2003 1st Quarter Commentary
and Planning Ideas
Commentary and Planning Ideas, Market Perspective, and Market Review are
written and published quarterly by Caves & Associates.

April 21, 2003
Dear Clients and Friends,

I have enclosed your copy of Caves & Associates’ Market Review for the first quarter of 2003. The review highlights the impact of UN maneuvering, arms inspections in vain, and the war in Iraq: volatility and weakness in global stock prices and continuing positive returns for bonds as investors continued to search for yield and returns outside of equity markets. The backside of the Market Review is a table of global investment returns for the winter quarter this year and twelve months ending March 31, 2003. A second enclosure headed "Economic Review and Market Perspective" provides a longer-term interpretation of current economic and market data
The situation in Iraq during the first quarter was widely covered by the media and overshadowed other factors that might have impacted the markets. Markets reacted on a minute-by-minute basis to the political bantering earlier in the quarter and then each battle, advancement, and setback of the coalition forces once the conflict began.
Caves & Associates discourages focusing much attention on short-term investment results because a broadly diversified portfolio is structured for the long-term. As we often state, there is no way to completely eliminate short-term risk from an investment portfolio. As you review the data, think in terms of markets (plural), not “the market.” You will notice that typically at least some part of your portfolio is providing positive results.

Here's a third party opinion from the Managers fund group reviewing the quarter and confirming what I have often stated about the need for broad diversification and the futility of market timing:

"It was an eventful quarter from many angles, and investors were offered a case study on how non-predictable factors can radically influence markets. Since it is impossible to consider every possible cause and effect with regard to markets, we believe the more useful approach is to develop or maintain an investment plan customized to your specific time horizon that has the potential to meet your investment objectives over a variety of potential scenarios. This is at the heart of diversification . . . ."

At Caves & Associates, we continue to have confidence that the U.S. economy and corporate profits will eventually recover, which will lead to positive returns for stocks. Further, as indicated in previous communications, history has shown that stock markets have an excellent record of rebounding from difficult times. Thus, we continue to believe that a disciplined investment approach emphasizing diligent fundamental research, diversification, and rebalancing will provide sound long-term investment returns.

We appreciate your continued confidence in your broadly diversified portfolio designed by Caves & Associates and your understanding that at times capital preservation represents a significant accomplishment.

Quotes For Our Times and All Time

Abraham Lincoln:

"Let us have faith that right makes might; and in that faith let us to the end dare to do our duty as we understand it."

Henry David Thoreau:

"Goodness is the only investment that never fails."

Ansel Adams:

"There is nothing worse than a sharp image of a fuzzy concept."

In conclusion, we are providing these materials for your information and as a means to educate and stay in touch. We hope you find this information helpful, and we would be pleased to hear your comments and questions. Also, you are welcome to share our views with your family and friends if you think they will benefit.

Thank you for your continued support of Caves & Associates.

Very truly yours,

Preston S. Caves, CFP, MBA, CFA
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