Drystone Communications

October 12, 2010

Drystone’s expectation for the S&P 500 index over the next 5-10 years is at least 4 % average annual price change + 2 % dividend yield = an average annual total return of 6½ %. I also hope Drystone will continue to add a healthy percentage on top of the benchmark return. These are only projections and subject to much year-to-year volatility, but I will predict with confidence that a cumulative price decline from now to 2015 is unlikely and from now to 2020 very unlikely and that stocks’ total return will outperform total return on most bonds.

July 9, 2010

Gold may yet prove a bubble instead of a bulwark. Gold is a fear-based investment with little intrinsic economic utility. Just as investors overreached for yield in the past decade, they may now be overreaching for perceived safety. Witness the same flight to safety driving other investors paradoxically into Treasury bonds. When investors pile into one corner of the room, they always bring their risk with them, regardless of which corner and whether the initial rush was motivated by fear or greed.

April 13, 2010

The percentage of a portfolio committed to any single investment should reflect the degree of confidence you have in the analysis behind that investment, i.e., how well you can get your brain around the variables which will determine success or failure. One of the more reliable confidence-boosters in analyzing an investment is a low valuation which reflects obscurity or low expectations and neglect from the majority of other investors. Sustained future growth and sustained income provide the long-run return we all love, but it’s a low entry price which can provide the margin of safety and initial turbo kicker to realized return that builds confidence.

January 15, 2010

Drystone uses “income and growth at a reasonable (or better) price” as a catchphrase for stringent criteria applied to both the growth and value side of each investment decision and a search for total return from both price appreciation and current income. Specific targets for dividend yield or the percentage of value stocks in a portfolio are as artificially precise as the labels “growth” or “value” themselves, but suffice it to say that your portfolio will always reflect a strong value discipline, especially in the face of potential inflation.

Why do I think about inflation? Every saving and investing decision hinges on future cashflows discounted to present-day value, and even normal baseline inflation chips away at real portfolio values over time – in that context, ignoring inflation would be gross negligence. You are paying Drystone for best efforts at purchasing power preservation and growth.

Drystone LLC investment portfolio manager