Post on 04-Apr-2018
7/29/2019 American Money Management Client Letter Q1 2013
1/4
POBox675203,RanchoSantaFe,CA92067 Tel8889991395 Fax8663641084 info@amminvest.com www.amminvest.com
Q1 2013CLIENT NEWSLETTER
THE BIG PICTURE ~ REVISITING 5 INVESTING PRINCIPLES
AMERICANMONEYMANAGEMENT,LLC
SECRegisteredInvestmentAdvisor
AMM
(OVER)
Asweenter2013,wethoughtitwouldbeagoodideatoreviewourcoreinvestingprinciples.Thesearetrulybigpic
tureitemsthateveryinvestorshouldrememberwheninvestinginthecapitalmarkets,regardlessoftimehorizonorrisk
tolerance.Mostinvestorshavealongerterm endgame fortheirinvestment,whetheritistofundamorecomfortable
retirement,acharitablecause,acollegeeducation,abigticketpurchase,leavingmoneytoheirs,etc. Yet,toooften,we
findtheinvestmentdecisionmakingprocessmuddiedbyshorttermnewsandissuescompletelyoutofourcontrol.We
believethefollowingcoreinvestingprinciplesringtrueinanymarketoreconomicclimateandshouldhelpallinvestors
successfullynavigatethefinancialmarketsandimprovetheoddsofachievingtheirlongtermgoals.
1.Thefirstandmostimportantdecisionisassetallocation:howmuchshouldbeinvestedinstocks,bonds,realestate,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.
7/29/2019 American Money Management Client Letter Q1 2013
2/4
P a g e 2
(TheBigPicturecont.)
Thecurrentinvestmentlandscapeisonemarkedbyhistoricallylowinterestrates,massivesupportfromglobalcen
tralbanksviavariousformsofmoneyprinting,andageneralmistrustamongtheinvestingpublic.Aftertwomajormar
ketdeclinesinthesamedecade(49%from200002and 57%from200709)manyinvestorshavechosenthepathto
safety providedbyinvestmentgradebonds.Withtheyieldon10yearU.S.treasuries(aproxyforthehighestquality
bonds)atamere1.7%,wewouldarguethatoverweightingthesesecuritiesviolatesseveraloftheinvestingprincipals
above.Mostnotablyprincipal#3asthepricepaidfortreasuriestodayislikelylockinginanegativereal(afterinflation)
rateofreturn.Ourfocusacrossallclientportfolios,eventhosewithamandatecallingformostlyfixedincome(i.e.
bonds),istopositionforaninevitableriseininterestratesandinflation.Below,weprovideabriefanalysisonwherewe
areinvestingcapitalnowacrossthethreeprimaryassetclasses.
DiversifyingAssets:Wehavechangedverylittleinourdiversifyingassetstrategyoverthelasttwelvemonths.Ourprimaryfocuswiththeseassetshasbeentoprovideaninflationhedgetoclientportfolios.Researchsuggeststhatperiodsof
lowbutrisinginflation(somethingwefeelisindicativeofthecurrentenvironment)shouldbenefitabroadbasketof
commodities.Tothisend,wehaveinvestedinbroadbasedcommodityexchangetradedfunds(DJP/DBC)thatwefeel
offeragoodinflationhedgeintheeventofrisinginflationdowntheroad.Additionally,wehavecontinuedtoallocate
capitaltobothGoldandSilverbullionviaaclosedendfundthatinvestsdirectlyinthesepreciousmetals.
3.Thepriceyoupaydeterminesyourreturn.Thelowerthepricepaidonaninvestment,thehigherthereturn.Assim
pleasthissounds,itbecomesmoredifficulttodoinpractice,asinvestmentsaregenerally lowpricedwhenthereis
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,mostrecentlythe lostdecade from19992009whentheS&P500annualizedatnegative.95%
peryear.Sowhileinvestors(eventhosewithamoreconservativeportfolioallocation)shouldbeabletoachieverespect
ableratesofreturnovertime,thesereturnsarenotlinear.
5.Youcantpredictthefuture.Anotherseeminglysimplerule,yetalltooofteninvestorsfocustoomuchontryingtopredictshorttermeconomicandmarketoutcomes(mostrecentlywhichwaythefiscalcliffwillgo)anddonotfocus
enoughonlongtermfundamentalsandvaluations.Uncertaintyisafactoflifeinthefinancialmarkets.Waitingformore
clarity almostalwaysmeanspayingahigherprice(possiblyviolatingprincipal#3).
