HenryWirth.com
Beating the Market since June 2001

Home | Contact

Weekly Reports

A detailed Portfolio Report was e-mailed to my subscribers every week. The report was an audit of all the stocks that were selected and e-mailed to my subscribers. The report kept me honest by making it impossible to lie about the returns that I reported, AND it provided my subscribers with a record to which they could refer.

The Portfolio Reports were available only to Subscribers, but the essays and notes below are some of the More Memorable Cover Pages of the weekly reports that were sent to subscribers. Normally the cover page contained only a few comments, but the cover pages below inspired some interesting responses from readers.

*************************************************************************************************

Index
Alice in Wonderland May 7, 2010
Buffett, Warren on Timing December 31, 2008
Complaints March 5, 2010
Economic Cycle May 1, 2009
Japan vs. US December 11, 2009
Rich? - Are You April 24, 2009
Sex January 25, 2008
Siegel, Jeremy vs. S&P February 27, 2009
Stress - Trading October 30, 2009
Tax & Publicly Traded Partnerships April 9, 2010
Trading - Frequent February 26, 2010

*************************************************************************************************

May 7, 2010 Report Cover Letter

Greetings,

This week was one of the strangest weeks I've seen. Yesterday (Thursday), one of the picks Doug recommended was PPCO. On Thursday PPCO traded between zero and 3.50. I could not believe my eyes when I saw that price range on Yahoo, so I checked the range on Ameritrade's site. Sure enough, the low for PPCO on Ameritrade's website was $0.0001 on Thursday. That means, for one split second yesterday, a company that now has a market cap of over $100 Million, had a total value of less than $4,000

Strangely, Yahoo's historical quotes now show that PPCO traded at 3.45 to 3.50 on Thursday.

Alice in Wonderland: "I wonder if I've been changed in the night? Let me think. Was I the same when I got up this morning? I almost think I can remember feeling a little different. But if I'm not the same, the next question is 'Who in the world am I?' Ah, that's the great puzzle!"

The Cat: "We're all mad here."

Summary after Close on May 7, 2010

18 SOLD on 5/7/2010
20 PURCHASED on 5/7/2010

S&P 500 LOST 5.0% Quarter to Date
WEIMERandWIRTH LOST 0.3% Quarter to Date
NASDAQ 100 (QQQQ) LOST 5.7% Quarter to Date

S&P 500 GAINED 0.1% Year to Date
WEIMERandWIRTH GAINED 10.4% Year to Date
NASDAQ 100 (QQQQ) LOST 0.7% Year to Date

S&P 500 GAINED 0.7% annually since June 30, 2001
WEIMERandWIRTH GAINED 25.4% annually since June 30, 2001
NASDAQ 100 (QQQQ) GAINED 0.0% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

April 9, 2010 Report Cover Letter

 Greetings,

I updated the "Return History" and "Return Variability" pages of the attached report. I changed some things that I will let you discover yourselves. Feedback, negative or positive is always appreciated.

The WEIMERandWIRTH model portfolio purchased BBEP on March 13, 2009 and sold it on July 31, 2009 for a 33% profit. If you purchased BBEP, then you purchased BreitBurn Energy Partners L.P. (NASDAQ: BBEP), which is a Publicly Traded Partnership (PTP) aka a Limited Partnership (LP). I believe BBEP is the only PTP that was held during 2009 by WW.


The sale must be reported to the IRS if it was purchased in a taxable account, but there are additional reporting requirements.

1. If you purchased a Publicly Traded Partnership, then you have received, or will receive, IRS Schedule K-1. Note that even though you have probably received this form during March, you may receive this form as late as April 15. Regardless, you are required to incorporate this information into your tax return if you purchased it in a taxable account.

The K-1 tax information is available on the partnership's website. That info can be downloaded and imported into TurboTax. There may be changes to your tax liability, especially if you have a great deal of business income and business deductions. I believe that TurboTax handles everything after the K-1 info is imported, but if anyone experienced problems, then please let me know; I will pass on that info.

