Oprah’s Irony

Even subterranean rock-dwellers know who Oprah is. She’s a talk show host of the highest rated program of its kind, a publisher and literary critic, an actress, and a TV and film producer. She has made the world’s most powerful celebrity lists several times, and both CNN and Time have called her arguably the most influential woman in the world. In 1991, at age 41, she became the only African American on the Forbes 400 World’s Richest People list, with a net worth of $340 million. In the last two decades, her wealth has only increased. She became the first African American billionaire and was ranked as the richest African American of the 20th century. Her annual income has been above $250 million in each of the last 2 years.

The power flowing from her fame and wealth has allowed Oprah to have free reign over her creative and charitable desires. She not only gives away freebees to disturbingly appreciative members of her talk show audience, but Forbes has reported that she is the most philanthropic African American of all time. Oprah has the ability to influence our world, and has not been shy in doing so. In fact, she has been credited for single handedly influencing up to 1.5 million voters to support Barack Obama for President.

Without a doubt, Oprah’s talk show continues to be her centerpiece for wielding her immense power. She populates her shows with guests that espouse lifestyle changes and self improvements in a wide array of topics about which Oprah believes deeply. Dr. Mehmet Oz frequently teaches viewers how to live longer and more healthfully. Female financial guru Suze Orman gives her tough love money-advice on how to live within one’s means. Spiritual teacher Eckhart Tolle espouses methods of connecting viewers to their inner presence and finding their life’s purpose. Interior design expert Nate Berkus shows how to make home and business space both beautiful and cost efficient. And lastly, leading sex therapist Dr. Laura Berman gives her best recommendations for increasing the quality and quantity of our intimate rendezvous.

One would expect that the richest most powerful woman on Earth, who surrounds herself with a group of advisors who lead their fields of self improvement, would probably be one of the happiest, most fulfilled persons around. Right? Well, not necessarily. Within the last year, Oprah has shed tears at least twice in front of her talk show audience. One occurred when she admitted to her studio audience that she had difficulty feeling joy during the hectic, time pressured constraints of her job. The second was when she confided that she weighed over 200 hundred pounds, and had gained back all the weight she had publicly lost a few years ago, and seemingly had no control over her situation.

So now, we finally reach Oprah’s irony. Despite all of her power, wealth, connections, and even Stedman, there is no true happiness guaranteed in Oprah’s life – or anyone else’s. Why in the world are we, your Dixon Hughes Wealth Advisors, talking about all this non-investment-oriented stuff? Precisely because we are true wealth advisors, and we understand that only part of your wealth has to do with your income, net worth and tax bracket. The largest part of your wealth deals with your quality of life, and often that quality of life has little to do with one’s financial blueprint. Obviously, we all need food, shelter, and perhaps a sweet car. But at the end of one’s life, few are wishing they had a larger bank account and more possessions. Instead, most are immersed in thoughts about loved ones, and perhaps changes they could have made with the relationships that meant the most to them.

We will continue to do our job, which is spending our time managing your portfolios and mapping out the next step in your financial plan. Your job is to spend your time focusing on the endeavors and relationships that bring the greatest joy to your life. Your finances are just one tool to assist you in reaching your greatest happiness; they are not a source of happiness. Just ask Oprah.

Bright, Shiny, New

We are delighted to announce the opening of our new office in Jacksonville – our first office in the state of Florida. Bill Laird is our financial advisor in that region and we know our clients will be in great hands. Bill is both a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP), with 10 years of wealth management experience, including managing income and equity portfolios totally over $1 billion in assets. Bill and his wife Michele have two children. He is active on the Stetson University Alumni Board and several community charities. Please tell your family, friends and colleagues living in Florida that they now have a great opportunity to enjoy a wonderful relationship with a great firm and advisor.

Fools Gold

Clients often ask us why we don’t own gold, oil, or other commodities in their portfolios. The answer lies in our criteria for owning an asset class. As we have mentioned in previous editions of this report, we demand two distinct requisites in order to include a new asset class. First, the asset class must add some neutral correlation to the portfolio mix. This simply means that it must bring some risk dampening ability to the portfolio. Second, that asset class in its own right must provide a meaningful long term investment return to the portfolio mix. With commodities, the first requisite is met. They do indeed add some diversifying element to a portfolio. However, commodities stumble dramatically in attempting to meet the second hurdle.

Commodities, in and of themselves, have no growth or income stream to reward investors. At best, they are inflation or supply/demand hedges. Take this test. Put a bar of gold and a barrel of oil in the middle of your living room floor. And watch it for a few years. You will find that they neither grow by themselves nor produce a cash flow. Their price may go up or down, but it has nothing to do with the commodities ability to have internal growth or produce cash flow via dividend or interest payments, like stocks or bonds do. Not convinced yet? Take a look at the following chart. It is designed by Thornburg Investment Management (check out full article on www.thornburginvestments.com’s research articles) and does a great job of breaking down the components of an asset class’s gross (total return), and showing its “real” real return (return minus fees, inflations and taxes).

As you can see, over a 30 year period, commodity returns, which include precious metals, energy, grains and others in the popular Dow Jones-AIG Commodity Index, have dramatically trailed other asset classes. The chart clearly shows what was discussed above: commodities hedge inflation, but have no way of growing or producing income on their own. The only way they can be used in a portfolio is by embracing speculative trading – attempting to time the buys and sells of the up and down cycles of a commodity or commodity index. We all know the track record of market timing the market cycles. In addition, commodity prices are incorporated into many of the earnings of publically traded companies that were members of the asset classes our clients already own. These are the reasons we resist adding this asset class to your portfolio.

Third Quarter 2009 Asset Class Returns

Equity asset classes for the third quarter were surprisingly similar to those of the second quarter. The brisk uptrend which started on March 10 continued throughout this time period with the leading style and size differences in asset classes keeping their trends. Value outperformed Growth, and Small outperformed Large in domestic, international and emerging markets. Real Estate continued to lead the pack, with Emerging Markets and Small Caps also showing greater relative strength. All these asset classes led the way down during the bear market, and are leading the way back as the economy slowly begins to normalize.

As if to underline our numerous previous discussions about the stock market discounting future news, Federal Reserve Chairman Ben Bernanke announced on September 15 that he believed the recession was officially over. That was exactly six months and 5 days after the bear market hit bottom and started to rise. Had an investor waited until the “news” gave the signal that the worst was over, they would have missed the first 40%-90% gap up from the bottom, depending on the equity asset class. That is precisely why our clients are constantly invested in their proper asset class allocations. It ensures that they are in their proper place when the new bull market commences.

The next three months will offer keen insight into the continuing economic trends that are starting to appear, and undoubtedly political issues will continue to entertain us all. Stay warm and healthy and above all calm. Enjoy your holidays and your loved ones.

Sincerely,

DIXON HUGHES WEALTH ADVISORS LLC