Mid Year Analysis of Stock, Bond & Commodity Markets

By Joseph J. Janiczek
Founder & CEO, Janiczek & Company, Ltd.

3Q11

Report

Market Commentary

3Q11

WELCOME
Choppy market conditions put both euphoria and fear into the heads of investors. In this market commentary, we provide our mid-year analysis of investment conditions and explain important tactical moves we made in client portfolios over the last quarter. We want to remind our clients and friends that both profound opportunities and threats exist in the economy at this time. We believe our thorough process is precisely what is needed under these circumstances and think our clients can sleep well knowing that first and foremost, they are investing from a position of strength. If we can do anything further to assist you, please call us at 303-7217000

Joseph J. Janiczek Founder & CEO

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OUR TRADITION OF EXCELLENCE

CONTENTS
Economy Our economic outlook remains the same, despite Greece and U.S. debt ceiling issues . . . . . 3 Asset Allocation With a world of opportunities, we seek to remove the home country bias . . . . . . . . . . . . . 5 Equities Despite trimming stocks during the quarter, we like Corporate Americas balance sheet strength . . . . . 7 Fixed Income QE2 is over, but theres opportunity within certain corners of the bond market . . . . . . . . . . . . 9 Alternatives We continue to see interesting developments in oil and currencies . . . . . . . . . . . . . . . . . . . . . 11 Financial Planning Deserving success. . . . . . . . . . . . . . . . . . . . . . . 13 Analysis Going beyond the numbers to increase your results . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3Q11

Our economic outlook remains unchanged, despite Greece and U.S. debt ceiling issues
During the second quarter, we saw downward revisions to economic growth both domestically and globally. Global GDP is now forecast to be 4.3% in 2011, still driven by 6% growth in emerging markets and 2% in developed countries. Given emerging markets contribution to global growth, inflation remains a key concern as does the continued interest rate hikes by central banks in those countries. The risk of a hard landing in emerging markets is a possibility, but wed view a downturn as an opportunity to continue to put money into this area for the long-term. In the U.S., GDP for 2011 is now expected to be 2.6%. This growth falls short of the growth needed to reduce our 9.2% unemployment rate anytime soon, and the most recent jobs report failed to deliver the required job gains. Further, Leading Economic Indicators (LEIs) serve as a trend indicator, and there are several we follow. As we discussed last quarter, many LEIs display slowing growth, and we agree with one of our research partners that investors should expect a soft patch but not a double dip recession in coming quarters. As our overall assessment of the economy remains largely the same from last quarters remarks, well take this opportunity to address some topical issues weve been discussing with our clients. Internationally, the focus during the quarter returned to Greece. News of an austerity plan and EU support helped rally global markets in the final week of the quarter. Although Greek liquidity appears better, solvency will remain an issue. Were often asked why a country with 11 million residents representing only 2% of the European economy has such an impact on the global marketplace. The answer lies in what we learned from 2008: The financial system around the world is so intertwined that one small crisis can have rather large ripple effects. In Greeces case, the EU is not only concerned with the fiscal condition of the Greek government, but also the impact on European banks that hold Greek debt. Capital losses in European banks could bleed into other nations banking systems, including our own. For this reason, there is a strong incentive for the European and other developed nations to work through a solution to the Greek (and other) sovereign debt problems. In the U.S., the current economic debate is the debt ceiling and the looming August 2nd deadline. Our opinion remains unchanged, although we believe the consensus has shifted into alignment with our assessment. We believe the most likely outcome in coming weeks will be a $2 trillion increase in the debt ceiling to over $16 trillion. The compromise will come with equivalent spending cuts and will kick the can down the road (yet again) until late 2012 when the debt ceiling issue will return. More importantly, we believe that the
CONTINUED M A R K E T C O M M E N TA RY R E P O RT 3

In the U.S., the current economic debate is the debt ceiling and the looming August 2nd deadline. More importantly, we believe that the U.S. has some tough decisions in its future.

ILLUSTRATION

Corporations have $3.6 trillion in cash to put to use that will serve as a meaningful stimulus to the economy.

Government Debt
Gov Decit Gov Net Debt %Gov. Debt Held as a % of GDP as a % of GDP Abroad (6.0%) (3.2%) (5.9%) (4.7%) (2.8%) (4.0%) (6.6%) (8.1%) (3.6%) (2.1%) (8.3%) 152.3% 86.3% 95.2% 52.6% 100.6% 77.9% 75.1% 72.4% 35.1% 54.7% 127.8% 61.5% 56.7% 59.4% 49.6% 47.0% 64.4% 26.7% 31.9% 19.6% 52.8% 6.9% Weighted Average Maturity (years) 7.8 6.6 7.0 6.7 6.8 7.3 13.8 5.3 6.3 6.7 6.2

ILLUSTRATION

Debt, deficit, average maturity and amount funded by foreigners all determine the severity of any sovereign debt crisis.

