How times have changed. The first chart below is a reprint of a chart that appeared in this space in December 1999, when we warned “these trends are simply not sustainable.” Underneath it is the same picture one year later. Some investors were painfully reminded that nothing grows to the sky (or, conversely, that everything reverts to the mean). For the year ending December 31, 2000, the Nasdaq plummeted 39.3% (not including dividends) while the S&P 500 Index, on a total return basis, fell 9.81%. Our 4-for-18 Dow high-yield model (HYD), on the other hand, finished up 6.5% on a total return basis.

We rarely cite one-year results since these are statistically meaningless. What investors should take away from this is not that any one strategy is inherently superior to all others. To the contrary, instead of constantly seeking the best returning fund or strategy (a phenomenon we refer to as “skating to where the puck was”), successful investors will adopt a fundamentally sound strategy and stick with it.

Discipline and diversification are by far the most important elements of successful investing. It is not easy to stay with a strategy that is “under-performing” while others are soaring. By emphasizing the long-term results that can be achieved by holding a variety of asset types appropriate for investors’ circumstances, we hope to help our readers stay the course.

Minimizing costs is also more important than many investors realize. While past investment returns are no guarantee of future results, past costs charged by funds or money managers are generally an excellent indication of future costs. High transaction costs, fund expenses, fees, and taxes can easily put an investor behind the starting line.

Over the short term, the returns of any particular asset or asset class, or of the market itself, are unknown, and certainly beyond the control of investors. However, investors have a great deal of discretion with regard to “the big three”: discipline, diversification and cost. This is where they should focus their efforts.

In addition to publishing the INVESTMENT GUIDE, we offer investment advisory services predicated on these principles. Please contact us if you are interested in learning more.

Also in This Issue:

Quarterly Review of Investment Policy
Newly Recommended Funds
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield