4.18.20012001 First Quarter Client Letter The three most important words in investing in the past decade have been growth, growth, and growth. Growth-oriented equities provided market-beating return from 1995-1999. Likewise, the same growth-oriented equities have provided the disappointing bear-market in 2000 and 2001. This market sell-off is a reversion of the growth asset class to its historic norm. Since 1964, the S&P500 index has averaged 12.5% annually. From 1995-1999, the S&P500s annualized return was 28.5%. After the recent market correction, the S&P500’s 5 and 10-year annualized return has deviated back to 14.2% and 14.4% respectively. Interestingly, value-oriented stocks, the unpopular asset class during the 1990’s, have outperformed growth-oriented stocks for the recent 3, 5, 10, and 15 year annualized periods. What is the lesson? Disciplined asset allocation works. With the growth stock sell-off, we welcome the opportunity to buy growth at these more reasonable prices. As I mentioned in the January letter, “the ideal environment for a bull market is one in which the downside risks to the economy are low but the perception is that these risks are high.” In other words, the negative economic news is minimal but investor’s concern for weakness is high. This concern of risk peaked on March 22 as the Dow Jones Industrial Average hit a low of 9047. This negative opinion indicates to me the worst of the market sell-off has occurred. Most of the economic slowdown is a reduction of corporate spending, not consumer spending. Two-thirds of the U.S. economy is individual consumption. The individual consumer continues to spend as the baby-boomer population nears its peak spending age of 46˝. As long as the employment levels remain high, the U.S. consumer will continue to support the economy.