2011 MWM Fourth Quarterly Letter to Clients

Happy New Year! And thank goodness 2011 is behind us. As we breathe a collective sigh of relief and watch this past year disappear in the rear view mirror and look positively forward to 2012, it’s worth reflecting on a truly tumultuous year that was marked by the fall of establishments throughout the world, as well as structures that we have come to rely upon. There was the still unresolved crisis in the Euro Zone, the unification and rise up of large populations and the end of governments that have existed for decades. One might even include the United States in the latter as our inability to pay our bills and dysfunction in governance changed the world perception of our country and led to the first credit downgrade in our history. On an upbeat note, US growth accelerated, the unemployment rate decreased and US companies turned out record profits.

The markets ended just about where they started in 2011.  Despite this, market volatility was extremely high throughout the year, as stocks surged and plunged in response to world events, making us, as investors, increasingly anxious. Unfortunately, market volatility may be the new normal. Much of the volatility is due to current events that will change with time; however, the fundamental causes, which are changes to the manner in which investors trade, are here to stay. Increased technology, a blessing and a curse, amplifies rapid, high-frequency trading. Lower transaction costs have removed an obstacle to making frequent trades. It now can cost $8 to place a trade that would have cost $150 to place twenty years ago. Exchange-traded funds (ETFs) allow investors to place quick bets on the markets and the available leveraged products enable amplified bets, which only magnify market movements.

It has also become nearly impossible to not be affected by the market volatility. Smartphones and tablets provide constant market and account information. Stock quotes, commentary and predictions are everywhere, be it public radio, newspapers or TV. The transition of workers from defined-benefit pension plans to defined-contribution plans is also a factor because investors are ever more responsible for their own financial well-being and feel the need to continually monitor their own investments, leading them to make emotional decisions that may not be in their best interest in an attempt to limit or avoid market losses.

Realistically, it may be more of the same in 2012 as some of the concerns that affected the markets in 2011, especially the debt crisis and partisan squabbling in the US, will continue to be of paramount importance in 2012.  However! This seemingly grey cloud of volatility brings with it a silver lining in the form of opportunities. In this new normal of sustained volatility, it is important to maintain a focused wealth management strategy. Market turbulence can and will continue to present opportunities. Diversification, asset allocation and intelligent discipline can weather market volatility.

Perhaps a worthwhile New Year’s resolution would be to turn down the volume on all of the market noise and chatter around you, which has become a complete and harmful distraction…Cramer, CNBC, etc., and focus on your long-term objectives and goals instead. May it be a prosperous 2012 for us all!

Please find enclosed your 4th Quarter Portfolio Report.  If you have any questions, please call me at 518-867-4245.

Warm regards,

Olivia A. Mussett, CFP®