Country Greece Portugal Ireland Spain Italy France U.K. USA Canada Germany Japan

Source: JP Morgan Asset Management

U.S. has some tough decisions in its future. On the other hand, Corporate America still compares incredibly well to the governments balance sheet. With $3.6 trillion in cash, lower leverage, lower debt servicing, and growing sales, we believe Corporate Americas strength will serve equity and corporate bondholders well and provide a stimulus to the U.S. (and global) economy.

M A R K E T C O M M E N TA RY R E P O RT 4

3Q11

With a world of opportunities, we seek to remove the home country bias

During the quarter, we removed our tactical position we initiated last year by selling our 5% overweight equity position and increasing equally our 5% underweight bond position. We believe that our tactical move was no longer justified given valuation and technical indicators, and we already benefited from equity gains of about 10%-12% over the holding period. We are now positioned at our long-term target allocations. With volatile markets and investors psychological tendencies, we expect to have future opportunities to take advantage of market mispricings. Case in point: Stock markets have nearly doubled over the past 27 months, yet investors have poured more money into bond funds than stock funds in over 20 of those 27 months and only recently have added more to stock funds. In subsequent sections of this commentary, we provide our perspective of various asset classes. Given our neutral stance on asset allocation, well focus our comments on some additional actions we took while removing our tactical position. The world is full of investment opportunities, yet we still find what we call the home country bias alive and well among high net worth investors, as the accompanying chart displays. High net worth investors tend to invest heavily in their home markets despite what may be more attractive opportunities abroad. So, with this in mind, and given our outlook for various international equity markets, we targeted domestic stocks in removing our 5% tactical overweight. In some cases we even added to international stocks in this move for clients whose portfolios were too light in those markets.

With volatile markets and investors psychological tendencies, we expect to have future opportunities to take advantage of market mispricings.

High New Worth Investors Are Over-Invested in Home Markets

80%

72%
70%

62%
60%

ILLUSTRATION

53%
50%

46% 42%

Despite a world of opportunities, high net worth investors remain within local markets.

40%

33%
30%

20%

Home Country Bias

19%

10%

3%
0% La.n America HNWIs Europe HNWIs Asia Pacic HNWIs North America HNWIs

% Exposure to Home Market

Home Market % of World Market

M A R K E T C O M M E N TA RY R E P O RT 5

CONTINUED

Global Stock Market Valuations

Forward Price / Earnings 11.6 11.1 10.2 10.4 13.2 9.9 11.8 11.9 13.3 12.5 10.4 6.2 9.3 12.9 10.4 9.2 11.1 15.0 14.8 Price / Price / Dividend Composite Book Cash Flow Yield Score 1.8 6.7 2.6% (1.15) 1.4 1.3 1.5 1.1 1.8 1.9 2.1 2.0 2.2 1.8 1.1 1.6 1.9 2.0 1.5 2.2 2.6 2.8 5.4 4.9 4.7 3.5 7.8 8.9 8.3 8.6 8.2 6.3 4.7 5.8 6.2 7.3 4.6 8.8 7.0 11.0 3.4% 3.9% 3.2% 2.2% 3.4% 4.4% 3.3% 2.4% 1.8% 2.6% 1.9% 3.3% 4.0% 2.7% 1.3% 3.3% 1.6% 1.3% (2.03) (2.49) (2.19) (1.93) (1.38) (1.04) (0.76) (0.23) 0.24 (1.38) (2.39) (2.12) (1.49) (1.06) (0.76) (0.68) 0.89 2.52

All World Index EAFE Index France Germany Japan U.K Australisia Switzerland Canada United States Emerging Markets Index Russia Brazil Taiwan China Korea South Africa Mexico India

ILLUSTRATION

A Composite Score below zero indicates cheap markets, while above zero is expensive.

