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CLIENT NEWSLETTER

Q1 2013

AMM

AMERICANMONEYMANAGEMENT,LLC

SECRegisteredInvestmentAdvisor

POBox675203,RanchoSantaFe,CA92067Tel8889991395Fax8663641084info@amminvest.comwww.amminvest.com

THE BIG PICTURE ~ REVISITING 5 INVESTING PRINCIPLES


Asweenter2013,wethoughtitwouldbeagoodideatoreviewourcoreinvestingprinciples.Thesearetrulybigpic tureitemsthateveryinvestorshouldrememberwheninvestinginthecapitalmarkets,regardlessoftimehorizonorrisk tolerance.Mostinvestorshavealongertermendgamefortheirinvestment,whetheritistofundamorecomfortable retirement,acharitablecause,acollegeeducation,abigticketpurchase,leavingmoneytoheirs,etc.Yet,toooften,we findtheinvestmentdecisionmakingprocessmuddiedbyshorttermnewsandissuescompletelyoutofourcontrol.We believethefollowingcoreinvestingprinciplesringtrueinanymarketoreconomicclimateandshouldhelpallinvestors successfullynavigatethefinancialmarketsandimprovetheoddsofachievingtheirlongtermgoals. 1.Thefirstandmostimportantdecisionisassetallocation:howmuchshouldbeinvestedinstocks,bonds,real estate,commoditiesandotherassets?Thisisthecriticalinvestingquestionandisoftenoverlookedorgivenshortatten tion.Thedevelopmentofourclientsinvestmentstrategiesbeginswiththisquestionandshouldbeinclusiveoftheir totalfinancialpicture(notjusttheassetswehaveunderadvisement).Investorswithlongertimehorizons(10+years) shouldconsideragreaterweightingtowardsstocksvs.bondsandviceversa.Additionally,theintroductionofnontra ditionalassetslikecommodities,preciousmetalsandabsolutereturnstrategiesshouldprovidemorediversificationand smoother(i.e.lessvolatile)returnsovertime.

2.Volatilityisnotrisk.Volatility(measuredbytheS&PVolatilityIndexorVIX)iscommonlyusedasabarometerof risksincespikesinvolatilityusuallyoccuraroundperceivedperiodsofriskanduncertaintyinthemarket(9/11,Debt CeilingDebateof2011,etc).Webelieveinvestorsshoulddefinetrueriskasthelikelihoodofapermanentlossofcapital. Therearemanywaystopermanentlylosecapital:buysharesinastockthatgoesbankrupt,playrouletteinVegas,sig nificantlyoverpayforanyasset,etc;however,wedonotviewmarketvolatilityasoneofthem.Infact,asitemAbelow shows,periodsofextrememarketvolatility(VIX>40)tendtocoincidewithexcellentbuyingopportunities.

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(TheBigPicturecont.)

3.Thepriceyoupaydeterminesyourreturn.Thelowerthepricepaidonaninvestment,thehigherthereturn.Assim pleasthissounds,itbecomesmoredifficulttodoinpractice,asinvestmentsaregenerallylowpricedwhenthereis significantuncertaintyandfearinthemarket.Ultimately,webelievethebestwayforaninvestortoreducerealriskisto investatfairorvalueprices(i.e.dontoverpayforanything).Ourviewisthatifaninvestorpurchasesaqualityinvest ment(i.e.lowprobabilityofbankruptcy,default,etc)attherightpricethentheyarenotonlymanagingrisk(bynot overpaying)butalsoimprovingtheiroddsofhigherreturns.

4.Timeisyourally,butreturnsarenotlinear.Themostbasicdefinitionofinvestingistoforgoconsumptiontodayfor theopportunitytoconsume/havemoreinthefuture.Considerthatsince1950theaverageannualreturnforstockswas 10.8%,whileamoreconservativeallocationof50%stocksand50%bondswouldhaveannualizedaveryrespectable 8.9%*.Nevertheless,overthesametimeframe,bothstocksandbondsenduredseveralmultiyearperiodsofnegative annualizedratesofreturn,mostrecentlythelostdecadefrom19992009whentheS&P500annualizedatnegative.95% peryear.Sowhileinvestors(eventhosewithamoreconservativeportfolioallocation)shouldbeabletoachieverespect ableratesofreturnovertime,thesereturnsarenotlinear.

5.Youcantpredictthefuture.Anotherseeminglysimplerule,yetalltooofteninvestorsfocustoomuchontryingto predictshorttermeconomicandmarketoutcomes(mostrecentlywhichwaythefiscalcliffwillgo)anddonotfocus enoughonlongtermfundamentalsandvaluations.Uncertaintyisafactoflifeinthefinancialmarkets.Waitingformore clarityalmostalwaysmeanspayingahigherprice(possiblyviolatingprincipal#3).

