May 5, 2004

Dear Client:

I have been interested lately in the constant barrage of short missives in the press that go something like this: an attention grabbing headline with a financial prediction, a quote by a financial expert, then a short example of the data that supports that prediction. The articles usually conclude with an offer of advice to help the reader capitalize on the prediction. Here's an example from yesterday's Wall Street Journal:

Call me skeptical, but if these guys are trying to beat their peers, why are they telling everyone what they are buying?

I have an ongoing discussion with a friend of mine who is a finance professor at Berkeley. He and I agree that very few money managers will be able to consistently "beat the market" over the long run, and that the largest determinant of a portfolio's return is the asset allocation (I think it's a fair statement to say that there is an overwhelming amount of academic and empirical support for this statement).

His question to me is: given this information, why do people need money managers? Why not buy a handful of index mutual funds, rebalance the portfolio once a year and leave it at that?

The answer is equally simple: our clients are human and our clients are busy. People are emotionally attached to their money. Money has meaning well beyond the numbers at the bottom of a page.

The benefit of professional money management is not "beating the market". It is helping clients implement and maintain a rational and consistent investment portfolio.

Re-re-revised Portfolio Statements

In our ongoing attempt to make our statements shorter and easier to read, we are now reporting the holdings and performance of your entire managed portfolio. The first page of the following statement lists each of your accounts and the total portfolio value.

Previously we produced a unique set of reports for each account of yours that we manage. Some of the statements were longer than 30 pages, which pretty much destined the reports to the recycling bin.

Regards,

Audrey Grubman, CFP^®