NOTE: Composite Score represents an equal weighted index of each of the 4 metrics above relaWve to their respecWve 10yr averages. Below zero is cheap relaWve to its 10yr average, while above zero is expensive. Source: JP Morgan Asset Management

In developed markets, we see attractive valuations in both Europe and Japan that are likely driven by their respective crises. As we do not expect a double dip recession in those regions, we believe the current valuation warrants a market weight exposure relative to long-term targets. In emerging markets, we remain positive on the long-term prospects and look to continue to build allocations over time. Weve stated this before, but we believe most investors are not adequately invested in emerging markets despite favorable opinions. Its a matter of walking the talk, and our disciplined approach ensures our clients are invested properly. In addition to opportunities in those geographic locations, we also gained some non-U.S. dollar exposure. With no clear path to U.S. deficit and debt reduction, we believe any rally in the U.S. dollar versus other currencies is likely short-lived. Among our fixed income holdings, we took this rebalancing opportunity to gain exposure to municipal bonds, an area weve been positive on for some time now. In addition to the attractive municipal market (discussed further in the Fixed Income section of this report), we are returning our high net worth clients to a more normalized level of municipal exposure. The benefits of tax-free fixed income remain attractive to our client base, and with the added prospects of higher taxes in the future, we do not want to be underweight in this area.

M A R K E T C O M M E N TA RY R E P O RT 6

3Q11

Despite trimming stocks during the quarter, we like Corporate Americas balance sheet strength
Whereas the first quarter of 2011 brought us several unforeseen surprises (the Arab Spring, Japanese earthquake / tsunami / nuclear crisis, etc.), the second quarter was a reminder of our known problems. The equity markets were troubled with renewed concerns over Greek debt and the specter of a U.S. default.

The secular bear market remains intact, and the cyclical bull market experienced since March of 2009 is waning.

In the U.S., the S&P 500 generated a mere 0.1% return for the quarter, while small cap stocks fell 1.6%. Remarkably, with all the crises and drama in the world, the S&P 500s trading range remained within 100 points throughout the quarter. Non-U.S. developed equity markets fared a bit better, as the MSCIs EAFE Index rose 1.8%. With a 4.7% quarterly return, Germany proved to be the safe haven in Europe, while Japans 0.7% rise indicates a long recovery from its Q1 2011 crises. Emerging markets continue to struggle with rising inflation. The MSCI Emerging Markets Index fell 1.1% during the quarter as central banks in those countries most notably China continued to raise interest rates to combat rising prices. We remain long-term fans of emerging markets due to their relatively strong financial position, but

ILLUSTRATION

Currently, investors are neither euphoric nor gloomy on stocks

CONTINUED M A R K E T C O M M E N TA RY R E P O RT 7

ILLUSTRATION

and middle-of-the-road valuations offer no clear mispricings.

we acknowledge that the near term impact of these rate increases will temper returns, perhaps even cause a correction. As we look at the global equity markets, were encouraged by continued strength in corporate balance sheets: For example, corporations remain flush with $3.6 trillion in cash, and recent surveys indicate that 71% of finance officers see cash balances flat to down in coming months. That said, valuations appear fair with the S&P 500s P/E ratio near its 40-year median while small cap stocks appear more fully valued. The markets improving sentiment could provide 5%-10% upside through year-end, but the valuations will likely cap any significant rally, in our opinion. We are comfortable with our recent sell of our 5% overweight position in equities and our return to our long-term asset allocation targets. The tactical move allowed us to earn an incremental return for our clients portfolios of about 10%-12% since late last year. The secular bear market remains intact, and the cyclical bull market experienced since March of 2009 is waning. Still, unless the global economy shows signs of recession, well weather short-term corrections and avoid the investor behavior penalty of excessive trading.

M A R K E T C O M M E N TA RY R E P O RT 8

3Q11

QE2* is over, but theres opportunity within certain corners of the bond market
Headed into Q2 2011, one would be hard pressed to find supporters of Treasury securities. But after renewed concerns about European sovereign debt, Treasuries proved that they remain a safe haven for investors. The Barclays Aggregate Bond Index rose 2.3%, driven largely by its heavy weighting in government bonds. The benchmark 10-year Treasury rate, which began the quarter at a historically low rate of 3.4%, fell to 2.8% before closing at 3.2%. At the opposite end of the risk spectrum, high yield bonds rose just 1.1%. But the shining stars of the fixed income asset class were municipal bonds, rising 3.9% for the quarter. Weve emphasized municipals bonds since the beginning of the year, following their surprisingly violent sell off from December through February, and we remain positive on the group going forward. Fundamentally, despite a few higher profile woes, state and local revenues have increased for five straight quarters. Further, defaults year-to-date of $600 million are running at 40% of last years level which was only one-third of the previous

In speaking with investors, its evident that the elephant in the room remains the risk of rising interest rates.