2. If you sold your publicly traded shares, your broker may not have reported the sale to the partnership because I believe brokers are not required to report sales to PTPs. IMPORTANT: If you are an eligible owner and if you do not report the sale of your publicly traded shares to the partnership, then the partnership may assume you still own them and report your ownership to the IRS. Forever and ever after…

Note that eligible owners are all owners who purchased shares of a PTP in a taxable account, C Corps, IRAs, and Keogh Plans. You can report the sale on-line at the PTP's website. Click on the K-1 support icon. If you have any questions, the PTPs normally supply a toll free number on their websites.

3. If you purchased these shares in an IRA, then you probably don’t have to report anything to the IRS, but there may be some obscure reporting requirements. This confused me, but all the friendly folks at the IRS I spoke with were confused too. For whatever it's worth, the WW portfolio sold a PTP in 2007 too. All the folks I know who held this in an IRA did NOT report anything to the IRS. As far as I know, there were no IRS repercussions.

After this cover letter was disseminated, I learned something new about Publicly Traded Partnerships from one of our members who is a CPA. He wishes to remain anonymous because he is overwhelmed with clients and work, but all the info that follows is from him.

"Partnerships, whether they are PTPs or LPs, can be a problem even for IRAs, employer retirement plans, and tax-exempt entities. For most IRAs it is not likely to be an issue, but you never know. My WW investments are in a Roth 401(k). I detected fairly quickly that BBEP was a partnership, and so I bailed immediately. Unfortunately, I missed the nice 33% run up.

IRAs, etc., are taxed on UBTI (unrelated business taxable income) if it exceeds $1,000 for the year. The $1,000 limit is not per investment, but total UBTI for the year from all sources. Partnership income is the typical source of UBTI for retirement plans, but it can also come from debt-financed income (usually margin accounts).

As long as no debt-financed income is involved, the partnership K-1 income is UBTI, and sometimes a portion of the gain from later selling the partnership units is UBTI. If there is debt-financed income, then even more of the gain from selling the units is UBTI. It is possible to get whipsawed by these investments in that they can generate a substantial K-1 income, but no change in market value, or even worse, a loss in the value of the units. An IRA would end up paying tax on phantom income, and getting no deduction for the capital loss. "

Because of this new info, Doug and I will double our efforts to ID these things and NOT disseminate them in the future.

There is a great deal more I'd like to write about a government that encourages PTPs, but I do not want to find myself in a secret prison in Afghanistan or Eastern Europe, so I will restrain my fingers.

WW set new YTD highs every day this week thru Thursday, but lost about 1/2% today (Friday), while every other index gained. Very strange. WW is still outperforming the S&P 500 and the NASDAQ 100 by substantial margins, YTD and QTD, but the Small and Micro Cap indices are both outperforming us by slight margins this quarter, thanks to our loss today.

Summary after Close on April 9, 2010

Nothing Sold this Week
Nothing Purchased this Week

S&P 500 GAINED 2.1% Quarter to Date
WEIMERandWIRTH GAINED 3.4% Quarter to Date
NASDAQ 100 (QQQQ) GAINED 1.8% Quarter to Date

S&P 500 GAINED 7.6% Year to Date
WEIMERandWIRTH GAINED 14.6% Year to Date
NASDAQ 100 (QQQQ) GAINED 7.2% Year to Date

S&P 500 GAINED 1.5% annually since June 30, 2001
WEIMERandWIRTH GAINED 26.1% annually since June 30, 2001
NASDAQ 100 (QQQQ) GAINED 0.9% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

March 5, 2010 Report Cover Letter

Greetings,

Doug has been sharing the picks and I have been maintaining the report since June 30, 2001. It was bound to happen sooner or later, but last week we had our first known complaint.

The complaint was made by a Chartered Financial Analyst (CFA) who also holds a PhD in statistics.

Here's what he wrote:

1. "I am sorry to say, that your statistics prove absolutely nothing."
2. "Your trades are often impossible to do because of thin markets."
3. "I don't know how your clients do, due to high volatility and wide spreads."
4. "Nevertheless I find your info useful."

And here are my responses:

1. "I am sorry to say, that your statistics prove absolutely nothing."
My response:
Doug and I disseminate financial information, NOT statistics. Financial information almost never proves anything other than X was greater than Y yesterday. That means there is no guarantee that X will be greater than Y tomorrow. By now, any investor who is not aware of that FACT is probably beyond learning anything.
The best you can hope for with financial information is that the winning trend that has been identified, will continue to win in the future. If valid financial statistics existed, do you really believe the financial world would have come as close to collapse as it did?

2. "Your trades are often impossible to do because of thin markets."
My response:
Impossible? Absolutely not, because I use the average of the daily HI-LO price. That means that trades have been executed at the prices I use. And it means that many more trades have been executed at more favorable prices than the prices I use.
However, I will admit that sometimes it will be frustratingly difficult to execute at the average HI-LO of the day. All of this is explained in excruciating detail on the "Portfolio Rules" page of the attached report i.e., the report e-mailed to subscribers every week.
If this were as easy as watching a football game or chowing down junk food, then everyone would be rich, and that is clearly impossible. I believe that successful trading requires discipline and intestinal fortitude, and I also believe that you are either going to get reasonably good at this game or you are probably going to quit.

3. "I don't know how your clients do, due to high volatility and wide spreads."
My response:
Every six months, Doug asks all subscribers for their performance data. About 25% to 30% of you respond. I believe that anyone who has been diligently attempting to execute the recommended trades has come reasonably close to the returns that I report, and some of you have been exceeding those reported returns.
At this point Doug and I have 53 paying subscribers i.e., we are clearly not getting rich by maintaining our newsletter. That means that WEIMERandWIRTH is a newsletter that Doug and I edit in order to help keep our brain synapses firing, but there is very little reason to misrepresent anything.

4. "Nevertheless I find your info useful."
My response:
Be still my heart!
Doug and I hope that all of you find our info useful.

The S&P 500 and the NASDAQ 100 (QQQQ) both finally made it into positive territory this week. The good news is that WW is beating both soundly. The bad news is that WW is barely beating its nemesis. More on this next week unless something better comes up.

Summary after Close on March 5, 2010

3 SOLD on 3/5/2010
3 PURCHASED on 3/5/2010

S&P 500 GAINED 2.1% Quarter to Date
WEIMERandWIRTH GAINED 9.0% Quarter to Date
NASDAQ 100 (QQQQ) GAINED 1.5% Quarter to Date

S&P 500 GAINED 2.1% Year to Date
WEIMERandWIRTH GAINED 9.0% Year to Date
NASDAQ 100 (QQQQ) GAINED 1.5% Year to Date

S&P 500 GAINED 1.0% annually since June 30, 2001
WEIMERandWIRTH GAINED 25.7% annually since June 30, 2001
NASDAQ 100 (QQQQ) GAINED 0.3% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

February 26, 2010 Report Cover Letter

Greetings,

Does WEIMERandWIRTH's frequent trading really add value?
Last week I answered that it depends on the market, but this week I will attempt a comprehensive explanation.

During the bear market of 2008, WW's frequent trading added virtually no value to a WW portfolio frozen at the end of 2007. The actual WW Portfolio lost 41.4%; the frozen portfolio lost 42.6%.


During the bull market of 2009, WW's frequent trading more than doubled the return of a frozen 2008 WW portfolio (68.9% vs. 28.9%).

And, during the first eight see-sawing weeks of 2010, WW's frequent trading added arguable value to a frozen 2009 WW portfolio, but the year is still young. The actual WW Portfolio is worth about 2% to 3% more than the frozen portfolio. Irrational exuberance is WW's best friend, but there has been very little evidence of any exuberance lately.

How can this information be used?

This information is extremely liberating. Years ago, when I was still productively employed, my stock market junkie colleagues and I would speculate that frequent trading during a bear market would add value to a growth and momentum portfolio. I now know, beyond any reasonable doubt, that this is simply not true. This information is liberating because if you do not expect WW's frequent trading to add value during a bear market, you will not be disappointed.

I also spent a great deal of time attempting to optimize the sale date. I suspected it was also dependent on the market, but until I finally got around to writing code to extract market dependent data, I simply wasn't reasonably sure about it. I now also know, beyond any reasonable doubt, that one is on a fool's errand if one attempts to optimize the sale day without considering market conditions. That is a huge breakthrough. This information frees you from worrying about optimizing the sale date i.e., you can be confident that, on average, the older picks will return more than cash if (BIG IF) future returns are similar to the returns of the past sixty years.