Thekeytakeawayfromourcoreprincipalsisthatinvestingisalongtermgame:doyourbesttodevelopanassetalloca tionstrategyappropriatetoyourrisktoleranceandtimehorizonandadjustascircumstanceschange,focusonpayinga fairorvaluepriceforinvestments,managerealriskbutdontfretvolatility,andstopwaitingfortheendofuncertainty. Asyourinvestmentadvisorandmoneymanager,wewillcontinuetofollowtheseprincipalstohelpyoumeetyour goalsandobjectivesin2013andbeyond.

WHERE WE ARE INVESTING CAPITAL NOW*


Thecurrentinvestmentlandscapeisonemarkedbyhistoricallylowinterestrates,massivesupportfromglobalcen tralbanksviavariousformsofmoneyprinting,andageneralmistrustamongtheinvestingpublic.Aftertwomajormar ketdeclinesinthesamedecade(49%from200002and57%from200709)manyinvestorshavechosenthepathto safetyprovidedbyinvestmentgradebonds.Withtheyieldon10yearU.S.treasuries(aproxyforthehighestquality bonds)atamere1.7%,wewouldarguethatoverweightingthesesecuritiesviolatesseveraloftheinvestingprincipals above.Mostnotablyprincipal#3asthepricepaidfortreasuriestodayislikelylockinginanegativereal(afterinflation) rateofreturn.Ourfocusacrossallclientportfolios,eventhosewithamandatecallingformostlyfixedincome(i.e. bonds),istopositionforaninevitableriseininterestratesandinflation.Below,weprovideabriefanalysisonwherewe areinvestingcapitalnowacrossthethreeprimaryassetclasses. DiversifyingAssets:Wehavechangedverylittleinourdiversifyingassetstrategyoverthelasttwelvemonths.Ourpri maryfocuswiththeseassetshasbeentoprovideaninflationhedgetoclientportfolios.Researchsuggeststhatperiodsof lowbutrisinginflation(somethingwefeelisindicativeofthecurrentenvironment)shouldbenefitabroadbasketof commodities.Tothisend,wehaveinvestedinbroadbasedcommodityexchangetradedfunds(DJP/DBC)thatwefeel offeragoodinflationhedgeintheeventofrisinginflationdowntheroad.Additionally,wehavecontinuedtoallocate capitaltobothGoldandSilverbullionviaaclosedendfundthatinvestsdirectlyinthesepreciousmetals.

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(WhereWeAreInvestingNowcont.)

Bonds: Thebiggestchallengefacingconservativesaversandinvestorstodayisgettingafairreturnontheirmoneywhile ensuringminimalrisktounderlyingprincipal.Givenourviewof10yeartreasuryreturnsdiscussedabove,wedonot viewthisasafairreturn.Still,conservativeinvestors,especiallythosewithashortertimehorizon,cannotnecessarily affordthevolatilitythatcomeswithinvestinginhigherreturnissues.Volatilitymaynotbetruerisk,butifyouhavea shorttimehorizonyoumaynotbeabletowaitforvolatilitytoworkinyourfavor.Forthisreason,wehavefocusedthe coreofaconservativebondportfolioinhigherquality,shortermaturity(i.e.lowerinterestraterisk)bonds,blendedwith smallerpositionsinmoreaggressivefloatingratenotes,unconstrainedbondstrategiesandemergingmarket/interna tionalbondsinordertoboostoverallportfolioyield.Whiletheyieldsonshortertermbondsarerelativelylow,thena tureoftheshortmaturity,typically<5years,shouldallowustoreinvesttheproceedsathigheryieldsinthefuture.

Forlessconservativegrowthandbalancedaccounts,wecontinuetoinvestinfloatingratenotes,unconstrainedstrate giesandinternationalbondsbuthavemaintainedminimalexposuretolowyieldinginvestmentgradebonds.Floating ratenotesaretiedtoanadjustableratelikeLIBOR;asratesincreasesoshalltheyieldonthesenotes.Unconstrained bondstrategiesfocusongeneratingreturnsinanyenvironmentsotheycanadjusttheirsensitivitytorisinginterestrates andinflation,investoutsidetheUSdollarwithaportionoftheirportfolio,andshort(i.e.betagainst)varioussectorsof thebondmarket. Stocks:Weremainoptimisticaboutstockreturnsoverthelongrun.Overtheshortruntheuncertaintycloudrelatedto thefiscalcliffappearstohavecleared,andglobalstockmarketshaverespondedwithanicebouncetostarttheyear. Still,itisonlyamatteroftimeforanewuncertaintycloudtorollin(forthcomingdebateoverthedebtceiling?)that couldcreateamorefavorableentrypointforclientswithinvestablecash.Inthemeantime,longtermvaluationsremain reasonablerelativetohistory(seetablebelow)andmostotherfinancialassets;so,weintendtoholdcurrentexposureto stocksacrossportfoliostrategies. S&P 500 Valuation Measures** 12/31/2012 1 year ago 3 year avg. 5 year avg. 10 year avg. 15 year avg.