Bond Sector Returns, YTD 2011

108

106

104

102

Treasuries Municipals AAA Corporates

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7
100

High Yield Corporates

With tight credit spreads, investors are treating high grade corporate bonds as near equals to Treasuries.
96 1/7/11 1/14/11 1/21/11 1/28/11 2/4/11 2/11/11 2/18/11 2/25/11 3/4/11 3/11/11 3/18/11 3/25/11 4/1/11 4/8/11 4/15/11 4/22/11 4/29/11 5/6/11 5/13/11 5/20/11 5/27/11 6/3/11 6/10/11 6/17/11 12/31/10 6/24/11 98

* QE2 refers to the Federal Reserves second round of Quantitative Easing. Quantitative easing represents the explicit purchases of Treasury securities by the Federal Reserve with the intention of keeping prevailing interest rates low. The Fed completed QE1 in 2010, while QE2 was concluded in June of this year M A R K E T C O M M E N TA RY R E P O RT 9

10-year U.S. Treasury Yield Important Resistance Levels

4.20

4.00%
4.00

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3.75%

3.80

Even without QE2, the

3.60%

3.60

10-year Treasury could face some resistance on its way to 4%.

3.40%
3.40

3.20

3.25%

3.00

2.80

2.60

2.40

Apr-10

Aug-10

Feb-10

Jun-10

Jan-10

Jul-10

Mar-10

May-10

Dec-10

Feb-11

Oct-10

Mar-11

Sep-10

Nov-10

Apr-11

years rate. Lastly, with continued pessimism over municipal finances, investors can lock into abnormally high interest rates on investment-grade, essential service bonds (i.e., water utilities, power plants, etc.) Another area weve been favorable on is corporate bonds, specifically, high yield bonds. Throughout the year, high yield issuers have issued debt and refinanced existing debt, locking into longer maturities and lower rates. Most high yield debt wont come due until 2015 or later, so a Greek-like liquidity issue is unlikely. With the markets recent panic and the flight to quality (i.e. Treasuries), we believe corporate issuers in both investment grade and high yield are attractive for investors. In speaking with investors, its evident that the elephant in the room remains the risk of rising interest rates. With average cash levels at bond mutual funds hovering at 9% of the portfolio, clearly many professionals agree. Wed agree that, over time, long-term rates will likely return to more normal levels in the 5%-6% range. However, with European and American central banks keeping short-term rates low, wed expect long-term rates to remain in the 3%-4% range over the near term. Weve removed our 5% overweight in stocks and returned the proceeds to bonds. Were satisfied with our current positioning in the fixed income part of our clients portfolios, and well monitor and adjust as warranted.

May-11

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Jun-11

Jan-11

3Q11

We continue to see interesting developments in oil and currencies

The alternatives allocation within a portfolio can capture anything that doesnt fit neatly into the definition of equities or fixed income. At Janiczek & Company, we define alternatives as commodities, absolute return strategies, and real estate. Across energy, agriculture, and metal commodities, returns for the quarter were largely negative. The DJ-UBS Commodity Index* fell 6.7%, with the only bright spot being gold. Our core (and sole) commodity holding invests across the commodity complex and manages downside risk actively by reducing net exposure and, if warranted, establishing net short positions. We established this position in the first quarter after conducting our due diligence. During the second quarter the fund served us well, falling 3.8% but limiting losses and outperforming the DJ-UBS Commodity Index. We cannot write this commentary without some mention of gold, which rose 4.7% during the quarter. Weve stated before that we view gold as more of a currency than a metal commodity. However, we found the quarters flight to safety move rather interesting. Short-term U.S. Treasuries securities rose about 2% for the quarter, while gold clearly benefited more. However, we note that the Swiss franc gained 8.5% excluding interest

With nearly twice the return, investors preferred the Swiss Franc to gold as fear returned to the markets.

Oil Prices, 12 months

$130

$120

$110

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$100 Brent

The second quarter brought rising (and irregular) oil prices

$90

WTI

$80

$70

$60 6/30/10 7/30/10 8/30/10 9/30/10 10/30/10 11/30/10 12/30/10 1/30/11 3/2/11 4/2/11 5/2/11 6/2/11

Source: Bloomberg

* The Dow Jones UBS Commodity Index is a widely used benchmark among commodities managers that captures metals, agriculture and energy commodities

M A R K E T C O M M E N TA RY R E P O RT 1 1

Components of the CPI Index

Component Food & beverage Housing Apparel Transporta@on Medical care Recrea@on Educa@on Other Headline CPI Less: Energy Less: Food Core CPI Weight (%) 14.8% 41.5% 3.6% 17.3% 6.6% 6.3% 6.4% 3.5% 100.0% 9.1% 13.7% 77.2% 12-Month Change 3.4% 1.2% 1.0% 12.5% 3.0% 0.0% 1.0% 1.5% 3.4% 20.7% 3.5% 1.5%

ILLUSTRATION

10

which negatively affected the headline CPI, not to mention consumer confidence.

