It would be an absolute understatement to suggest that 2008 has been a difficult year for investors and their financial advisors.  These difficulties have confirmed to us the importance of regular dialogue with clients regarding their specific portfolio as well as more generally about investment markets.  It has also highlighted to us the importance of being totally available for client questions and discussions.  We both comment that these phone discussions, meetings and email discussions are the best part of our work.

It is hard to give prospective clients a sense of what this ongoing communication involves so we have tried to provide a few more details on our Portfolio Management Service & Fees page outlining the communication we have had with our clients over the past 12 months.  For those interested, a summary of these points of contact follow:

November 2007 - Provided a copy of an article written by Alan Kohler and discussed the topics of international share investments including currency hedging, the non acceptance of commissions, the problem of ownership bias, avoidance of hedge fund investments and an explanation of why we use wraps.

December 2007 - Provided an article providing insights into why we build investment portfolios the way that we do.

January 2008 - Provided copies of a couple of articles along with thoughts on on the current market volatility, income planning, cash & fixed interest part of portfolios, the importance of discipline and the risk of overreaction, the resilience of sharemarkets, the Australian advantage of income and a look at property trusts.

February 2008 - Provided thoughts on the following topics - importance of cash and fixed interest investments, the strength of company earnings in the sharemarket (PE ratio), the growth of company earnings, the risk of selling share investments or changing strategy, whether stock picking or "normal" managed funds provide a better return in the current environment, and avoiding the financial collapses that seem common.

March 2008 - Discussed an article written by Ross Gittens,  looked at the underperformance of an alternative "value" investment approach taken by Clime Capital, discussed the issue of companies and investment schemes under stress, and pointed out that sometimes the best investments are the ones you don't make.

March 2008 - Held client seminar looking at current market movements and our response to the current situation.

April 2008 - Sent out March quarter portfolio reviews.

June 2008 - Discussion of the following topics - recent broker consensus reports on the Australian share market, Vanguard's quarterly report on investment markets, what else you could be investing in and why we were not recommending these products, a number of articles looking at our investment approach, upcoming income distributions, 3 booklets produced by Vanguard on realistic sharemarket expectations, index investing and investing for income, and implementation of our fee reduction program.

July 2008 - Discussion of the following topics - scenario planning if the share market were to fall a further 30%, expert stock picks and their subsequent performance, and commentary on investment performance within portfolios.

August 2008 - Sent out 2007/08 income report and included a discussion of whether we should be using unlisted assets in portfolios along with an article putting the current market situation into perspective.

Early September 2008 - Discussion of the following topics - performance for the quarter so far including the impact of the fall in the Aussie dollar, look at earnings growth following the annual reporting season, an article produced by Dimensional looking at how their trusts had held up over the year ending June 30, Vanguard's Australian Sharemarket Volatility Chart, an article looking at past quotes regarding "unprecedented" events that tested investor confidence and an update of our referral program and KIVA lending.

Late September 2008 - Discussion of the following topics - market commentary, our investment philosophy, Macquarie Bank and our approach to reduce costs of the bsuiness and in turn costs for clients.

Late September 2008 - Held client seminar and teleconference looking at the credit crisis and our response to these developments.

October 2008 - Sent out September quarter portfolio reviews along with a discussion of the problems in markets, the government guarantee of bank deposits and looking at a recent article written by Warren Buffett.

Regards,
Scott Keefer

In the latest edition of the Sound Investing podcast, published by FundAdvice.com, Paul Merriman, Tom Cock and Don McDonald discuss stock pickers failing during bear markets, why you should buy stocks now, and myth or reality - professionals beat amateurs at investing.

One warning, the radio show is 51 minutes in length and will use up 47MB of download.

If these constraints are not a problem, I recommend you take a look at the latest podcast - Sound Investing - November 14, 2008

For those who have limited time and/or limited download capability the following is a brief summary of the more relevant material that was covered:

Stock Pickers Fail During Bear Markets

The presenters discuss a recent piece of research conducted by the Vanguard group which shows that in 3 of the last 6 bear markets since 1970 the majority of active managers have failed to beat the relevant market index.

Paul Merriman comments that investors do need to become active, actively taking responsibility for their investments by making changes to decrease expenses, turnover and taxes and to get into asset classes that are in your best interests.

Why should you be buying shares now?

The presenters comment on a recent article written by Knight Kiplinger suggesting now is a great buying opportunity and a wise approach is through dollar cost averaging.

Pau Merriman commented that we can not absolutely depend on the past as a guide to the future.  However, in 1973-74, if you adjusted the losses for inflation a 40/60 strategy has experienced almost the same losses as now.  After 73-74, a diversified portfolio over the next 2 years provided a 34% per annum return.  After October 1987, a diversified portfolio provided a 24% per annum return over the next two years and after the declines of 2001-02, a diversified portfolio provided returns of 25% per annum over the next 2 years.  Finally, after the 1929-32 period the next two years saw a compound rate of return of 23% per annum over the next two years and 47% per annum over the 4 years after 1932.

The key point, investors with staying power won the day.

Back to the Basics

Don McDonald reminds listeners not to invest in investments which you do not understand.

Merriman's Simple Steps

Paul Merriman listed his simple steps to success:

• Own the right asset classes
• Own the right amount of equities and fixed income investments
• Control expenses
• Control hidden charges
• Know your risk tolerance
• Know how to take money out in a low risk way
• Have enough information so that you understand your investments
• Allow markets to do their thing

Myth or Reality: Professional investors have an advantage over amateurs

The presenters suggested that the proxy for professional investors were mutual funds (actively managed funds in our language).  From 1980 to 2005 mutual funds provided investors a compound annualised rate of return of 10%.  If an investor had invested in the S&P 500 they would have received a 12.5% compound rate of return.

The conclusion an average amateur investor who invests in an index fund is likely to be more successful than professional investors.

Regards,

Scott Keefer

Last Saturday, 15th November, Scott Francis joined Warren Boland's "Weekends with Warren" program on 612 ABC Brisbane.  The major topics covered were:

1. The Four Factors Weighing on Share Markets
2. The Role of Interest Rates
3. The Difficulty of Forecasting

Click on the following link to be taken to a summary of the material covered in the segment - Four Factors Weighing on share Markets / Interest Rates / Difficulty of Forecasting