The bottom line is that during the past sixty years, the market had positive returns about 75% of the time. If the future is similar to the past (BIG IF again), that means that WW will probably outperform about 75% of the time, sometimes by huge margins. During the remaining 25% of the time, WW will probably do no worse than an appropriate index.
We'll see…

This week ended almost where it started. It could be worse.

Summary after Close on February 26, 2010

5 SOLD on 2/26/2010
5 PURCHASED on 2/26/2010

S&P 500 LOST 1.0% Quarter to Date
WEIMERandWIRTH GAINED 2.5% Quarter to Date
NASDAQ 100 (QQQQ) LOST 2.2% Quarter to Date

S&P 500 LOST 1.0% Year to Date
WEIMERandWIRTH GAINED 2.5% Year to Date
NASDAQ 100 (QQQQ) LOST 2.2% Year to Date

S&P 500 GAINED 0.6% annually since June 30, 2001
WEIMERandWIRTH GAINED 24.9% annually since June 30, 2001
NASDAQ 100 (QQQQ) LOST 0.1% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

December 11, 2009 Report Cover Letter

Greetings,

Everyone knows there are huge differences between Japan and the US, but there may also be many similarities: The Japanese economy crashed in 1989 because of unsustainable stock market and real estate bubbles. From the crash in 1989 thru Dec. 7, 2009 the large cap NIKKEI 225 lost about 75% of its value. Real estate values also remain in the doldrums.

Does a similar fate await US investors? We're gonna have to wait another ten or so years before that question can be answered, but in the meantime it may be worthwhile examining the returns of Japanese Large Caps and Japanese Small Caps because the conventional wisdom proclaims there are huge performance differences.

The Russell/Nomura Small Cap Index contains the bottom 15% of the Russell/Nomura Total Market Index in terms of market capitalization, but very little historical data are available. However, DFA has been managing a small cap Japanese fund since August 1993. I will use the return data of that fund as a proxy for the index because I know of no other source that has longer term values for small cap Japanese stocks.

Without further ado, here's a chart of the NIKKEI vs. the DFA Japanese Small Cap Stock Fund (Ticker DFJSX). Both the small cap fund and the NIKKEI 225 have been equilibrated to start at 100. All values have been adjusted for dividends and distributions. I have chosen to show ten years of performance data beginning with December 31, 1999 because that was about ten years after the Japanese bubbles burst, and that's about where the US is right now, but remember: Timing is everything.



The chart shows that Japanese Small Caps outperformed Japanese Large Caps by substantial margins over the last ten years. Our future may or may not resemble the chart above, but the data are interesting.

WW is unfortunately still trailing the big indices by uncomfortable margins QTD. We are slightly behind the small cap index, but we out-performing the micro cap index by a substantial amount.

Summary after Close on December 11, 2009

1 SOLD on 12/11/2009
1 PURCHASED on 12/11/2009

S&P 500 GAINED 4.7% Quarter to Date
WEIMERandWIRTH LOST 1.1% Quarter to Date
NASDAQ 100 (QQQQ) GAINED 4.4% Quarter to Date

S&P 500 GAINED 24.9% Year to Date
WEIMERandWIRTH GAINED 62.5% Year to Date
NASDAQ 100 (QQQQ) GAINED 48.4% Year to Date

S&P 500 GAINED 0.6% annually since June 30, 2001
WEIMERandWIRTH GAINED 24.7% annually since June 30, 2001
NASDAQ 100 (QQQQ) LOST 0.3% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

October 30, 2009 Report Cover Letter

Greetings,

I got the message below from The October 17th Economist
The Rationalizer should help you keep a cool head while you're buying and selling:

ABN AMRO, a Dutch bank with intimate experience involving rash decision making sponsored the development of emotion sensing systems after research showed that traders who exhibit more intense emotional reactions to monetary gain or loss also have significantly worse trading results.


The Rationalizer, which is still under development, measures emotional arousal and displays it as a moving light pattern. A cool head will generate a mellow yellow display, but if it reaches a deep red, it's time to take a break and cool down.

The losses during the last two weeks wiped out about two months of gains for WW and the indices, but the good news is that October, which is considered a dangerous month for traders and speculators, is behind us. The other dangerous months are July, January, September, April, November, May, March, June, December, August, and February, but not necessarily in that order.

