Q12012 Commentary that was sent out to clients.

1. Remember the Pain, but Let it Go: Q1-2012 Market Commentary
“The investor’s chief problem—and even his worst enemy—is likely to be himself.”
~Benjamin Graham
In the world we live in, where we’ve experienced high unemployment, a crumbling
financial system, multiple debt crisis, multiple triple-digit drop days on the Dow, and a feeling as
to whether we’ll ever get back to “normal” again, it’s easy to let our emotions get in the way of
the pure facts.
The fact remains that, despite the “news” we see on a daily basis, we continue to see a
steady stream of positive economic indicators and reports from the United States. Compare this
to where we were just 36-48 months ago, and you can certainly appreciate the steady recovery
that we’ve seen in the capital markets.
The last 36 months, while there have been bumps in the road, continued to provide solid
market gains from the March, 2009 lows that we saw in the market. The pain is all too real, but
we must also remember that from that low, the S&P 500 has risen by 108% (not including
dividends) by the end of last month, providing an extraordinary return for those investors brave
and cognitive enough to take emotion out of the investing equation.
After those three years of outstanding growth, record company profits, and in the middle
of monthly job gains, it’s difficult to argue that we’ve lost steam and that we may falter back to
the old “normal” way of investing and revise our view to a balanced approach to long-term
investing. However, others argue that it’s too late and perhaps the market has run too far,
calling out for a market correction.
However, while there’s always a risk of a correction, it’s hard to see why March, 2012
should represent a market peak. A few of the indicators below support this theory:
 At peaks, valuations are normally stretched—today, P/E (price to earnings) ratios
remain below their long-term averages, based both on forward-looking and
lagged earnings.
 At peaks, the economy is often close to full employment. Today, with
unemployment hovering around 8.2% (not accounting for part-time workers
looking for full-time employment), the economy has plenty of room to grow.
 At peaks, interest rates are often high as the Federal Reserve attempts to ward
off future runaway inflation. With rates still at historic lows (thus prompting the
opportunity for “cheap” money to be invested into business and economic
growth), there is room to grow and inflation concerns continue to be far-off.
 At peaks, consumer confidence is normally at above-average levels. While
sentiment has improved in recent months, consumer confidence remains well
below its average levels.
Having said all of this, it is important not to get too exuberant either. In March, the US
economy saw a net increase in employment of only 120,000 jobs. While this may overstate the
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2. weakness in the labor market, the reality is that the U.S. economic recovery remains
frustratingly slow, impeded by cutbacks in government spending, still tight credit conditions, a
mild recession in Europe and a growth slowdown in some emerging markets. Although the U.S.
economy clearly has the potential for continued growth, it appears to be carrying too much
weight for its current jog to suddenly accelerate into a sprint.
There are also a number of issues which are of concern to us going forward and ones
with which we continue to monitor progress and new information:
 In the U.S., while the outcome of the November elections remains anything but
certain, one aspect is crystal clear: under current law, all Bush tax cuts are
scheduled to end at the end of this year at the same time dramatic cuts to discre
 tionary spending are due to be imposed. This combination of expired tax cuts
(increased government revenue) and reigning in government spending
(decreased government expenses) poses a real risk of overdosing on fiscal
austerity in 2013. Most would agree that our current national fiscal stance is
unsustainable, but too much too soon can shock the system. As it usually
happens, politics will come into play and a sort of compromise will most likely be
reached, but we have to understand all possibilities.
 The global economy is still struggling in a number of key areas. A broken
Eurozone continues to plague economic growth, causing Europe to slip into a
mild recession. In some fiscally-strapped countries like Spain, Greece, and Italy,
the long-term ramifications of their fiscal ways could have a long-term effect to
the financial stability in Europe. While far from recession levels, China’s growth
has clearly lost some of its economic steam. Their goal of achieving a “soft
landing” rather than an economic crash will be critical for global economic and
investor confidence.
 The dispute over Iran’s nuclear program also remains a concern and, while a
long-term cut-off of supplies from the Persian Gulf remains a remote possibility,
we can all agree that the global economy remains quite vulnerable and would
sustain significant impediment if a surge in oil prices were to occur.
After a strong market rally, there is a temptation to cash in gains and to try to time the
market. However, the truth is that no-one can consistently predict when corrections will start or
end. Remember this phrase: bad markets always start with good news, and good markets
always start with bad news.
This being the case, long-term investors should focus on long-term themes. The most
obvious theme today starts with recognizing that the majority of U.S. investors remain very
cautious—both in their attitudes about the economy and the positioning of their assets. If the
next few quarters continue to see a strengthening of economic fundamentals, the most likely
scenario is one where investors move back to a more balanced stance and, in doing so,
contribute to continued increases in both equity prices and interest rates.
After a strong market rally, there is a temptation to cash in gains and to try to time the
market. However, the truth is that no-one can consistently predict when corrections will start or
end. This being the case, long-term investors should focus on long-term themes. The most
obvious theme today starts with recognizing that the majority of U.S. investors remain very
cautious both in their attitudes about the economy and the positioning of their assets. If the next
few quarters continue to see a strengthening of economic fundamentals, the most likely
scenario is one where investors move back to a more balanced stance and, in doing so,
contribute to continued increases in both equity prices and interest rates.
While typically well-received by investors at large, bull markets may be greeted with
healthy levels of suspicion, especially among many Wall Street investment strategist and market
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Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and IP&WM are not affiliated.

3. forecasters. Coming out of a period where consumer confidence, employment, housing
sales/starts, etc. were especially low, many investment prognosticators have forecasted that
returns will continue to be poor into the future. Interestingly, history has shown us that when the
investment world comes to some sort of consensus about future market performance, the
opposite often happens. A very popular mutual fund company has labeled the coming years of
market underperformance as the “New Normal.” Who knows?? They may end up being right,
but right now, they have to explain how the current strong performance or equities virtually
around the world, has exceeded their expectations.
Bulls and bears (markets) will come and go. In each instance, some guru somewhere
will have correctly predicted the ensuing move. For proof of this, just Google “Meredith
Whitney.” The only problem with this mindset is that it’s someone different every time.
Our investment approach is to deliver market rates of return. We identify compensated
risk factors (risks that have paid off over the long run), and we engineer portfolios of stocks and
bonds that exploit these factors. We continue to do this focused on costs, taxes, and risk. We
continue with this approach, through good markets and bad, helping investors maximize their
portfolio potential while using the financial planning process to keep us on track to our identified
life goals.
As always, it’s our privilege to serve you.
Warmest regards,
Adam Cmejla
President & Financial Advisor
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial
market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not
warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial
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effect of decreasing historical performance results. Acutal performance for client accounts may differ materially from the index
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performance is no guarantee of future results.
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differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be
as politically and economically stable as the United States and other nations. Investments in emerging markets can be more volatile.
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Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative
Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and IP&WM are not affiliated.