Investment NewsMedley & Brown, LLCF A L L E D I T I O N 2 0 1 5

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Medley & Brown, LLCF I N A N C I A L A D V I S O R S

P.O. Box 16725Jackson, MS 39236-6725

795 Woodlands ParkwaySuite 104

Ridgeland, MS 39157

601-982-41231-800-844-4123

Fax 601-366-0013

www.medleybrown.com

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___________________This newsletter is not intended as nor should be considered as a recommendation to purchase or sell securities of any of the companies named. The companies identified were selected for illustrative purposes only. Keep in mind that companies’ and mutual funds’ investments are subject to change at any time. Similarly, the funds or other securities used by Medley & Brown, LLC, in its clients’ portfolios are subject to change without notice. Investments are not guaranteed, and investors may lose money. There is no guarantee that the opinions expressed in this newsletter will prove to be correct.

Contact us _____________________________________________

Tim medleyPresident, Client Advisor; Founded Medley & Brown, LLC, 1988; Among Worth magazine’s 250 Best Financial Advisors in America 1998 – 2002 and Medical Economics magazine’s 150 Best Financial Advisors for Doctors; BS, Business and Accounting, University of Southern Mississippi.

Julius RidgwayClient Advisor; Joined Medley & Brown, LLC, July 2002; Investment professional since 1999; Trustmark National Bank 1989 – 1997; Chartered Financial Analyst (CFA), Member CFA Institute, Member MS Society of Financial Analysts; M.Sc. International Accounting and Finance, London School of Economics; MBA, Millsaps College; BA, University of Mississippi.

eddie CaRlisleClient Advisor; Joined Medley & Brown, LLC, May 2006; Watkins & Eager PLLC 2001-2006; Daniel Coker Horton & Bell, P.A. 1997-2000; LL.M. in Taxation, University of Florida; JD, Vanderbilt University; BSBA Accounting, Mississippi College.

doug muenzenmayClient Advisor; Joined Medley & Brown, LLC, April 2010; Investment professional since 1991; Adjunct Professor, Mississippi College; Chartered Financial Analyst (CFA), Member CFA Institute; MBA, Mississippi College; BA Economics, University of Iowa.

mandy RobeRTsonClient Advisor; Joined Medley & Brown, LLC, September, 2014; previously Business Development Manager, Singing River Health System, Pascagoula, MS; BA Mathematics, University of Mississippi; MBA, Millsaps College.

Call us or visit our website today for more information:601.982.4123 • 1.800.844.4123 • www.medleybrown.com • mb@medleybrown.com

Your Personal Investment Account By Tim Medley (September 11, 2015)

Many highly-paid professionals--attorneys, doctors, CPAs--seem to depend solely on their workplace retirement plan to provide for their financial well-being late in life. The professional in his or her mid-30’s or 40’s has some percentage of salary earmarked for a 401K plan, and generally there is a match by the employer. But is this sufficient for a successful retirement? What about savings on a personal level, i.e., setting aside 5% or 10% of one’s income in an investment account? For many, this does not happen. And it may be a mistake. Consider an example. Say you are a forty-year-old professional earning $175,000 annually, and you contribute the maximum of $18,000 to your 401K. Your employer’s match is $6,000, which makes a total contribution of $24,000. If we assume investment earnings of 6%, at age 67 (the normal retirement age for Social Security) your fund would be worth around $1.6 million. Using a typical 4.5% drawdown, this will provide around $72,000 of annual

income. Some professionals may consider this insufficient, even with Social Security.

This person may need to do some realistic thinking about a personal savings or investment account. Consider the arithmetic. His or her net income (after taxes and 401K contributions) should be in the neighborhood of $120,000. So if all expenses--home, insurance, schooling, charities, transportation, etc.--totaled $8,000 monthly, he or she should be able to save $1,000+ monthly. (College expenses will be the subject for a future blog.) If not, perhaps there should be serious discussions about the family budget.

What could you do with $1,000 monthly, and how much could you earn? It is difficult to buy timberland, investment art, rental properties, or individual stocks with this amount of money, but one vehicle which is available is a mutual fund. Using data provided by Morningstar and with the help of my associate, Mandy Robertson, we find that the average return for the Vanguard S&P 500 mutual fund has been 9.05% annually during the last twenty-seven

For our fall newsletter, we decided to do something different, in order to raise awareness of the blog we now have on our website. The articles that follow are a sampling of the posts we have published to our blog over the past several months. We strive to provide fresh commentary every few weeks, so between newsletters, we invite you to periodically check in at www.medleybrown.com.

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and Japan have versions as well. And I’ve often heard my Korean mother state a very similar admonishment. The point is that mismanagement of inherited wealth is a rather universal problem. So, let’s say you’ve worked hard and managed to accumulate assets that you’d like to leave to your children or grandchildren. And, naturally, you’d prefer they use those assets somewhat wisely, as opposed to burning through them quickly on things you might consider frivolous. What to do? Each situation is unique, and different approaches could be used. But here are a few moves to consider. For your heirs who are kids, teaching the value of hard work can go a long way, whether it’s helping with household chores or doing yardwork together as a family. Also, talking with them about budgeting, allowances, etc., can help to set a framework for some of their financial decisions later in life. For adult heirs, talk with them about your financial situation. Let them know what your hopes were as you were accumulating or building the wealth. And let them know how you hope they may use whatever may come their way upon your demise. If you work with a financial advisor, consider having your heirs meet that advisor and, to the extent possible, begin working with him or her to accumulate assets of their own, in preparation for inheriting larger amounts later. In some situations, of course, stronger measures may be warranted. For example, it may be wise to leave assets in a trust for an heir’s benefit, which he or she could not fritter away. Such a method should be part of a comprehensive estate plan.