Summary after Close on October 30, 2009

8 SOLD on 10/30/2009
8 PURCHASED on 10/30/2009

S&P 500 LOST 2.0% Quarter to Date
WEIMERandWIRTH LOST 10.2% Quarter to Date
NASDAQ 100 (QQQQ) LOST 3.1% Quarter to Date

S&P 500 GAINED 16.9% Year to Date
WEIMERandWIRTH GAINED 47.6% Year to Date
NASDAQ 100 (QQQQ) GAINED 37.7% Year to Date

S&P 500 LOST 0.2% annually since June 30, 2001
WEIMERandWIRTH GAINED 23.6% annually since June 30, 2001
NASDAQ 100 (QQQQ) LOST 1.2% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

May 1, 2009 Report Cover Letter

Greetings,



The chart above shows a typical business cycle and the points at which various economic sectors tend to outperform the broader market. Source: Standard and Poor's, based on a study analyzing the differences in market returns of 90 Industries vs. the S&P 500 during 10 complete economic cycles from December 1945 - December 1995.

I do not believe this information can be used to optimize the return of a WW portfolio, but I can tell you that the financial sector of the WW portfolio is returning about four times as much as the rest of the portfolio. The chart above is especially valuable because it shows that the stock market cycle has historically preceded the economic cycle. Note that the historical data show that if the economy is in the middle of a recovery, then the stock market has already peaked.

How many times have you heard this?
"I'm not gonna get in until I'm sure it's safe."
Good Luck!

It's too bad we don't know exactly where we are in the cycle, but that will only be known when we have the wonderful benefit of hindsight. Regardless, it was a very good week for WEIMERandWIRTH

Summary after Close on May 1, 2009

2 SOLD this week
3 PURCHASED this week

S&P 500 GAINED 10.0% Quarter to Date
WEIMERandWIRTH GAINED 19.7% Quarter to Date
NASDAQ 100 (QQQQ) GAINED 13.4% Quarter to Date

S&P 500 LOST 2.1% Year to Date
WEIMERandWIRTH GAINED 14.4% Year to Date
NASDAQ 100 (QQQQ) GAINED 15.6% Year to Date

S&P 500 LOST 2.5% annually since June 30, 2001
WEIMERandWIRTH GAINED 21.3% annually since June 30, 2001
NASDAQ 100 (QQQQ) LOST 3.5% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

April 24, 2009 Report Cover Letter

Greetings,

The April 4TH-10TH issue of The Economist had a 14-page Special Report on the "Rise and Fall of the Wealthy". Last week I wrote about the reversal of real estate prices over the past year.

This week the topic will be: Who rates as rich and who handles the fortunes of the rich?

Merrill Lynch's wealth-management report rates you as "rich" if you have $1 Million in investable assets.

According to The Economist and the May 2009 Atlantic Monthly, many wealth managers will not bother with anyone who has less than $10 Million.

Regardless, the real question is: What have highly compensated wealth managers done for their clients during the global financial crisis? The answer is: They have not earned their fees because, proportionately, the rich lost about as much as the average investor AND, there is no evidence they earn more during the good times than the average investor.

Boston Consulting Group (BCG) reports that a great deal of private banking benefits the bank more than the client. Often bankers will be rewarded not just on the basis of assets under management, but on product sales that seldom benefit the client.

The rich have become disillusioned with the people who look after their fortunes. Surveys show that nobody believes anything advisors are saying anymore, so 85% have made advisory changes. Law firms report that half their wealthy clients do not use private wealth management services at all, and the half that do are dissatisfied with the advice they receive. The primary reason for opting to stay with an advisor is not satisfaction with the advisor, but fear that they would not be better served elsewhere.

Like everyone else, rich people want the impossible: high returns with no risk. But their biggest fear, naturally enough, is losing a chunk of their wealth so large that they would have to adjust their lifestyle. Sound familiar? This fear created a 64% increase in demand for gold bullion. Normally gold bullion is purchased through the derivatives market, but many purchasers demanded physical delivery during 2007 and 2008. For the next year or two, investors will probably be much more cautious.

The bottom line is that the wealth management industry generally promises a great deal more than it delivers, but the wealth management industry will probably continue to thrive as long as there are people who want the impossible: high returns with no risk.