Price to Earnings Price to Book Price to Cash Flow Price to Sales Dividend Yield

12.5 2.3 8.5 1.2 2.4%

11.8 2.1 8.1 1.1 2.3%

12.6 2.1 8.4 1.2 2.2%

12.8 2.2 8.4 1.1 2.1%

14.2 2.5 9.7 1.3 2.1%

16.7 3 11 1.5 1.9%

**Source: Standard & Poors, FactSet, J.P. Morgan Asset Management

Wecontinuetotiltdomesticstockexposuretowardslargecapdividendpayingholdingsandsmallergrowthoriented funds,whereapplicable.Internationally,wehavefocusedthemajorityofourstockexposureinEmergingandFrontier marketswhichwebelievehaveabetterriskrewardprofileoverthelongrun.Additionally,whilethesemarketsto getherrepresentapproximately50%ofGlobalGDP,theycarryonlya13%weightintheMSCIAllCountryWorldstock marketindex.WebelievemostinvestorshaveunderweightedthesemarketsrelativetotheirweightofGlobalGDPand thatdemandforthesemarketswilllikelyincreaseovertime.Finally,wehavecontinuedtoholdarelativelysmallposi tioninEuropeviaexposuretotheiSharesGermanyETF(EWG).WhileweviewGermanyasthestrongestcountryinthe EU,wemayaddbroaderexposuretoEuropeinthemonthstocomeifabuyingopportunitypresentsitself.


*Individualaccountswillvarybasedontheclientsstatedobjectives,risktolerance,andtimeframe.Wemanageseveraldifferentportfoliostrate gies,sonoteveryclienthasexposuretothesecuritieslistedabove.Inadditiontogrowthand/orincomeorientedassetallocationstrategies,wealso managemoreconcentratedequityportfoliosthatgenerallycarryahigherdegreeofriskandvolatility.Pleasecontactusifyouwanttodiscussyour portfoliostrategyoranyofyourinvestmentsingreaterdetail.

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2012 PERFORMANCE REVIEW


Forthecalendaryear2012,theS&P500gained16%,Internationalstocks(EAFE)gained17.9%,Bonds(BarCapUS AggregateIndex)gained4.2%andCommodities(DowJonesCommodityIndex)declined1.1%.While2012wasa strongyearfordomesticandinternationalstocks,theannualizedreturnsfortheseassetsover5and10yearperiodsre mainbelowtheirlongrunaverages.Whilevolatilityanduncertaintywilllikelybewithusfortheforeseeablefuture,we stillviewtheseassetsasprovidinglongterminvestorswiththebestchanceatmaximizingreturnsovertime.

EnclosedisacopyofourPrivacyNotice.WecanalsoprovideyouwithacurrentcopyofourSECFormADVPartII, atyourrequest.Shouldyouhaveanyquestionsregardingyourinvestmentaccount(s),oriftherehavebeenanyrecent changestoyourinvestmentand/orretirementobjectives,pleasedonothesitatetocontactouroffice. Asalways,wethankyouforentrustingAMMtohelpyouachieveyourinvestmentandretirementobjectives.

YourPortfolioManagementTeam Gabriel Wisdom


Managing Director

Michael Moore
Chief Investment Officer

Jim Rhodes, CFA


Executive Director

Glenn Busch
Portfolio Manager

Adele Canetti
Portfolio Manager

Robert Frazier
Investment Advisor

Bryan Case
Investment Advisor

John Nyaradi
Investment Advisor

John Turner
Investment Advisor

Gary Ernst
Investment Advisor

Vicki Ohara
Operations Manager

Lili Waters
Administration

AMERICANMONEYMANAGEMENT,LLC

14249RanchoSantaFeFarmsRoad,POBox675203,RanchoSantaFe,CA92067 www.amminvest.com

Tel:(858)7550909

Tel:(888)9991395

Fax:(866)3641084 Email:info@amminvest.com