First Quarter 2012
Intelligent Investing

Most of you know that I have been competing in Ironman distance triathlons (2.4 mile swim, 112 mile bike, followed by a 26.2 mile run) for the past ten years. I have always believed I was well-equipped to prepare myself for these events because of my years of training as a professional athlete in my former life. Through a combination of hard work and luck, I had some modest success over the years basing my race preparation on information I found in books, magazines, and generic training programs. But when it comes to triathlon training, I only recently realized that I am not even smart enough to know what I do not know.

This year I set my sights on qualifying for the Ironman World Championships in Kona, Hawaii and my only chance of achieving this goal is to perform at my maximum potential. So rather than leave the results to chance, your penny-pinching advisor reluctantly placed his trust in a coach. I was fortunate to find someone who is not only experienced (he has qualified for Kona himself six times) but who utilizes a scientific approach to training backed by empirical results. He began our first meeting by educating me about his training philosophy and the science behind it. He then put me through a series of baseline fitness tests to establish our starting point. After discussing my specific goals, he used his resources to quantify the likely required times I would need to achieve to qualify. After several more discussions, he presented me with a customized Training Plan to guide me from my starting point to my ultimate destination...Kona.

I am currently 13 weeks into the 26 week Training Plan that he customized for me. My coach has been with me every step of the way to educate, guide, and most importantly, impose the discipline required to stick with the Training Plan through every 4AM pool session, every 100 mile bike ride, and every grueling training run. The results have been truly amazing. Halfway into the program, I have already achieved a level of fitness that I never dreamed was possible. Having a knowledgeable, experienced coach, a customized Training Plan, and utilizing a scientific approach has made this experience infinitely more effective than trying to tackle it alone.

I share this personal story on the three year anniversary of the market lows reached during the Great Recession. Amidst the near collapse of the entire global financial system, the Dow Jones Industrial Average plummeted to 6547 during a panic stricken day on March 9th, 2009. Ironically, this date also marked the beginning of a once in a generation Bull Market that would ultimately double the DJIA to over 13,000. However, during this three year meteoric rise, U.S. equity mutual funds simultaneously experienced their largest liquidations in history (Source: EPFR Global). Let me repeat that. Throughout one of the greatest Bull Markets in history, individual investors fled the stock market in droves.

But not you. You have not left your financial security to chance. Instead, you have trusted the counsel of a wise and experienced investment advisor who has customized a long term Financial Plan for you and your family, utilizes a sound investment approach, and imposes the discipline required to deliver a successful investment experience. Our last twelve quarterly newsletters are littered with our unwavering advice: ignore the media noise, adhere to our Financial Plans, re-balance when necessary, purchase additional shares at discounted valuations, etc. No matter how bad the headlines read, no matter how dire the crisis seemed, no matter how many times the experts rattled off reasons that "it is different this time", we steadfastly maintained our confidence in our approach...and you wisely trusted us.

The doomed souls who succumbed to their emotions and abandoned equities are now scrambling to make up for lost ground by chasing fads, hot stocks, and "alternatives". By contrast, our clients not only survived the worst Bear Market since the Great Depression, but are now seeing their portfolios close in on new all-time highs. Just like my excellent triathlon coach, we have added value worth many multiples of our compensation.

See you in Kona.

Don Davey
Senior Portfolio Manager
Disciplined Equity Management, Inc.