Recent Travels* ___________

In May, Tim and Mandy went to Omaha, NE for the Berkshire Hathaway annual shareholders meeting.

Later in May, Tim, Mandy and Jonathan went to New York for the Sequoia Fund Investor Day. While there, they also met with the team that manages both the Delafield Fund and Tocquevile Select Fund.

In June, Tim went to Dana Point, CA for a conference for advisors hosted by Schwab.

In September, Julius travelled to San Francisco, CA where he met with Lewis Kaufman, who recently left Thornburg to become manager of the newly launched Artisan Developing World Fund.

*An essential part of our research activity is to travel and meet with portfolio managers of mutual funds. However, in accordance with Medley & Brown, LLC policy, we do not accept reimbursement of travel or other expenses from financial vendors.

years. (Further to this argument, Google “dollar-cost-averaging” to see how this type of same-amount, monthly investing can add to the return.) How much would this mutual fund account add to the retirement fund at age 67? At 9% annually, the account would be worth over $1.3 million. With a 4.5% drawdown annually, the income would be $60,000+. This method of investing is simple and effective. (I have had a monthly mutual fund draft from my bank account every month since 1991.) Since 1926, the long-term return for U.S. stocks has been around 10% annually, and notwithstanding the rantings of various doom-and-gloom people, there is no reason to expect this number to be less in the future. Capitalism works. Many professionals should rethink their financial dependency on their firm’s retirement plan and begin accumulating serious money in their own name.

Prepare the Next Generation for an Inheritance By Eddie Carlisle (September 11, 2015)

Over the next 30 years, an estimated $30 trillion or so will be transferred from baby boomers to heirs. (InvestmentNews, 7-13-2015). The problem, though, is that 70% of family money disappears by the end of the second generation, and 90% is gone by the end of the third generation. (InvestmentNews, 7-13-15, citing a 2003 study). This brings to mind the old saying, “Shirtsleeves to shirtsleeves in three generations.” This saying has counterparts around the world: In Scotland, it’s “The father buys, the son builds, the grandchild sells, and his son begs.” In Italy, it’s “From the stable to the stars and back again.” China

Why It’s So Difficult to be a Value Investor By Julius Ridgway (August 7, 2015)

“To be a value investor, you have to be willing to suffer the pain.” – Jean-Marie Eveillard* In a variety of interviews, Mr. Eveillard, the famed value investor and long-time manager of First Eagle Global Value Fund, has recounted why it’s so difficult to be a value investor and why so few do it. Eveillard says that Bill Ruane [Sequoia Fund] estimated that only 5% of professional investors are value investors. Why do so few consistently practice this discipline, when some of the best known and most successful investors of all time, including Warren Buffett, are value investors, and when value stocks over the long-run have outperformed? The reason, according to Eveillard, is they simply can’t handle the pain. He recalls the late 90s, during the heights of the technology bubble: In a Wall Street Journal article by Jason Zweig [“Value Stocks Are Hot – But Most Investors Will Burn Out,” Feb. 15, 2015], he quotes Eveillard as saying “After one bad year investors were upset. After two they were mad, and after three they were gone.” Zweig goes on to say, “Between 1997 and early 2000, investors yanked out two-thirds of the fund’s assets – and then missed out on its later years of superb performance.” And as hard as it is for professional fund managers to stick to a value investing discipline, it is equally hard for advisors and their clients to stick with those funds. But the rewards are worth it, as the investors who stuck around in Eveillard’s fund discovered. From 2000 – 2002, his fund was up 35% while the S&P 500 dropped 45%. If you had invested in his fund Jan. 1, 2000, after his worst streak of under-performance, you would be up five-fold today, compared to roughly two-fold in an index fund. I use Mr. Eveillard’s experience as an example, but it is far from unique. Many value funds had similar results.

While the current market is not as overvalued or speculative as the late 90s, we do see similarities. Leadership, i.e. the list of best-performing stocks, is getting narrower. Fewer and fewer stocks are responsible for keeping the indices at or near their all-time highs. Underneath the market averages, many stocks are already in correction territory. We are in a momentum-driven market, and that is typically not a good environment for value investors. Perhaps most telling is the gap – or gulf rather – between the Russell 2000 Growth and Value indices this year. (Russell Investments splits their Russell 2000 index into its growth and value segments and tracks their performance separately.) Growth is up 9% and value is down 3% - a difference of 12%. That is unsustainable, and, while uncomfortable to live through, it presents compelling opportunity…for those willing to suffer the pain. *Many long-time clients may remember Jean-Marie Eveillard from a client gathering our firm held at the River Hills Club in 1998. During the Q & A, he was asked about WorldCom as an investment, and he was clearly less than enthusiastic. At the time, the stock traded around $48 on its way to $63.50. But four years later, it was worthless.

This year’s client reception, held at the Mississippi Children’s Museum, enjoyed record attendance. Our very special guest this year was Charles Schwab Corporation CEO Walt Bettinger, pictured above with Tim Medley.

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