Notable, Quotable, Potable

4Q 2011

“It was the best of times, it was the worst of times…” Opening line, Charles Dickens 1859 novel Tale of Two Cities.

Investors can’t be blamed if they felt the same way about financial markets in 2011. Indeed, even seasoned industry professionals have grown frustrated with the recent experience, which includes a heavy dose of uncertainty and sparse gains. Thankfully, in reviewing the statements that follow, you’ll observe a rather powerful year-end rally that helped diversified portfolios recover meaningfully from the earlier correction. For the quarter, domestic equities returned between 10.6% (Large Growth) and 16.0% (Small Cap Value). International stocks and currencies stabilized somewhat, with index performance ranging from -0.6% (Small Cap Developed) to 4.4% (Emerging Markets). Fixed Income categories appreciated across the board as interest rates remained low and stable.

We must, indeed, all hang together, or most assuredly we shall all hang separately.” Remarks of Benjamin Franklin, just before signing the Declaration of Independence in 1776.

Of course, the elephant in the room remains the debt situation in Europe, which has implications far beyond the near term deleveraging (recessionary) forces associated with it. Although progress toward a tighter fiscal union is being made, much work remains, and investors still largely perceive the eurozone as 17 separate nations clinging to their sovereignty. Through time, investing with catastrophe as the expected outcome has proven to be a foolish strategy, and we believe the attractive valuations being placed on foreign company stocks offers opportunity if the risk of a disastrous break-up diminishes.

“We have two classes of forecasters. Those who don’t know – and those who don’t know they don’t know.” John Kenneth Galbraith, 20th century economist

While it’s important to have an informed view of the macroeconomic world, we recognize that near- term forecasts are frequently wrong. At the same time, it appears longterm investors are being well compensated in certain asset classes relative to the downside risks that they are being asked to bear. It can be seed planting time for those with the willingness to stomach potential volatility. Perhaps near 0%  yields in cash and elevated Treasury bond prices will provide the catalyst.

“Thinking is rehearsing.” Sigmund Freud, founder of modern psychoanalysis

Thinking is no substitute for acting. While we strive to accumulate the data and analyze the opportunities, the most important role we serve as your trusted advisor is to put developed strategies into action. Through discipline and consistency, we’re continually taking steps to improve diversification and maximize risk-adjusted returns. In the end, it’s these steps that will help achieve goal optimization.