Download 3rd Qtr. Investment Letter - Family Fiduciary Services, Inc.

Grey Investments
Family Fiduciary Services, Inc.
900 Cummings Center  Suite 205-U  Beverly, MA 01915
Telephone: (978) 922-0050  Fax: (978) 232-1112
Investment Letter
Third Quarter, 2008
As we write this letter, the Dow rallied by 11%, the fifth largest percentage gain in history. This
follows the drop in the prior week that could only compare to the crash of 1929, which signaled the
beginning of the great depression of the 1930’s.
During this turmoil, we have consulted with you and we have trimmed back some allocations in your
account (foreign stocks, real estate, commodities) and raised cash to approximately 12% of assets.
Your asset allocations are detailed later in this letter.
The question, of course, is what can we expect next?
History tells us that of the past 5 one-day gains over 10%, two marked the end of bear markets (1933
and 1987) and three (1929, 1931 and 1932) were short-lived and followed by renewed declines.
Normally, we would not have reduced any allocations; however, the markets are experiencing oncein-a-lifetime events. It is impossible to predict the depth of this recession; therefore, it is our belief
that keeping cash position of 5-20% (depending upon your risk profile) is a prudent course until
markets again stabilize.
As most of you know, we have taken several steps over the last three months, which goes against the
very core of our investment philosophy, which is to not attempt to time market direction. In the face of
a once-in-a-lifetime event, we felt that sticking to this plan just didn’t make sense, as fear was
overwhelming any sense of core investment value. As you know, we consulted with each of you and
raised cash positions in most accounts to a range of 10-25%. The cash raised was done primarily by
reducing allocations to foreign stocks, commodities and real estate; asset categories that historically
have held value when U. S. equity markets had problems. As a tactic, raising cash has enabled us to
avoid some losses, but in and of itself, does not represent a long-term investment strategy.
We are having an unscheduled meeting of our investment committee next week to determine the
proper deployment of the cash positions in your account. As we write this, the fear in the market has
created rare opportunities in municipal bonds, investment grade corporate bonds and U. S. Treasury
Inflation Protected Securities (TIPS). In particular, investment grade corporate bonds and municipal
bonds may well produce equity like returns over the next few years. We will contact all of you next
week to discuss an action plan for your current cash positions.
David L. Grey
President & Chief Investment Officer