2009 Year End Assessment
“BACK AND FORTH”
After a loss of over 35% in the Dow Jones Industrial Average in 2008, 2009 began with an additional 23% decline to the lows of March 9, 2009 which culminated a 53% loss from the beginning of 2008. Then from the March low to the first of June, the Dow regained 30%, only to lose another 6% to the end of June. Beginning in July 2009 the market proceeded to post five out of six positive months to end the year with the Dow posting a gain of 22.6%. 2009 ended like the last two hundred feet of a rollercoaster ride. The white-knuckled, closed eyes ups and downs were quickly forgotten and we casually exited the frightening ride ready to go again.
During this tumultuous time, most of our accounts endured the ride with smaller peaks and valleys to end the year with modest gains for 2009, but bettered the 24 month period with less damage than that experienced by the Dow Jones Industrial Average. As you know, during the year we maintained very high money market balances which smoothed the ride to a great degree. In fact, many accounts ended 2009 within 10% of their year end 2007 balances while the market in general was still down some 20% for the two year period.
Moving forward into 2010, the market began with a 5% gain for the first two weeks of the New Year, only to give it up over the last four days. The market is still benefitting however from historically low interest rates. With money market accounts yielding practically nothing, the equity markets still offer the best alternative for higher returns.
As usual, market opinions vary widely. One school of thought is that the market will continue to push upward. A short term bias to the upside has been established and the possibility of mid to higher single digit returns for the year is a real possibility. The other school of thought is that the market has become overvalued and that the performance enhancing efforts of the Federal Reserve with their low interest rate posture, has run its course which means interest rates must rise. Although markets can still move higher in a higher interest rate environment, they must be accompanied by an increase in corporate earnings, which are difficult to achieve in an economy with 10% unemployment.
Our approach will still be one of active management. We will continue to maintain an allocation to mutual funds and fixed income as core holdings, while using a tactical approach (buying and selling) individual equities and ETF’s to enhance returns. Capital preservation however is still our primary goal.
January 2010
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