2600 Tenth Street, Suite 607 • Berkeley, CA  94710 • (510) 368-5870 • info@libertyinvesting.com

Niehaus Liberty Investing, LLC Fee-Only Intelligent Investing

December 31, 2010


It has been almost five years since I left my legal practice and started my own independent investing business in San Francisco.  Five years is an important milestone: it takes 3 to 5 years to gauge the effectiveness of an investing approach.  These have been an eventful five years.  We have worked through one of the worst recessions since the 1970s, or some would argue, since the 1930s.  Despite these economic times, I’m pleased to report that the last five years have been fruitful for my managed portfolios: Clients have posted a total gain of 31.98% compared to an S&P500 loss of 0.01% (this reflects the performance for all client accounts since February 27, 2006, versus the time-weighted S&P500 return over the same period).  Of course, the past five years doesn’t guarantee the next five years.    


I opened my investing business on February 27, 2006.  The S&P500 on that day closed at 1294.12, and we are just under that point with today’s close of 1258.32.  That means with all the ups and downs, the market was essentially flat for the past five years.  Given that, it’s interesting to note that Wall Street analysts are focusing mostly on overvaluation these days.  While some market-timers are calling everything overvalued (as they did before the recent market run-up), I see a lot of opportunities.  I think we need to concentrate on individual stocks more than nonsensical, market wide indicators.  I also think that blanket calls about valuation overlook the amazing work hundreds of individual companies have done to keep their margins intact (or expanding) and their balance sheets sound during the recession and slow recovery.  We have now moved out of a time marked by market panic into a market that is somewhat cautiously optimistic.  Someday, we’ll enter a market period dominated by irrational exuberance, like we did in the 1990s.  At that point value becomes much harder to find, but we’re a long way from that sort of market euphoria now.   


I hope that we see something better than a flat market in the coming five years.  Recent economic indicators point mostly to a period of accelerating economic expansion.  How rapid the expansion, and how long the period, are anyone’s guess. As we see from the previous five years, however, rapid economic expansion is not necessary for a growing portfolio.  By adding capital when you can, and continuing our small and mid-cap value approach, I believe we can continue to outpace the market and expand your portfolio.    


As always, I’m available to answer any questions you might have.  


Regards,


Aram Durphy