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					                   observations                             investment



As Nick Murray says...                                                                                    fall 20 08

Just as we were preparing                                              not; it matters not. And it’s      inside this issue:
to go to press with our third-                                         all too boring for words.”
                                                                                                          As Nick Murray says...
quarter Investment Observations
newsletter, dramatic events                                            I couldn’t have said it better.    Remember the Lifeboat Drill
unfolded in headlines and on                                           Murray concludes his essay
                                                                                                          Great Idea or Great Investment?
news broadcasts across the                                             with a personal musing. “Joan
country and the world as Wall                                          and I had been planning, and       Negotiating Savings
Street reeled from the credit                                          saving assiduously for, some
bubble pop. That made the                                              major renovation work in our       Writing, editing and preparing our
articles we planned irrelevant,                                        brownstone…this winter…            newsletters is not an overnight
so we went back to the huddle       Joseph A. Sheehan cfp, cfa         suffice it to say that this was    process, and our goal is to offer
                                    managing principal
and called a new play.                                                 a very solid six-figure project.   insights and information that
                                                                       This week, we advised the          are as up-to-date as possible.
Moneta Group Family CFOs           respected writer in the financial   contractor...that we are           The third-quarter Investment
have been in touch with clients    industry. Nick says:                going to wait ’til next year,      Observations newsletter arrives
over the past few weeks,                                               whereupon we put every             a bit later than planned, but we
providing answers to many          “First, let me foreswear any        plugged nickel in the equity       hope represents a more timely
questions—some of them             attempt to be timely in this        market. We did so out of one       reflection of what occurred in
fraught with anxiety. It is        essay, which of necessity is        overriding conviction: that        the markets in recent weeks.
unreasonable to expect anyone      being written about 10 days         when this is over—whenever and
with access to the news not        before you see it. In the           wherever that is—these prices      We are very pleased that we are
to be scared. These have been      interim, things being as they       will never be seen again.”         now able to communicate with
stressful days, but we are         are, the market may go up                                              clients much more rapidly through
confident in our strategy, which   and/or down 4 percent in a          I conclude with words of           the “For Our Clients” area of our
takes advantage of market          day several times; a number         encouragement: Yes, these last     Web site, www.monetagroup.com.
swings and hopefully provides      of banks and/or insurers may        few weeks have been difficult      Here you will find weekly postings,
some peace of mind.                tank, merge and/or get bailed       ones and we can’t be certain       as well as ongoing additions of
                                   out—eventualities that the          what’s in store in the near        articles on a variety of topics. If
As always, it would be nice to     mob will greet with euphoria        future, but be assured that        you have not received your User ID
have a crystal ball and be able    and/or terror on succeeding         our commitment to our clients      and Password, please contact your
to tell you what lies ahead, but   days; and the federal               and our promise to act in your     principal team or Nancy Powers
that is not possible. Instead,     government will elect to            best interest does not waiver—     at npowers@monetagroup.com.
I’m going to borrow the no-        rescue them all and/or let          no matter how choppy the           As always, we welcome your
nonsense perspective of Nick       them all burn from a Friday to      financial seas. Remember           feedback and ideas for future
Murray, a renowned and             a Monday. I know not/I care         the Life Boat Drill!! v            Observations newsletters.
observations
Remember the Lifeboat Drill
                                        • In 1998, Long Term Capital          Unfortunately, when markets         historical precedent—you’ll
                                          Management, a hedge fund            correct, the normal human           accomplish several things:
                                          with more than $125 billion in      response is to make an ad
                                          assets, collapsed—and nearly        hoc reappraisal of one’s level      • You’ll be ‘buying low.’
                                          brought the world’s financial       of risk-tolerance. That’s quite
                                                                                                                  • When the markets recover,
                                          markets down with it.               understandable, because
                                                                                                                    it will take less time to return
                                                                              when threatened, it’s natural
                                        • Beginning in March 2000,                                                  to your previous level.
                                                                              to become more defensive.
                                          the tech bubble collapsed—
                                                                              But that normal human               • You’ll avoid the cataclysmic
                                          wiping out trillions of dollars
                                                                              response is contrary to one’s         mistake of exiting the market
 Timothy J. Halls                         of stock market value.
 cfp ®, cfa, awma                                                             best interest and contrary to         at the bottom and missing
                                                                              successful investing.                 out on the recovery.
                                        Yet somehow, after each of
It is a confusing and challenging       these cataclysmic events, the                                             • You will take the
                                                                              At the beginning of your
time for investors. While history       markets bounced back.                                                       guesswork out of your
                                                                              relationship with your Moneta
is littered with instances of                                                                                       investment strategy.
                                                                              Family CFO, and frequently
financial turmoil, it is difficult to   Now we have the collapse of
                                                                              discussed during ongoing
shake the feeling that ‘this time,      the credit bubble, and with it,                                           At Moneta Group, we can’t
                                                                              review meetings, you and
it’s different.’ That reaction          the repeated use of the word                                              predict where the market is
                                                                              your principal went over the
isn’t helped by a news media            ‘unprecedented.’ That’s a                                                 headed in the short term.
                                                                              Lifeboat Drills, illustrating
that seems to be challenged to          word not to be tossed around                                              We are, however, confident
                                                                              the loss potential for your
provide balanced coverage.              lightly. While by any measure                                             in the long-term. Remaining
                                                                              specific portfolio allocation
                                        the planned government                                                    disciplined in times of market
                                                                              in a down year. Still, with all
During the times it occurred,           bailout is huge, saying it is truly                                       peaks and troughs, and
                                                                              that has ocurred in the past
past turmoil was viewed with            unprecedented ignores the                                                 actively rebalancing into
                                                                              weeks, it is human nature
similar levels of fear.                 market interventions of years                                             depressed asset classes, are
                                                                              to feel uncomfortable in
                                        past, just as saying, ‘this time,                                         two components that separate
                                                                              today’s markets.
• On Black Monday (Oct. 1987),          it really is different,’ ignores                                          successful investors from
  the Dow Jones lost nearly 23          historical reality.                                                       unsuccessful ones. Now is
                                                                              What to do? Accept that there
  percent of its value in one day,                                                                                one of the critical times when
                                                                              has always been volatility in
  and a total of more than 31           Moneta’s philosophy neither                                               sticking to the plan and agreed
                                                                              the markets. During those
  percent for the week.                 changes with market variances                                             upon asset class exposure is
                                                                              times, it is natural to feel
                                        nor is it passive. We create                                              of vital importance. v
• Over a very short time period                                               uncomfortable. But a sound
                                        portfolios with a level of
  in the late 1980s, America’s                                                investment strategy dictates
                                        downside risk a client feels
  Savings and Loan industry                                                   rebalancing your portfolio to
                                        comfortable taking. We
  essentially disappeared.                                                    your previously agreed-upon
                                        allocate the assets across
                                                                              allocations. That is one thing
• At its height in the mid-’80s,        lowly-correlated asset
                                                                              that, historically, has worked to
  Drexel Burnham was the                classes, and then, through
                                                                              take advantage of the inevitable
  fifth largest investment              rebalancing, we stay with the
                                                                              upswings in the markets. No
  bank in the world. By 1990,           plan as the markets inevitably
                                                                              one knows where the markets
  it was bankrupt and the               go up and down.
                                                                              will be in the short-term. But
  high yield bond market
                                                                              by rebalancing—based on
  was severely scarred.


4
Great Idea or Great Investment? What’s More Important?
                                          “ The individual investor should act consistently as an
                                            investor and not as a speculator. This means...that he
                                            should be able to justify every purchase he makes and
                                            each price he pays by impersonal, objective reasoning
                                            that satisfies him that he is getting more than his money’s
                                            worth for his purchase.” — Benjamin Graham
 Luke Ferraro
                                         Investors are attracted to the       that many alternative energy          of the late ’90s is an instructive
                                         potential payout, but they           companies have the potential for      example: No one would maintain
As I write this article, oil is          often forget to consider the         fantastic future earnings growth,     that the Internet is less prevalent
trading at around $120 per barrel        opportunity for losses. Just look    but the problem lies with the         today than it was 10 years ago. It
($86 a barrel as of October 10,          at Las Vegas: The city would not     price we have to pay.                 has grown by leaps and bounds
2008). Although this price is            exist if people really took a hard                                         since 1999, just like alternative
close to being 20 percent lower          look at their odds for success.     Currently, many alternative            energy may grow from now until
than it was in early July, it is still                                       energy companies trade above           2019. But it is important to look
considerably higher than where           This brings us to the classic       70 times earnings (PE of 70)—          at how the majority of the tech
it was trading last year. Let            question of gambling vs.            if they have earnings at all—and       stocks performed in the past 10
us also keep in mind that last           investing. Gambling is wagering     companies that have no earnings        years. The NASDAQ is still roughly
year, at $80 per barrel, we were         a sum of money with the             (and there are many of them)           half its value from the peak in
already wishing for some relief.         expectation of outsized returns.    are even harder to value. That         March 2000. This scenario is
                                         Those oversized returns are there is not to imply that there are no        what we are trying to avoid.
Regardless of the exact price            because the odds of success are good investment opportunities
of crude oil, prices for oil in          not in our favor. Investing, on the currently in the space. Our active     I am not advocating that all
general are high, and this has           other hand, is wagering a sum of managers are always looking at            alternative energy companies
generated an enormous amount             money with the expectations of      whether or not it makes sense          are overpriced and should be
of interest in alternative energy        a reasonable return because the     for your portfolio to invest in        avoided. I am simply pointing out
sources. Even T. Boone Pickens,          odds of success are in our favor.   these companies.                       that having a static allocation
the legendary oil trader, has                                                                                       of alternative energy stocks in a
developed his own alternative            I could write 300 pages on how       I am guessing that right now          portfolio is not prudent based on
energy plan.                             to buy the right stocks at the       many of you are thinking, “Yes,       what we currently know.
                                         right time, or you could go to       but this is the next great theme
So the question becomes,                 your local bookstore and pick        for the next 10 years.” This could    Our active managers work
‘Is a great idea for the country a       up a book on investing (one or       very well be the case, and if I had   to identify good investment
great investment opportunity?’           two may have been written).          to guess, I would say that the        opportunities based on individual
                                         But to summarize: We want to         alternative energy bandwagon          risk/reward relationships. It
Every decision we make for your          buy companies that have the          is here to stay. However, if you      is always our goal to identify
portfolio looks at both future           potential for future earnings        pay too much, you can lose a          these opportunities and to make
upside potential and future risks.       growth, and we want to pay           great deal of money even though       appropriate investments that
Risk is something that often             a reasonable price for these         you might have been correct on        will affect your portfolio in a
gets overlooked by investors.            companies. I do not doubt            the idea. The dot-com bubble          positive manner. v