Source: Bureau of Labor Sta>s>cs, JP Morgan

earned. To us, this highlights the growing need for investors to gain non-U.S. dollar exposure, either directly via currency investing or indirectly via non-U.S. investments. Oil generated some significant headlines during Q2 2011. There continues to be a significant gap between the two most common oil benchmarks (West Texas Intermediate and Brent Sea), initially explained by supply gluts in the U.S, then driven further by the Libyan civil war and resulting oil supply disruption to Europe. This culminated in the IEAs June 23rd decision to release 60 million barrels from emergency stockpiles, an announcement that sent both oil benchmarks lower for a few days only to find them closing the quarter at higher prices. The oil release, which was explained as a response to the Libyan conflict, could also be viewed as an incremental stimulus on the part of developed nations in response to OPECs refusal to increase production. After all, our fragile economic recovery is contending with consumer energy prices that are up 20% from last year. Our current absolute return strategy holding remains our market neutral fund, and market neutral investing in general aided portfolios during Q2 2011. While we believe absolute returns should be a core component of client portfolios, we acknowledge that market neutral is just one strategy we can deploy. For example, global macro investing is in favor given the major issues currently unfolding around the globe. Another strategy wed like to explore further is managed futures, which involves quantitative-based trading of futures contracts of various types to generate positive returns uncorrelated with other asset classes. For now, we are monitoring our market neutral position for possible replacement.

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3Q11

Financial Planning: Deserving Success

R. Brady Siegrist, CFP

Chief Financial Planning Officer Janiczek & Company, Ltd.

If I had to sum up our wealth management process in a handful of words, Id have to say we want to help our clients do everything possible to deserve success in all market conditions. As George Washington said, we cannot insure success, but we can deserve it. When I think about individual investors, many factors have to be considered when constructing a portfolio that is appropriate for their given goals and objectives. Not only does one need to build a diversified portfolio of market investments (stocks, bonds and cash), they also need to think about and incorporate other assets and liabilities such as real estate, mortgages, concentrated holdings, alternative investments, illiquid holdings, and human capital. Beyond just the investment portfolio, it is also important to remember that whatever your balance sheet consists of, it should never be separated from your cash flow statement (one constantly affects the other). These are two areas that must complement one another to mitigate unwanted risks and/or dangers to an individuals long-term success. There have been studies to show a majority of U.S. investors (including the affluent class) are not well diversified. Without full clarity of your entire financial picture and a specific plan, you can run significant risks that they are not optimally diversified to weather volatile and choppy markets. Depending on the circumstances of an investor, one may consider into their average rate of return the importance of downside protection along with upside potential. We firmly believe, based on historical market trends and the potential impacts they can have on an individual investor (which can be significantly different than that of an institutional investor), that risk allocation is every bit as important as asset allocation. We all deal with risks, which in the investment world are boiled down to two types systematic and unsystematic. Systematic risk (also known as market risk) by definition cannot be diversified through asset allocation. An example would be a major catastrophic event that affects the whole market regardless of asset class or investment (such as the 9/11 tragedy or the recent Japanese earthquake/tsunami). Comparatively, unsystematic risk can be reduced through appropriate diversification.
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We control the risks that we can control (through asset allocation and tactical management). We position our clients through our comprehensive wealth management process, focusing on risk allocation to make sure they are protected from taking unnecessary or excessive risks that could irreparably damage their wealth. There is a startling statistic that one in three American households is a single event away from going bankrupt! A good wealth management strategy is designed to protect an individual or family from ever meeting this unfortunate fate. We believe at some point in the future, we will likely face another major market disruption like the collapse in 2008. While no one knows exactly when this will happen, we will continue to work with our clients so they have a detailed plan in place that focuses on mastering our Five Guiding Principles, and meeting the standards of our 35 Essential Strengths. While we cant entirely insure success, we are committed to helping our clients deserve success.

