2003 2nd Quarter Commentary
and Planning Ideas
Commentary and Planning Ideas, Market Perspective, and Market Review are
written and published quarterly by Caves & Associates.

July 14, 2003
Dear Clients and Friends,

I have enclosed your copy of Caves & Associates’ Market Review for the second quarter of 2003. The review highlights big gains for all segments of the equities markets resulting from considerable resolution of investors’ uncertainty regarding the war in Iraq and respectable returns for bonds as yields continued to fall. The backside of the Market Review is a table of global investment returns for the spring quarter and year to date for six months ending June 30, 2003. A second enclosure headed “Economic Review and Market Perspective” provides a longer-term interpretation of current economic and market data.
As history has shown, stock markets have an excellent record of rebounding from difficult times. The improved situation in Iraq during the second quarter was widely covered by the media and overshadowed other factors that might have impacted the markets. Markets reacted very positively and generally ignored weakness in such investment fundamentals as the economy and corporate earnings
I have often stepped on my soapbox to advocate the need for broad diversification and proclaim the futility of market timing. As during the first quarter, investors were offered a case study on how non-predictable factors can radically influence markets.

Caves & Associates discourages focusing much attention on short-term investment results because a broadly diversified portfolio is structured for the long-term. As we often state, there is no way to completely eliminate short-term risk from an investment portfolio. As you review the data, think in terms of markets (plural), not “the market.” You will notice that typically at least some part of your portfolio is providing positive results.

Our near-term outlook is cautious, but not pessimistic, because of high valuations produced by recent big gains. Over the longer-term, we continue to have confidence that the U.S. economy and corporate profits will recover, which will provide justification for current price levels and even the basis for further positive returns for stocks. Statistical evidence of an economic upturn is scant, so forecasts
of both bull and bear future markets can be reasonably justified. Given this uncertainty, and since it is impossible to consider every possible cause and effect with regard to markets, we believe the more useful approach is to maintain a broadly diversified investment plan customized to your specific time horizon which can meet your investment objectives over a variety of potential scenarios.
We appreciate your continued confidence in your broadly diversified portfolio designed by Caves & Associates.

Quotes For Our Times and All Time

Mark Twain:

"Get your facts first, and then you can distort them as much as you please.”

Benjamin Graham:

"The future of security prices is never predictable."

“Never buy a stock because it has gone up or sell one because it has gone down.”

“A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.”

Erick Fromm:

"Greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction."
David Rains Wallace:

“Civilization no longer needs to open up wilderness; it needs wilderness to open up the still largely unexplored human mind.”

In conclusion, we are providing these materials for your information and as a means to educate and stay in touch. We hope you find this information helpful, and we would be pleased to hear your comments and questions. Also, you are welcome to share our views with your family and friends if you think they will benefit.

Thank you for your continued support of Caves & Associates.

Very truly yours,


Preston S. Caves, CFP, MBA, CFA
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