7/29/2019 American Money Management Client Letter Q1 2013

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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.

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(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*

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*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

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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.