Legend has it that Albert Einstein called compounding the eighth wonder of the world.  Today’s problem is that get-rich-quick (to hell with the risk associated with this method) investors never give compounding a time to work its magic. They forever chase hot sectors, hot mutual funds, or even hot money managers, frequently jumping in at precisely the wrong time, incurring additional and needless cost and ending up with very poor investment results.

To illustrate my last remark please note the following—money that returns 12% per year (including dividends, interest, option program receipts) will achieve the following results.

Assume you start with $10,000.00 in 2007:

                        2013 equals 20,000.00

                        2019 equals 40,000.00

                        2025 equals 80,000.00

This is EIGHT times your money in 18 years.  I should add that this return can often be much greater because of the increased size of the money involved.  This type of return often is achieved by having very small or even minus returns for a few of those years and then having outsized returns for a few years.  The most important thing to remember is that you must PRESERVE YOUR CAPITAL for this to work effectively. 

This illustrates a procedure called "Seigel’s Paradox" named after professor Jeremy Siegel of Wharton School of Business and the author of a book, published several years ago, entitled "Stocks for the Long Run."  His paradox shows that a portfolio’s equal percentage amount advances and declines are not symmetrical. To give a simple example, if your portfolio suffers a loss of 50% of its value over a year’s time, a 50% gain the next year will NOT bring it back to even----you will need a 100% gain just to get back where you started. Capital losses, especially when they are large, create higher and higher hurdles for future performance to reach long-term goals.

That is why we try very, very hard to always achieve positive returns (at whatever rate).  It is no consolation to lose less than the market, it still is a loss. There are bad (slow) years, everyone has them, but preservation of your capital is the most important! 

We are positioned to achieve really outsize returns for 2007.  Please know that we are constantly watching all of your investments on a 24/7 basis and we are really excited about the coming year.

Warm regards,

Jack