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Managing the Financial Crisis

Our approach to the financial crisis serves as an example of our philosophy. This approach to investing has helped us guide our client’s portfolios successfully through the difficult markets of 2008 and take advantage of the opportunities in 2009. Our advice to all clients in the fourth quarter of 2007 was to reduce equity exposure. For the most conservative clients equity exposure was reduced to a minimum and in some cases to zero.

For the remaining equity holdings of our clients we avoided financials and emerging markets and sold energy and materials stocks in June 2008 as we found them to be expensive. We bought consumer staple and healthcare stocks with the cash raised and these performed very well for the rest of the year. However, the sharp drop in equity and commodity markets in the last quarter of 2008 provided a very attractive buying opportunity in emerging markets and commodity related equities in our opinion.

Therefore, we bought back what we had sold earlier but at prices 50-70% lower. As a result our clients were able to avoid the worst of the falls in emerging markets and the commodity and energy stocks but profit from their recovery in 2009. We believe that this was a cyclical move down and that structurally the emerging markets, commodity, energy, infrastructure and alternative energy stocks are in a structural upswing. On the other hand we believe that financial and consumer discretionary stocks are in a structural down turn and will provide sub-par returns over the next few years even if they have intermediate cyclical recoveries.

Though we may not be able to time all moves as well as these, we are convinced that our approach offers us a sizeable advantage in achieving clients’ goals at reasonable levels of risk. We have not taken more risk or used complicated products to achieve our results. Our approach is transparent and disciplined and risk adjusted returns are its focus.