March 31, 2003

To Our Clients and Friends:

Who would have guessed?

If you were sitting in your favorite chair on March 13 reading the headlines and watching CNBC, you most likely would not have predicted that in the next week the stock market would go up (eight straight days - the largest one week gain in the last 20 years) nor would you have predicted that the price of oil would fall to less than $30 per barrel. I know I could not have foreseen that run of events. Predicting the short term direction of the financial markets is difficult at best and very risky at worst. Sometimes we are asked - "Can't we just move some or all of my investments into cash or bonds until things with Iraq, the economy, etc. settle down?" While there is certainly the possibility of the market dropping in response to the invasion of Iraq, there does not appear to be a particularly robust historical precedent suggesting that this is a high probability event. And in fact, based on past performance, there could be a significant opportunity cost in trying to time the market. Thus, we do not advocate market timing.

The difficulty of market timing - an investment strategy that advocates owing stocks in a rising market and moving to cash when the market falls - is that knowing the short term market direction requires foretelling the future correctly most of the time. A study done by the School of Business at the University of Michigan found that 95% of the market gains between 1963 & 1993 came from the best 1.2% of the trading days! That is 90 days out of 7,802 trading days! You need a pretty good crystal ball to be a good market timer. Of course, the other major problem with market timing is that you will incur transaction costs which will reduce your potential gain. Hence, we counsel investors that their best short term strategy is to stick to their long term investment strategy unless there is a good reason to do otherwise.
As usual please feel free to call us. We are here to answer your questions, respond to your concerns, and help you make smart decisions about your money. Be sure to call if your financial situation changes.

If you have friends or family members who might benefit from our services, please give them our card.

Very truly yours,

ZRC Financial Services, LLC
A Registered Investment Advisor

By:
         Richard P. Clarke

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