PERFORMANCE ANNOUNCEMENT

As Of: October 23, 2006

THE IRRELEVANCE OF DOW 12,000

A misleading sound bite

   The Dow Jones Industrial Index has set a new all time record, passing the 12,000 mark. What does this tell us about the state of the markets, and the direction of the economy? What does this mean to you? Not much!

   The previous high was set on January 14, 2000 when the Dow closed at 11,722.98. For those "buy and hold" investors who bravely held on to a Dow Jones Index surrogate for the last 6.75 years, they made about two percent in total, or about one-third of one percent per year -- a lot of work and worry for practically no gain.

   Can we at least rejoice that the market is going up? Well, a look behind the numbers tells a different story. The Dow Jones Industrial Index is made up of thirty stocks. Since the previous high in the year 2000, only ten of those stocks are higher than they were in 2000. That means that two-thirds of the stocks are lower than they were more than six years ago! But dig a little deeper, and the facts get even more confusing. If you wanted to perform along with the Dow Jones Index in 2006, you had to own General Motors in 2006. General Motors is the worst performing stock in the Dow Index over the last six years, and was the subject of a possible bankruptcy filing earlier this year. So in order to match the Dow performance this year, an investor would have had to have held a stock that suffered a terrible loss over the previous five years, or (if he didn't already own GM) have been willing to purchase a weak and speculative GM at the beginning of this year. Mirroring the performance of the Dow Jones Index has simply not been a prudent strategy for the conservative investor concerned with risk management. Additionally, it has not been a winning strategy considering the very poor overall performance during the past 6+ years.

   The true broad stock market, represented by indexes such as the Standard & Poor's 500, the NASDAQ, and the Russell 2000, has not done nearly as well as all the excitement over the Dow Jones might imply. But perhaps more importantly, just focusing on these indexes diverts attention to the real potential in the markets. Over the past few years, the real action has been in the energy sector, basic materials, gold, currency, corn, wheat, and many other asset classes and sectors. A dynamic investment style, that pays attention to risk management as well as potential opportunity, has had the ability to far outperform the Dow Jones Index since the year 2000, and will probably continue to outperform any static index for the foreseeable future.