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November 21, 2008

Dear Clients and Friends,

We certainly live in interesting times. No, we did not foresee the extent of the financial and economic turmoil that has resulted from difficulties in the real estate, credit, and derivative markets. Since September, the world seems to have been turned on its head. The pessimistic outlook so commonly held today will not be reversed until there are reasons to be optimistic. Capitalism depends upon confidence. Without it, transactions cannot take place. Confidence is in very short supply today.

The stock market is a reflection of investor confidence in future profits. In that sense, it is a leading indicator of economic activity. Some investors anticipating declining profits will sell stocks and attempt to buy them back when their confidence in future profits returns. We have concluded that attempting to time the short term swings in the market is a loser’s game, this has been backed by considerable research. Few can play that game profitably.

It is our belief that the current decline in the stock market is being driven by two other types of sellers as well; those that are forced to sell to meet cash needs or liquidation requests, and those investors that are driven to sell out of fear or a sense of panic. Forced or panicked sellers are not selling with economic justification. Therefore, they push prices down to such an extent that they actually set the stage for a significant price recovery. Expected returns from this point forward are a lot higher than they have been in many years.

It is our belief that the current decline in the stock market is being driven by two other types of sellers as well; those that are forced to sell to meet cash needs or liquidation requests, and those investors that are driven to sell out of fear or a sense of panic. Forced or panicked sellers are not selling with economic justification. Therefore, they push prices down to such an extent that they actually set the stage for a significant price recovery. Expected returns from this point forward are a lot higher than they have been in many years.

Our investment recommendations start with a determination of a reasonable asset allocation based upon your own unique set of facts and circumstances. We take into consideration your objectives, age, cash flow needs, whether you are working or not, and the extent of your non-portfolio income such as compensation, Social Security, and pension income. This careful asset allocation is meant as a guide to avoid overreactions during particularly volatile market climates, like the one we are experiencing today.

Our investment recommendations start with a determination of a reasonable asset allocation based upon your own unique set of facts and circumstances. We take into consideration your objectives, age, cash flow needs, whether you are working or not, and the extent of your non-portfolio income such as compensation, Social Security, and pension income. This careful asset allocation is meant as a guide to avoid overreactions during particularly volatile market climates, like the one we are experiencing today.

Our investment recommendations start with a determination of a reasonable asset allocation based upon your own unique set of facts and circumstances. We take into consideration your objectives, age, cash flow needs, whether you are working or not, and the extent of your non-portfolio income such as compensation, Social Security, and pension income. This careful asset allocation is meant as a guide to avoid overreactions during particularly volatile market climates, like the one we are experiencing today.

Our investment recommendations start with a determination of a reasonable asset allocation based upon your own unique set of facts and circumstances. We take into consideration your objectives, age, cash flow needs, whether you are working or not, and the extent of your non-portfolio income such as compensation, Social Security, and pension income. This careful asset allocation is meant as a guide to avoid overreactions during particularly volatile market climates, like the one we are experiencing today.

The ability of investors to participate in a recovery of asset prices depends upon their financial and emotional ability to wait out the tough times. Clients who follow our recommendations of an appropriate spending level and asset allocation are in a position to ride out these difficult times and see substantial price recovery in the years ahead. Financially, we know you can do it. Emotionally we know you can too, you just may need our help.

We want you to lead your lives in as normal a fashion as possible. None of us knows how long our stay on this earth will be. We encourage you to continue to spend money on things or services that increase the quality of your life or the lives of loved ones within reasonable spending limits. However, if we have cautioned you about your spending level being higher than what would be prudent given your portfolio size, recent investment declines will only magnify the importance of a spending reduction.

It is very important for all of us to be mentally prepared for additional bad economic news as the nation and the world work through this. There will be no quick solutions. As dark as it is, it could, and probably will get worse. If the markets decline from here, they will only be that much closer to recovery. In addition, cutting market exposure at this point would be imprudent given the prospect for generous average returns moving forward. Sometimes, during the winter months, it seems as if spring will never arrive, but arrive it does. As surely as we know that the seasons will change, we know that optimism will follow pessimism; that fear of being out of the market will replace the fear of being in the market.

Do not live your days sunk in the gloom and doom of the moment. Be an agent for change – in attitude. Think of what is right about your family, your friends, this country, and this beautiful earth. This Thanksgiving, these are the things we will be thankful for.

Thank you in advance for your courage and patience during these difficult times. We take nothing for granted and are honored by your decision to retain Schiavi + Dattani as your trusted financial counsel.

 

Best regards,

Vincent A. Schiavi, CFP®, CPA/PFS



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