Thekeytakeawayfromourcoreprincipalsisthatinvestingisalongtermgame:doyourbesttodevelopanassetalloca
tionstrategyappropriatetoyourrisktoleranceandtimehorizonandadjustascircumstanceschange,focusonpayinga
fairorvaluepriceforinvestments,managerealriskbutdontfretvolatility,andstopwaitingfortheendofuncertainty.
Asyourinvestmentadvisorandmoneymanager,wewillcontinuetofollowtheseprincipalstohelpyoumeetyour
goalsandobjectivesin2013andbeyond.
WHERE WE ARE INVESTING CAPITAL NOW*
7/29/2019 American Money Management Client Letter Q1 2013
3/4
P a g e 3
*Individualaccountswillvarybasedontheclientsstatedobjectives,risktolerance,andtimeframe. Wemanageseveraldifferentportfoliostrate
gies,sonoteveryclienthasexposuretothesecuritieslistedabove.Inadditiontogrowthand/orincomeorientedassetallocationstrategies,wealso
managemoreconcentratedequityportfoliosthatgenerallycarryahigherdegreeofriskandvolatility.Pleasecontactusifyouwanttodiscussyour
portfoliostrategyoranyofyourinvestmentsingreaterdetail.
(OVER)
(WhereWeAreInvestingNowcont.)
Bonds:Thebiggestchallengefacingconservativesaversandinvestorstodayisgettingafairreturnontheirmoneywhile
ensuringminimalrisktounderlyingprincipal.Givenourviewof10yeartreasuryreturnsdiscussedabove,wedonot
viewthisasafairreturn.Still,conservativeinvestors,especiallythosewithashortertimehorizon,cannotnecessarily
affordthevolatilitythatcomeswithinvestinginhigherreturnissues.Volatilitymaynotbetruerisk,butifyouhavea
shorttimehorizonyoumaynotbeabletowaitforvolatilitytoworkinyourfavor.Forthisreason,wehavefocusedthe
coreofaconservativebondportfolioinhigherquality,shortermaturity(i.e.lowerinterestraterisk)bonds,blendedwithsmallerpositionsinmoreaggressivefloatingratenotes,unconstrainedbondstrategiesandemergingmarket/interna
tionalbondsinordertoboostoverallportfolioyield.Whiletheyieldsonshortertermbondsarerelativelylow,thena
tureoftheshortmaturity,typically
7/29/2019 American Money Management Client Letter Q1 2013
4/4
P a g e 4
14249RanchoSantaFeFarmsRoad,POBox675203,RanchoSantaFe,CA 92067
www.amminvest.com
Tel:(858)7550909 Tel:(888)9991395 Fax:(866)3641084 Email:info@amminvest.com
AMERICANMONEYMANAGEMENT,LLC
YourPortfolioManagementTeamGabriel Wisdom Michael Moore
Managing Director Chief Investment Officer
Jim Rhodes, CFA Glenn Busch Adele Canetti Robert Frazier Bryan Case
Executive Director Portfolio Manager Portfolio Manager Investment Advisor Investment Advisor
John Nyaradi John Turner Gary Ernst Vicki Ohara Lili WatersInvestment Advisor Investment Advisor Investment Advisor Operations Manager Administration
2012 PERFORMANCE REVIEW
Forthecalendaryear2012,theS&P500gained16%,Internationalstocks(EAFE)gained17.9%,Bonds(BarCapUS
AggregateIndex)gained4.2%andCommodities(DowJonesCommodityIndex)declined 1.1%.While2012wasa
strongyearfordomesticandinternationalstocks,theannualizedreturnsfortheseassetsover5and10yearperiodsre
mainbelowtheirlongrunaverages.Whilevolatilityanduncertaintywilllikelybewithusfortheforeseeablefuture,we
stillviewtheseassetsasprovidinglongterminvestorswiththebestchanceatmaximizingreturnsovertime.
EnclosedisacopyofourPrivacyNotice.WecanalsoprovideyouwithacurrentcopyofourSECFormADVPartII,
atyourrequest.Shouldyouhaveanyquestionsregardingyourinvestmentaccount(s),oriftherehavebeenanyrecentchangestoyourinvestmentand/orretirementobjectives,pleasedonothesitatetocontactouroffice.
Asalways,wethankyouforentrustingAMMtohelpyouachieveyourinvestmentandretirementobjectives.