We cannot insure success, but we can deserve it. George Washington

Wealth Optimization Dashboard Example

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Balance Sheet
STRENGTH

11

Cash Flow
STRENGTH

Portfolio
STRENGTH

RATING
Scale 1 to 10

7
Neutral

RATING
Scale 1 to 10

8
Strong

3
Weak

The dashboard of our proprietary Wealth with Ease System provides our clients with a snapshot of where our clients are strong, weak or vulnerable.

RATING

Scale 1 to 10

Lifestyle Protection GridTM

Estate Optimization GridTM

Asset Optimization GridTM

ST RE NG T H

7 of 35
R AT IN G

Portfolio Enhancement GridTM

Back-test

Stress-test

PASS
N/A

FAIL

and 2010 Wealth with Ease, LLC. All rights reserved. Some of the features identified in this Wealth Optimization Dashboard may be protected under a patent-pending application with the U.S. Patent and Trademark office.

M A R K E T C O M M E N TA RY R E P O RT 1 4

3Q11

Analysis: Going beyond the numbers to increase your results

James B. Callahan, CFA

Chief Investment Officer Janiczek & Company, Ltd.

In my previous life as a research analyst, I worked for a manager who was a die-hard value investor. I recall being surprised by how much we read on the subject of psychology. Now I know why. Simply put, there is no way one can analyze the fundamentals of investing without assessing the psychology of investing. In the world of psychology, several seemingly irrational behaviors have been well documented. For example, Amos & Tversky famously studied the concept of loss aversion in which people will disproportionately forgo gains to prevent losses. In another study, recency bias was the term used to describe the excessive value placed on newer information versus older information. One of the best books capturing the psychology of investing is Poor Charlies Almanack by Berkshire Hathaways Charlie Munger, and I recommend it to anyone looking to learn more on the topic. These psychological factors can have an impact on the markets. Loss aversion likely explains why people today are willing to buy a 10-year bond earning less than 3% over other more productive assets. Recency bias clearly plays a role in mutual fund flows as investors dump underperforming funds and pour money into the best performing funds, only to see those same funds reverse course over the following time periods. Incredibly, these are just two examples that have been well documented for years and yet they still persist today. For example, global equities have generated a cumulative 43% return from 2008 through 2010, yet investors have pulled $45 billion out of stock funds during that time. Global bond funds, on the other hand, have received a whopping $537 billion despite cumulative returns of less than 10% from 2008 through 2010 and the looming risk of rising interest rates from record lows. The consequences of letting this irrational behavior drive your investing are significant. In a study by DALBAR Inc., the S&P 500 Index averaged a 9.0% return over the last 20 years while returns experienced by the average investor were a mere 3.0%. Another study by John Bogle, considered the father of passive index investing, found that investors owning index funds didnt fare much better. When emotions overtake sound investing, the negative wealth impact of yielding to ones psychological tendencies is called The Investor Behavior Penalty. But perhaps the biggest detractor to investor returns is short-termism, which has been around for decades but appears to be worsening. The average holding period of a share of stock on the New York Stock Exchange has fallen from 11 years in the 1950s to less than 1 year today.

There is no way one can analyze the fundamentals of investing without assessing the psychology of investing.

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CONTINUED

The average portfolio turnover in a stock mutual fund is over 100%, meaning that the entire portfolio could be sold and reinvested in less than a year, generating costly short-term gains (if any). Short-termism adds to investors tax bills and trading costs at the expense of investment returns. Investors amplify short-termism by selling an underperforming stock or firing an advisor. For the average investor, however, rarely does this increased activity result in anything but satisfaction in the short-term and disappointing returns in the long-term. Interestingly, some unpopular barriers that prevent some of these behaviors from occurring can actually generate higher returns. For example, studies show investors in load funds (in which an additional cost is tacked on to the initial purchase or final sale of a fund) outperform those in no-load fund despite the ~5% additional cost. Hedge funds and private equity funds are derided in the media for their strict lock-up terms, preventing investors from pulling their money out at will. However, in both cases, note that not only is the investor protected from his/her psychological tendencies, but the manager is also free from those concerns and can focus on managing the portfolio. A brief examination of the private equity approach to investing might prove insightful. Private equity funds typically invest in a portfolio of companies (diversification) that they view undervalued relative to a future exit price (hence, buying cheaply). Further, they focus on business operations since, in many cases, their stake in the target company allows for some control. They hold for a long time period (low turnover), requiring an assessment of future market conditions (and understanding psychological tendencies) and benefiting from the compounding of returns, before selling for a profit. While we stand by our long-term approach to investing, we incorporate many of these psychological factors into our portfolio management. For example, we combine technical analysis to our fundamental analysis to determine if and when to take tactical positions in our clients portfolios, and technical analysis incorporates much of the investor psychology discussed here. For example, we assess market sentiment (indicates possible near term price moves) and momentum (correlated to fund flows) when considering any portfolio moves. Too much trading can whittle away returns, but investing from a position of strength when the markets offer dislocations offers the opportunity for above average returns, in our view. No investor will succeed over time without thorough fundamental analysis. But, a disciplined approach that also protects from the negative impact of that which makes us human can increase investor returns over time.