                                                                                                                                                     5
observations
Bear Markets:
Traditional Definition:
                                    Negotiating Savings
“A bear market is a period
of time during which               One of the Core Values we            There is only one reason an         I share this with you because
common stocks are returned         hold dear at Moneta Group is         investment company would            in years when the equity
to their rightful owners.”         to do only what is in our clients’   do this: They stand to lose a       markets are not behaving the
                                   best interests. To that end, we      significant amount of money         way we would like, we want
Bear Markets:
                                   take no compensation from the        if the investment dollars           you to know that we are taking
The Murray Corollary:
                                   investment vehicles we use.          were to be moved by a large         advantage of this situation by
“A bear market is a period
                                   This makes us unusual in the         RIA, like Moneta. For some          engaging in hard negotiations
of time during which people
                                   investment community. It also        companies, like Vanguard,           that will accrue a benefit to
who think this is different
                                   allows us to help you achieve        lower fees are part of their        you for years to come.
sell their common stocks—
                                   your goals and objectives            culture and differentiation.
at prices that will never
                                   because the investments              Other investment companies          Keep in mind that although the
be seen again—to people
                                   we utilize, such as mutual           reduce expenses only after hard     savings are important, if these
who know that this time
                                   funds, separate accounts and         negotiations and effort. We         funds do not perform according
is never different.”
                                   individual bonds, do not add         have these conversations with       to our selection criteria, we will
                                   expenses that are later shared       all the investments we use, and     discontinue using them. Our
The Four Essential
                                   with the investment adviser.         over time, we have successes.       allegiance is first, foremost
Characteristics of
                                                                                                            and always to you. With that
All Bear Markets,
                                   As we have grown, in large           In the past year we have had        in mind, we continue to act in
According to Nick Murray
                                   part due to your advocacy for        success with Vanguard, Royce        your best interests. v
1. Bear markets are                Moneta, we have increased            Low-Priced Stock and Turner
   an organic, natural,            the pressure on the investment       Midcap funds, all resulting
   constant element of             vehicles we use to lower their       in a benefit of approximately       “ I buy when
   a never-ending cycle.           expenses for our clients. This is    $450,000 to those Moneta
                                   accomplished in mutual funds         clients who have invested in
                                                                                                              blood is running
2. Bear markets are as
   common as dirt.
                                   by creating a different ‘share       these funds. And that is in just      in the streets
                                   class.’ Moving to a share class      the first year. We also have
3. A bear market is always—        with .25 percent lower expense       an agreement in principal
                                                                                                              of Paris.”
   repeat, always—the              increases the return of the          and are working through               — an early Rothschild
   temporary interruption          fund by .25 percent. Reducing        the operational issues with
   of a permanent uptrend.         the expense ratio from, say,         another fund family that, when
                                   1 percent to .75 percent is          complete, will add another
4. Equities’ great volatility
                                   significant over time, providing     $550,000 of savings for our
   is the reason for, and
                                   a substantial benefit to those       clients in the first year—a total
   the driver of, their
                                   investing in these funds.            of nearly $1 million!
   premium returns.

You can read more of
Nick Murray’s opinion on
the subject of bear markets
in the “For Our Clients”
area of the Web site,
www.monetagroup.com


             Moneta Group 100 South Brentwood Boulevard, suite 500 Clayton, Missouri 63105 tel 314 726 2300 www.monetagroup.com


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