Monthly Commentaries

Perspectives from Poker – July, 2005

July was a banner month for equity markets as the major indexes set new highs for the year. Good news from the economy continued with almost 80% of reporting companies either meeting or exceeding market expectations. At month-end, first quarter US GDP growth was revised up from an initial 3.1% to 3.8%. Any investor who followed the old adage "Sell in May and go away”, would unfortunately have missed a 10.5% rally from the May lows. This just underscores why trends can’t be relied on to achieve long-term investment performance. That’s why we continue to be amazed at the amount of television coverage that poker is getting. It seems that poker has now surpassed reruns of M*A*S*H and is challenging Star Trek as the omnipresent program on television. If this is what people are watching, what does it tell us about the audience? From our perspective this is another indication of people believing that they can “win big”. Whether in poker, lotteries or stock trading, people want to believe there is one big win that will leave them set for life. Little attention is paid to long-term planning, hard work, or the old fashioned concept of saving. Of course these mundane concepts don't make for interesting television. The same can be said for the investment industry as the primary focus is gambling on quarterly earnings expectations.

If we, as a society, expect to succeed over a long period of time we have to stop looking for the quick payoff and start planning and managing for the long-term. This is equally true for the individual and the corporation. Ten years from now, what difference will it make if Intel missed its 2005 third quarter earnings by one cent? What should matter is how the corporation prepared its business model for the decade. During this summer season, take a moment to examine your long-term goals and plan accordingly. Experience has shown that living for the quick payoff ultimately ends in tears. Arthur Heinmaa, CFA Managing Partner