HEADING TO COLORADO

Time To Leave This Place. We have been in Texas since mid October and I have not been able to spend much time in Colorado. The remodel of our townhouse is pretty well finished and things should be back to normal soon. I am anxious to catch up with clients and friends that I have spent little time with during the past year. I plan to stay in Colorado until I see everyone who wants to see me. Call our office or send me an e-mail if you need to contact me.

The Markets Have Done Better than I Have Expected. While this is a true statement, it hasn't applied as much to many of the things we are putting our money into. This is because most investors have decided that the FED will not lower rates any time soon. Short term rates have risen to more appropriate levels and long term rates have followed. Many of our investments are geared towards producing cash flow and these have dropped slightly because investors can now get more respectable yields on short term bank CD's and money market funds. Our investments continue to produce better cash flow than these short-term instruments but the market perception of the value of this cash flow has diminished. In reality, I believe these cash flow investments are now more realistically priced. While I thought they were over-priced in the past, I did not try to sell at the high point with the objective of buying back later at a lower price. While this is theoretically possible, I don't believe you can add much to your return by trying to micro-manage and outguess the market. My philosophy is to purchase cash flow and pay less attention to the market price than the stability of the income stream. Occasionally, when the price seems more than the intrinsic value, it may be appropriate to take some profits and re-invest in areas that appear to be less over-valued. The key is not to bet the farm on any one sector. At this point, it is probably wise to buy stocks in some of the banks like US Bancorp, Wachovia, and Bank of America. These pay dividends in excess of 3.5 to 4,5% and have a track record of dividend increases. It appears that there are some opportunities for capital gains there. Incredible as it may sound, it appears that the markets may have under-estimated the potential for some of the energy stocks like Texaco and Exxon. Because the perception was that current high levels of oil and natural gas would probably not hold, investors have been paying less for a dollar of earnings than the potential for future profits justify. I am moving more capital into these issues.

Are We Placing Too Much Emphasis on Cash Flow? A recent article,by a well-respected financial writer states that we should be paying less attention to dividends. His point is that, while dividends are nice, it's total return that really matters. In other words, you can get by with low, or even no, dividends as long as the value of your portfolio continues to increase. From the point of view of wealth building, this is true; however, the characteristics of the individual investor are of paramount importance. I am sure many of you are tired of hearing me say this, but if you need a check to fund your living expenses next month, you don't want to be depending on selling appreciated shares to obtain your funds. While dividend checks are by no means guaranteed, they are several orders of magnitude more reliable than capital gains. Younger investors with good job stability, high incomes, and high tax brackets may be well served by zero dividend portfolios but those of us who utilize our portfolios to fund our living expenses, can ill afford to be at the mercy of market fluctuations. I am not totally against selling shares now and then to obtain income but it is much more convenient to own stocks that provide dividend income. An additional benefit to high income portfolios is that we have income to re-invest when the market suffers a down turn. The main point to remember here is that both cash flow and capital gains are important and neither is more important than the other. The ideal portfolio is one that fits the needs of the individual investor. There is no one-size-fits all solution.

The Age Thing Getting You Down? It some times bothers me that I am turning 70 soon and have less time left than I have already used. My best friend from grade school through college was recently ordained as a priest in the Episcopal Church. A major accomplishment for a person less than one year from a 70th birthday. He didn't sit around and worry about getting old. He went out and did what he wanted to do. I think that's a valuable lesson for all of us.