So far, it has been a good quarter, but my perma-bear idol, Alan Abelson is warning his followers to be prepared for more bad news from the bourses. According to Alan, the only reason for this rally is a total denial of all the bad economic news. The good news is that all perma-bears are wrong more frequently than they're right, but I agree that it's not a bad idea to be prepared.

Summary after Close on April 24, 2009

1 SOLD this week
1 PURCHASED this week

S&P 500 GAINED 8.6% Quarter to Date
WEIMERandWIRTH GAINED 13.9% Quarter to Date
NASDAQ 100 (QQQQ) GAINED 11.1% Quarter to Date

S&P 500 LOST 3.4% Year to Date
WEIMERandWIRTH GAINED 8.9% Year to Date
NASDAQ 100 (QQQQ) GAINED 13.3% Year to Date

S&P 500 LOST 2.6% annually since June 30, 2001
WEIMERandWIRTH GAINED 20.6% annually since June 30, 2001
NASDAQ 100 (QQQQ) LOST 3.7% annually since June 30, 2001

The returns above do NOT include the current quarter's dividends.
Dividends ARE included for the S&P 500's historical data, but NOT
for the NASDAQ 100's or for WEIMERandWIRTH's historical data.
Comprehensive return data and details are in the attached report.

Regards,
Henry

Return to Index

*************************************************************************************************

February 27, 2009 Report Cover Letter

Greetings,

This week, on February 25, Jeremy J. Siegel, the esteemed Wharton professor who wrote Stocks for the Long Run, wrote an op-ed piece that was published in The Wall Street Journal titled The S&P Gets Its Earnings Wrong. He wrote that Standard and Poor's (and most other index providers) calculate "aggregate" earnings and P/E ratios for their indexes in a bizarre way that makes stocks appear far more expensive than they really are i.e., "Stocks are cheaper than they look."

S&P wrote, "Quite obviously, Professor Siegel's op-ed is flawed. Rest assured that S&P firmly stands behind its earnings calculations, and you can expect to see a published rebuttal shortly."

The blogosphere has been having fun with this. It's gonna be interesting to see whose reputation suffers most after the dust settles.

In the meantime: Is the good professor right? Has Standard and Poor's really been bizarrely miscalculating earnings since 1957? In order to be able to answer that question, it is necessary to know how S&P calculates its earnings, and it is necessary to know how the good professor claims earnings should be calculated. This is gonna take a little time, but I believe the explanation is worth whatever time and effort it takes.

The S&P 500 is a capitalization weighted index, meaning stocks that have larger caps have a greater impact on the value of the index. However, earnings and losses are simply added together, without regarding the size of the company.

For example, let's create a new index called the BS index

The index will only have two component companies: B and S

B is a BIG company, and S is a small company (Gotcha, didn't I?)

If company B earned ten million dollars and company S lost ten million dollars, how much did the BS index earn?

According to S&P's methodology, the index earned nothing because the gain of B was cancelled by the loss of S

According to Jeremy J. Siegel, the reported earnings should be dependent on the size of the company i.e., a larger company's earnings should have more of an impact than a smaller company's earnings. Since the losers are likely to be small companies, their losses should have very little impact on the earnings of the index.

At first blush, this appears to be bizarrely illogical: 10 minus 10 equals 0
10 minus 10 does NOT equal 10, or 9, or anything else but 0

But could it?

Yes it could!

Huh?

Remember, when you buy stocks, it is FUTURE earnings that are important.

In a capitalistic system, small companies that lose money will either earn money in the future or they will disappear, unless they are given taxpayer money by politicians who are more worried about disappearing themselves. Large companies that make money will probably (arguably) get larger and make more money.

So, in the future, the aggregate earnings of B and S are highly likely to be 11 minus 0 because S will either have disappeared, or (better) it will have reinvented itself as a company that doesn't lose money.

