PERFORMANCE ANNOUNCEMENT

As Of: June 7, 2002

Making Money

A reminder In The Midst Of Pessimism

    From the perspective of a value investor, making money in the stock market is not an impenetrable mystery. The primary qualities necessary are discipline, conviction, and patience. In 1998, when everyone else was chasing technology stocks up to astronomical levels, I refused to own any tech stocks. I was buying gold stocks (and REITs and foreign bonds, etc.). I purchased Barrick Gold, Newmont Mining, Hecla, and Glamis Gold. Hecla and Glamis were on their way down to becoming one dollar stocks. I suspected that at least one of the group was going to end up in bankruptcy, or perhaps be bought out for a pittance. As it has turned out, I started purchasing way early, so it took three and one-half years to make as much as 500% on my investments; but anytime I can make five times my money in less than four years, I am happy. (Glamis recently traded over $10, and I sold some Hecla at $5.70 this week.)

    Gold may go to $500 per ounce, but I probably won't be there to gain the full benefit. Once the obvious value is priced in, it is time to move on. (I like the low risk profits. I try not to stay for the speculative top, because I inevitably get sucked into the subsequent drop.)

    I bring up the gold example not to brag, but because I am constantly rewarded when I can find value in the places where nobody else wants to be. Right now, investors are chasing retail stocks and homebuilders. Where don't they want to be? They are shunning the merchant energy companies, telecoms, and other technology stocks. There is no question that some of these unloved and unwanted stocks won't survive. Among those that do, it will take a while for their prices to rebound. If I knew for sure who the survivors will be, I would only buy them. In the absence of such knowledge, the only reasonable approach is to buy a portfolio of stock in the sector so that the winners will offset the losers. If one stock goes to zero and four triple in value, is that a worthwhile investment? I think so. It just takes discipline, conviction, and patience.

    This is the third consecutive week that the Dow Jones Industrial Index has closed down. The Index has lost over 760 points during the last three weeks (considerably more than that from the intra day high to the intra day low). Considering the hundreds of billions of dollars lost recently, it seems to many investors as if the world is coming to an end. I certainly can't say that all is well, but I can say that there is always opportunity. Don't get pulled into the whirlpool of pessimism. Even in a down market, the seeds are being sown for future profits.