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3Q11

Investing From a Position of Strength

The main thing is to keep the main thing the main thing. Peter Drucker

Choppy market conditions put both euphoria and fear into the heads of investors. Our primary role as investment, retirement and wealth advisors is to keep our clients on a disciplined wealth management track to successfully navigate the conditions at hand. We are reminded of a brilliant quote by Peter Drucker: The main thing is to keep the main thing the main thing. In short, we like to remind our clients and friends that both profound opportunities and threats exist in the economy so we believe the main thing to focus on at this time is investing from a position of strength. Doing so enables you to weather storms, endure dry spells and invest at the very best times: when others are too afraid or financially unable to invest. The audio book version of our founders book, Investing From a Position of Strength will soon be released. For a free copy (in CD or Podcast form) just email us at request@janiczek.com

INVESTING
FROM A POSITION OF

STRENGTH

ILLUSTRATION

12

AUDIO BOOK

A high net worth investors guide to surviving and thriving in all economic and investment climates

The audio book version of Investing From a Position of Strength will soon be released.

BY

Joseph J. Janiczek

M A R K E T C O M M E N TA RY R E P O RT 1 7

A Perfect Summer Evening

C L I E N T S & F RI EN DS ~ DELI CI OUS PICNIC ~ LIVE MUSIC
Tuesday, August 2, 2011

Please join us for

Please join us for an open house reception anytime between 4:30 p.m. and 6:00 p.m. at the Janiczek office. After a brief reception, we will walk a few steps to Crescent Amphitheater to enjoy Soul X, an amazingly versatile 10-piece band. The evening will include a delicious picnic.

The concert begins at 7:00 p.m. and ends at 8:30 p.m. Seating is informal, so please bring blankets or lawn chairs. Friends and family are welcome! Sorry, no pets. You may park in the building lot; no garage parking. If asked, say you are with Janiczek & Company. We are looking forward to seeing you for a fun summer evening.

R.S.V . Required. .P

Please R.S.V.P. to Pam Dorn at 303-339-4571 or pdorn@janiczek.com

About Janiczek & Company, Ltd.

Accepting clients throughout the U.S., Janiczek & Company, Ltd. offers comprehensive wealth management services to individuals and families with investable assets of $1 million to $100 million. The companys proprietary Wealth with Ease System brings all the key elements of successful investment portfolio management and financial, retirement and estate planning into a simple yet comprehensive wealth management service aimed at transforming the lives and results of each client and, if desired, multi-generations of each client's family. The company has been named one of the top, best or most exclusive wealth advisory firms in the nation multiple times. For more information call (303) 721-7000 or (877) 526-4293, or visit our website at www.janiczek.com.

INVESTING FROM A POSITION OF STRENGTH

About the Author

CONTINUED from FRONT

A must-read for anyone with a seven- or eight-figure investment portfolio

INVESTING
FROM A POSITION OF

INVESTING FROM A POSITION OF STRENGTH

Joseph J. Janiczek is the founder and CEO of Janiczek & Company, Ltd., recognized multiple times as one of the top, best or most exclusive wealth advisory firms in the nation. After decades of meticulous work identifying the optimal way to create and manage wealth, he created the Written by awardpending Janiczek patent winning author and nationally recognized wealth advisor Joseph J. Wealth with Ease System, bringing together all of the key elements of success and satisfaction into one cohesive wealth management service. An award-winning author and avid creator of concepts Joseph J. Janiczek and tools that simplify success, Janiczek is frequently featured in the national press.
PROFESSIONAL RECOGNITION
WE A

Janiczek brings these insights to life with observations and anecdotes that reflect his 25 years of experience in wealth management and his passion for helping high net worth investors succeed. Moreover, he understands that success isnt measured in dollars and cents; its the freedom to pursue your highest purpose and possibilities, a freedom that blossoms when wealth is no longer a problem to solve but a strength to harness and enjoy.