I have just given you a compelling reason to completely disregard all losses. Don't you feel much better about the Global Financial Crisis? I am now prepared to teach a seminar on Creative Finance so that one can learn how to use knowledge and imagination to make 1 + 1 = 1,000

Summary after Close on February 27, 2009
4 SOLD this week
5 PURCHASED this week
WEIMERandWIRTH Lost 14.3% Quarter to Date
NASDAQ 100 (QQQQ) Lost 7.4% Quarter to Date
S&P 500 Lost 18.6% Quarter to Date
Comprehensive return data are shown in the attached report

Regards,
Henry

Return to Index

*************************************************************************************************

December 31, 2008 Report Cover Letter

Global stock markets are currently about $30 Trillion below their peak. Here's a summary of major market losses, including dividends, during 2008: br />
US large caps lost 37.0%
US Small Caps lost 36.1%
US Micro Caps lost 33.8% (excl dividends)
Developed Europe lost 44.7%
The Developed Pacific lost 34.4%
Emerging Markets lost 52.8%

Last year the S&P 500, including dividends, lost 37.0%; it was the worst year in the history of the S&P 500. The second worst year was 1974, during which the index, including dividends, lost 24.3%. The good news is that the S&P 500, including dividends, gained 34.7% in the following year. Let us all hope there is a corresponding gain during 2009, but be emotionally and financially prepared for more bad news and further declines.

You may be interested in Warren Buffett's opinion:
(Is the Oracle of Omaha a "Buy & Hold" investor OR is he really a Market Timer?)
New York Times, October 17, 2008

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities. (This sounds a lot like Market Timing to Henry Wirth. Regardless of what it's called, it is definitely NOT "Buy and Hold Forever".)

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497. You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

The legendary Warren Buffet appears to be recommending a US stock allocation of 100%. My stock valuation model shows that the S&P 500 is more undervalued now than it has ever been relative to US government bonds, but 100% is a bit too much for me: I'm recommending 75% for stocks, which is as high as I would ever go. Perhaps that explains why I'm not legendary. Regardless, for a more comprehensive explanation, see the asset allocation page on HenryWirth.com and follow the links.

I wish I could tell you that WEIMERandWIRTH lost less than the indices, but obviously, we did not. However, if WW can continue to outperform on the way up, then the rewards will be well worth the effort.

WEIMERandWIRTH December 31, 2008 Report Summary
0 SOLD this week
0 PURCHASED this week
WEIMERandWIRTH Lost 24.3% Quarter to Date
NASDAQ 100 (QQQQ) Lost 23.6% Quarter to Date
WEIMERandWIRTH Lost 41.4% Year to Date
NASDAQ 100 (QQQQ) Lost 41.9% Year to Date

Regards,
Henry

Return to Index

*************************************************************************************************

January 25, 2008 Report Cover Letter

Greetings,

Here are my thoughts on the market: ARGHH… …

This week I am going to take your mind off the market by giving you an economic analysis of the world's oldest profession.

The annual meeting of the American Economic Association convened in New Orleans this month and it was part of a huge gathering of social scientists sprawled across the city. One of the more popular symposiums was one devoted to the market for paid sex, conducted by Steven Levitt of the University of Chicago and Sudhir Venkatesh of Columbia University. The results are fascinating:

The risk of legal action is low: Prostitutes are far more likely to have sex with a police officer than they are to be arrested by one.

Pricing strategies are much like any other business. Fees vary with the services provided, but attractive prostitutes are unable to command higher fees. Sex workers receive $25-30 per hour, roughly four times what they could expect to receive outside prostitution. During the July 4th celebration around Washington Park, which was one of the neighborhoods studied, business picked up by around 60%, but prices rose by just 30%. That's because women who were not regular prostitutes were prepared to work for the higher wages temporarily on offer.

It's an obviously dangerous job. Sex without a condom is the norm, so the possibility of disease is high. Sex workers can expect to be violently assaulted once a month. They do better with pimps – They work fewer hours and are less likely to be arrested by the police or preyed on by gang members. Mr. Levitt said that a few prostitutes asked the researchers to introduce them to pimps.

So far this year we have not had too many thing to be thankful for, but aren't you glad you're not a sex worker?

WEIMERandWIRTH January 25, 2008 Report Summary

0 SOLD this week
0 PURCHASED this week
WEIMERandWIRTH Lost 13.0% Quarter to Date
NASDAQ 100 (QQQQ) Lost 14.1% Quarter to Date
WEIMERandWIRTH Lost 13.0% Year to Date
NASDAQ 100 (QQQQ) Lost 14.1% Year to Date

Regards,
Henry

Return to Index

*************************************************************************************************