thinking … please call with any questions
Date: February 3, 2010 7:16:09 PM CST

Dear Clients,

First, thanks for hanging in there with me when I was so timid from September on. The dip I was concerned about finally arrived, and I was able to dollar-cost average some money into the market this Monday morning, Feb 1 at a good time.  Last Friday and Monday, the S&P 500 was back down around the levels from last September and October…. Amazing how the market can give back several months of gains in less than 2 weeks.
I don’t know if there is more downside after the bounce of Monday and Tuesday.  If the market goes lower after today, I’ll plan on more downside and may hedge a little. Either way, the plan remains the same…. dollar-cost-average into the market, based on our models, at the rate of 10-20% more each month.
For those of you who are watching your holdings and comparing to the Asset Allocation Sheets from Appendix A of your Investment Strategy documents,
I’m going to use EWJ – the ETF for Japan’s Nikkei index instead of EFA – the ETF for Europe’s developed markets, for the non-US developed markets.
I’m going to use GAZ – the ETF for US Natural Gas instead of USO – the ETF for US Oil as part of the allocation in the Satellite portfolio.
You may also notice the symbol UUP – the ETF that tracks the movement of the US Dollar against a basket of other currencies. Right now, believe it or not, the US $ has begun an uptrend which we will opportunistically follow until it ends.
Don’t put too much stock in what they say on CNBC every day about why the market went up (or down). What years of study have shown me is that every day there is plenty of bad news and there is plenty of good news about the markets or the economy. If the markets go down, then the pundits link that to fear of unemployment, or fear the stimulus will stop… or any of the bad news of the day. Their reasons may have nothing to do with what actually tipped the scales.
Similarly, when the market is up, the pundits will say “Intel had great earnings” or “Manufacturing index rose over 50.0”. They don’t know what really tipped the scales any more than you and I. They are like sportscasters who have to keep talking about the action, so folks will stay interested and keep watching their commercials. Making investment decisions on what pundits say is extremely hazardous to your savings.
What does matter, and what can be used, is an understanding of the emotion or sentiment of the “Big” investors and the “Little” investors. Like you and me, our overall view causes us to filter the news and focus more on the good news or the bad news, depending on how we feel.  The “Big” investors are not immune to this, but they are aware of it and try to compensate.  The “Little” investors are usually wrong when they all agree.
That is why asset diversification is so critical. That is why allocation of your money to each asset class, based on its volatility and direction is so key to managing risks. That’s why a steady discipline has kept us from big losses during the 2008 crash.
Let’s look at our scenarios again:
1. Inflation, leading to higher interest rates and devaluation of the dollar.
2. Recovery, where we keep reasonable interest rates and gradually return to prosperity.
3. Recession / Depression, where economies turn down and stock markets drop.
A month ago the inflation and recovery scenarios were about even, and the recession/depression scenario was in 3rd place.
Now, in my view Inflation and Recession are tied in 1st, with Recovery in third.
I’ll keep watching and positioning with an eye to 1. Risk Management, 2. Disciplined asset allocation, 3. Averaging back into the market, and 4. Opportunistic trades when I think reward outweighs risk.
I appreciate each of you so much.
Thanks for everything.