NEWSLETTER N° 3

As we write this newsletter, the investment climate has changed greatly since a little over a year ago when stock markets reached extreme highs. We can certainly claim that we warned our course participants that the stock market was due for a correction. Now the big question is whether the correction still has a way to run, or whether the worst is now over and further expansion will be resumed. Some of you may be aware that Paul and I now have a regular programme on Radio 74 when we comment on financial markets and talk about some of the principles of investing. The broadcast is on Sundays after the 09.00 and 18.00 News.

It is reckoned that stock markets anticipate the real economy by about six months and that they return to growth well before the sales and profits pick up again. That has been the logic behind recent stock market rallies, based on expectations of better corporate profitability in the second half of 2001.

We are not so sure. For the "six-month lead" principle to apply, two things are needed:

	overshoot on the way down with average PE's declining below their long-term average of 16. In fact, on the DJIA, they have not yet dropped below 20;
	the real economy must indeed pick up in second half 2001. At present layoffs are continuing and the US spending binge by both corporations and consumers has not been digested.

Given such uncertainty, we favour a more conservative approach to investing than that which was appropriate in the 1990's. We assume that the bear market will last many months, maybe even years, but that the time will come when a return or an expansion in equity holdings is again worthwhile. An investor today needs three things:

	a portfolio with largely "defensive" securities;
	instruments that let him or her participate in market recovery but with limited downside risk;
	an understanding of market behaviour as it is linked to the underlying economic performance of countries and companies.

We have therefore redesigned our course to address investment in bear market conditions. The course can be attended by all our previous participants and by newcomers (although newcomers will be given some "homework" before the course itself).

Our individual financial advisory service on investment funds has proven of great value to those who have used it. We pride ourselves on absolute neutrality, since we have neither a packet of funds to offer people nor a desire to take your money and manage it for you. As you all well know, our wish is to help you manage your own money. All our advice is given in that context.

Readers may wish to be reminded of the terms of our service. First it should be taken up by people who have followed at least one of our investment courses, or, failing that, are well informed on basic investment principles. Our fees are as follows:

	the first, exploratory meeting costs CHF100.- and may be held over lunch;
	an intensive discussion session focusing on the selection of funds then follows for a fee of CHF200.- covering about two hours' work;
	if offshore funds are selected, then we seek a reduction in the "upfront fee" together with a 1% commission from the fund (you gain, we earn something!). The CHF200.- comes out of any such commission.