What We Learned in January 2012

• Markets continue to surprise analysts, which is why we do not think that Wall Street forecasters add value. The major US markets were up in January, 2012, with their best January in 15 years. Few people would have predicted these gains. As we focus on the long term, the stock allocations of our clients benefited.

Foreign markets did better than US markets in January 2012. This is the opposite of what occurred during 2011. This further shows that stock markets cannot be accurately forecasted on a consistent basis.

• During numerous meetings with prospective clients, we saw examples of portfolios that were not even close to being properly diversified. We also saw many illiquid holdings, where these people could not readily access their funds. Other brokers had placed them into investments which may take months or years to get their money. We have never recommended such investments. Liquidity and flexibility are important.

Almost 60% of the US large companies that have reported earnings in 2012 have exceeded their forecasts. The economy and companies continue to be resilient, despite ongoing world economic problems and political uncertainty.

• We continue to learn in many ways, both live and through technology. Keith attended a national conference in Arizona. Via Twitter, Brad closely followed many of the sessions that were held during the AICPA Personal Financial Planning conference.

• Watching the movie “Moneyball” reminded me of when I read the book, when it was first published. The theme of both the book and movie, as well as our investment philosophy, is that it is hard or impossible to predict which baseball players (or stocks) will be successful in the future. Acquiring baseball players that few want (they are like out of favor stocks) can be cheaper and can provide a greater return on your investment. Moneyball is the baseball equivalent of “value investing,” which is a key component of our investment philosophy.

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