Addington Financial Group

"The function of economic forecasting is to make astrology look respectable."

John Kenneth Galbraith

Fidelity Investments (Fidelity) will be mailing most 2009 Tax Reporting Statements no later than February 16, 2010. Fidelity will also be mailing a select group of 2009 Tax Reporting Statements no later than February 28, 2010. We are able to mail these tax statements in late February because we received a mailing deadline extension from the Internal Revenue Service.

A notification letter will be mailed to affected customers on or about February 5, 2010 explaining this action.

"You make the most of your money in a bear market, you just don't realize it at the time."

Stated or not, this thought has to cross your mind with all of the recent financial scandals--with the infamous Mr. Madoff topping the list.

There are several points to keep in mind when the headlines begin giving you headaches and doubts:

1) Too good to be true If something seems too good to be true, it probably is. When a fund manager guarantees positive returns—year in and year out, with no discussion of how he does it—you should abandon ship immediately. Virtually no one can avoid the inevitable downturns in the market for so long.The natural effects of the business cycle will touch everyone at some time, so it is wise to question anyone reporting positive returns in a sea of red. And even if a manager is everything that he purports to be, we still live in the age of Enron and Bear Stearns—a time when anything can happen and probably will. For that reason alone, you should diversify your investments

2) No independent custodian An independent custodian helps safeguard an advisory firm's assets and reports major activities performed by the advisory firm, providing an extra layer of security for clients. Custody of the assets is usually done by a third party (in our case Fidelity), but Madoff did all of this in-house. Without an independent overseer, he was allowed to steal money and easily create false account statements about the "returns" investors were receiving. AFG does not act as your custodian—a major safety precaution they should always require.

3) Who is watching the hen house? In addition to acting as his own custodian, Madoff was able to act as a broker-dealer while essentially advertising himself as a hedge fund. Typically, hedge funds have a third party act as a broker-dealer. By acting as his own broker-dealer, Madoff provided his own compliance (courtesy of Madoff's brother and his niece), and it also enabled him to process all of his trades, which could be easily falsified. AFG complies with all compliance regulations, and underwent an SEC Audit in August 2008 with a result of 'no-findings'.

4) 'No one gets in to see the wizard--no one!' Madoff was very secretive about the process through which he created his returns. He used his "split-strike conversion" strategy—a sophisticated options trade—as his cover for
everything. When people asked too many questions, they were asked to leave. Madoff made it obvious to his investors that he did not like too many questions and that it is not other people's business what he does with their money. Although we can all respect McDonald's need to keep the "secret sauce" a secret, there's trouble afoot when your money manager wants to do the same.

5) Show me the audits... There was over $6 billion dollars in assets under management, and a three-person accounting"firm" doing most of Madoff's "auditing." The firm, Friehling & Horowitz, signed off on the yearly reports for Madoff's firm, but because of New York law, they did not have to be peer-reviewed. When examining a fund manager, I make sure their audits are certified, peer-reviewed, and performed by a reputable firm. Plain and simple. Many wealthy individuals and foundations invested with Madoff, many institutional investors reviewed him and passed on Madoff. Why? Because he failed their due diligence when it came to accounting and compliance issues.

6) No online access and antiquated statements Looking back, many of the warning signs were there, but who dared question Madoff's magic? How ironic it is for a guy who fathered the Nasdaq system of computer-based trading to refuse online access to his clients and to send antiquated statements with 10-year old technology to his clients. User-friendly statements and online access are a standard feature among managers and firms across the board. It is obvious in hindsight why Madoff's technology was so outdated: Updating his technology would have meant additional staff were exposed to his charade.
If people had scrutinized Madoff's statements, they may have ascertained that something was amiss.

Check out the new Client Portal (button on left side of home page). This secure link will provide you access to your Fidelity statements as well as allow us to store documents that may be reviewed or printed from any remote location, (The VirtualSafe™). Common document examples include: portfolio reports, business forms, letters, legal documents, tax statements, audio and graphics files.

Clients and other authorized users may access their documents by simply visiting this Web site and following a prompt to enter their confidential ID and password.

If I have not yet provided you with an ID and password--please email me to gain access to this site today!

I thought that the current volatility of the market warranted some discussion. It is obvious that as a whole—you ‘get it’ and as they say I am preaching to the choir but it is hard not to get concerned with the Media spouting non-stop doom and gloom. So my intention is not to lecture but to acknowledge current market conditions.

We have been through down markets together before, if not as far back as 1987 then certainly in 2000-2002. What we have or should have learned from those times--is that only if you sell when the market is down--do you actually suffer a loss. If you stand pat with your fundamental principals intact--then at the end of the downturn (bear market, recession, market tank--whatever we want to call it) we actually come out way ahead of our counterparts that forget the fundamental investment principals and instead succumb to those emotions that have long driven the market--fear and greed.

Investment decisions based upon fear or greed lead investors to buy when others buy and sell when others sell, guaranteeing terrible investment results.

If you are currently taking systematic distributions from your account(s), then we have not only one year of that income in cash--but two additional years of income identified in short term cash/bond positions. This strategy allowed us to weather the bear market of 2000-2002 very well and set us up for exceptional gains during the recovery period. All it takes is discipline and the ability to 'turn off' emotions when it comes to investment decisions. In short, we must have a decision framework that gives us a consistent basis on which to buy and sell. The market is down, you're not going to help matters by making a mistake by acting precipitously, just for the sake of "doing something."

There are few hard and fast rules in the stock market, but this one is a candidate: The market doesn't reward euphoria or panic.

"The more you can make investing a policy and an automated process, the less likely you are to have your emotions be hostage to the state of the markets and the 100 million other people who are investing alongside you. Because if you take your impulses from what they are doing, you'll always be as crazy as they are.” - Jason Zweig

All this said—please feel free to contact me at anytime to discuss the market—or anything else.

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Contact Informaton : Mailing Address: P.O. Box 143 Winnsboro, TX 75494 Phone: 866.220.7788 Fax: 214.242.2442
laura@addingtonfg.com