STRENGTH

A H I G H N E T W O RT H I N V E S T O R S G U I D E T O S U RV I V I N G A N D THRIVING IN ALL ECONOMIC AND I N V E S T M E N T C L I M AT E S

INVESTING
FROM A POSITION OF

STRENGTH

The key to surviving and thriving in all economic and investment climates is financial strength. High net worth investors the 4.7 million American households with investable assets above $1 million have the opportunity to gain this advantage and reap the many potential rewards. These potential rewards include great clarity and confidence, more consistent and calculated investment returns, and wealth that is truly secure and no longer threatened by the vagaries of the market.

MAN A LTH

Joseph J. Janiczek, named among the top, best and most exclusive wealth advisors in the nation multiple times, pioneered optimal ways of measuring, building and permanently maintaining financial strength. He believes recent market volatility has exposed huge vulnerabilities and weaknesses in the way most high net worth investors manage their portfolio and identifies the root cause and permanent solution to this widespread problem. As he notes at the start of this book, You do not become financially strong by achieving superior results. You achieve superior result by becoming financially strong.

R GE

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by JJJ Advisors, Inc. d/b/a Janiczek & Company, Ltd.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from JJJ Advisors, Inc. d/b/a Janiczek & Company, Ltd. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. JJJ Advisors, Inc. d/b/a Janiczek & Company, Ltd. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the JJJ Advisors, Inc. d/b/a Janiczek & Company, Ltd.s current written disclosure statement discussing our advisory services and fees is available for review upon request.
Phone: 303-721-7000 Toll Free: 1-877-JANICZEK (1-877-526-4293) Email: request@janiczek.com www.janiczek.com

Joseph J. Janiczek is the Founder & CEO of Janiczek & Company Ltd., a Denver-based wealth and investment management company that has been named among this nations top, best and most exclusive wealth advisors multiple times. Mutual Funds magazine recognized him as one of the Three Masters of the Retirement Universe, along with Charles Schwab and economist Lawrence Lindsay. Janiczek is the author of How to Achieve Absolute Financial Freedom, which won a Gold Medal for Best Business/Finance Book of the year in 2001.

A high net worth investors guide to surviving and thriving in all economic and investment climates

Important Disclosure Information Ratings by publications, such as Worth Magazine and Mutual Fund Magazine, and third party services, such as Crescendo Business Services and National Association of Board Certified Advisory Practices (NABCAP), should not be construed by a client or prospective client as a guarantee that any client or prospective client will experience a certain level of results if Janiczek & Company, Ltd. is engaged, or continues to be engaged, to provide wealth and investment advisory services, nor should they be construed as a current or past endorsement of Janiczek & Company, Ltd. by any of its clients. Worth Magazine and Mutual Funds Magazine base their selections on information submitted by investment advisors throughout the country. Crescendo Business Services surveyed 74,000 high net worth investors in the Denver Colorado area (one of Janiczek & Company, Ltd.'s markets and the location of our headquarters) in nine client satisfaction categories. NABCAP evaluates and ranks advisory practices in twenty categories. Results will vary, and no assurances can be made as to the degree of progress made toward the aims and objectives identified in this book. Janiczek & Company, Ltd. is a registered investment advisor with the Securities and Exchange Commission. See the Janiczek & Company, Ltd. ADV Part II Disclosure document provided to all prospective clients prior to engaging our services and available to all clients thereafter on an ongoing basis upon request.

Janiczeks formula for building financial strength is th same practical guidance he has used to help hundreds of high net worth individuals to avoid the mistakes of typical investors and eliminate weaknesses that can sabotage performance and lead to wealth depletion. In this groundbreaking book, he shows you how to implement:

Joseph J. Janiczek

BY

Joseph J. Janiczek
Award Winning Author of Abs olute F ina n c i a l Fr e e d o m

A system that liberates you from low-value tasks and distractions, and puts your focus on the Essential 15% of actions that drive success A structure that provides complete clarity and control over all your assets and allows you to see where your intervention will have the most impact Support that is fully aligned with your goals and needs, providing you with insights and advantages that will optimize your results Discipline that is almost entirely delegated or automated, preserving your own self-discipline for the challenges that are most vital and rewarding

A Prosperity Press Book

CONTINUED

Now Available at Your Favorite Book Store

TM & Copyright 2011, Wealth with Ease, LLC. All rights reserved. No part of this document may be reproduced or forwarded without the express written authorization of the publisher. The Wealth with Ease System, Market Commentary Report, and Investing from a Position of Strength are trademarks of Wealth with Ease, LLC.

8400 E. Crescent Parkway Suite 160 Greenwood Village, CO 80111 303.721.7000 Toll Free 877.526.4293 Fax 303.721.7082