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Market Commentary Q3 - 2008

Hello aggregate and road building, owners and operators,

I hope the fall continues to be busy for you all, especially amid all of the international turmoil that has gripped the world. I am pleased to report that the Jim Sanderson Group of ScotiaMcLeod is now the number one wealth advisor to the aggregate industries across Canada (Google). We continue to help our clients with their succession planning through "The Road Beyond Program" and help position them for their ultimate transition from their business. Our third quarter market commentary which follows, is based upon our JSG 60/40 core portfolio (60% equities and 40% fixed income) and is for information only. Every individual is unique and has their own special circumstances which we understand better than anyone else in our business. If you would like a second opinion on your portfolio or strategy you have been following, please do not hesitate to call our office directly to set up an appointment. I may be in your area soon.

We share your concerns about the market volatility over the last quarter and we understand that you are worried. However, we see only two outcomes for the current financial market disruption. One, it is the end of the world as we know it or two, we will get through it (as we have survived world wars, astronomical interest rates, the September 11 th tragedy, mile-long gas lines, Savings and Loans company failures, and tech bubbles.) Should the world actually end, there is no safe harbor. We are not planning for Armageddon. If, as we believe, the global economy will ultimately recover, investors will be faced with the most extraordinary investment opportunity of the last few decades, if not the last century. We believe it is a question of "When", not "If".

As a result of global market volatility throughout the quarter, our JSG 60 (60 equity/40 fixed income) core portfolio generated a negative 7.13% gross return over the previous quarter. Our portfolios did have a better relative performance when compared to their domestic and global indices, which were down. This is a small consolation when the markets have sold off as much as they have, however we will take any advantage that we can. Equity markets continued to cope with the fallout from a crisis in credit markets and a deteriorating outlook for the global economy. As central governments set out steps to salvage institutions that had become household words around the world, we realize that never before has this failed to reignite economic growth over time.

Skill or Behaviour?

I have long believed that investment success isn't about skill. It's about behavior. Having said that, I had a difficult time remembering a darker attitude as the market ratcheted downward during the quarter. I am sure that massive market outflows confirm once again that many investors get caught up in the moment and forget the market's historical lesson proven time and again: this too shall pass. I understand the power of the media and other "influencers", that make you want to react versus wait. It is not easy to stand your ground and let logic take over in the face of so much negativity and in some cases, hysteria.

We also know that to achieve your life goals, some component of your portfolio must achieve market returns. We do not know if we're now at the bottom of this vicious bear market. As the saying goes, "No one rings a bell at the bottom"; however, we also know that to make money in the market, you must be in the market. Thus, our ultimate goal is to assist you in weathering this turbulent period and have you maintain both your composure and commitment to your investment plan. Our success is measured by calls similar to the one an associate received on the Friday when the market recorded its worst week in history up to that point.

"Mary called this afternoon just to say, "Thank you." She is a firm believer in our firm, and she asked me to pass along the message to everyone that what we do does help people navigate these times. Actually, she insisted that I pass her message along to everyone."

Stick to the hobbyist section at your favourite newsstand

A look at business magazine covers over the years provides insight into how the media can drive irrational and costly investor behaviour. They are another example of how the media makes it easy for investors to take short-term action over long-term planning. Interestingly, the market crash of `29 was never featured on cover of Time in 1929 or at the start of the Great Depression in 1930 when the market dropped 25%. Even as markets fell 43% in 1931, the news never made a Time cover. What has changed? Today's popular publications take a different approach to covering financial affairs. From rosy forecasts to lofty predictions, market ebbs and flows seem to make their way onto magazine covers.

If you look at the most significant market reversals in the last 50 years, you'll see a pattern emerge. The comments shared on those occasions were no different from the ones trumpeted across the media on Monday, September 16 when the S&P500® Index registered its 14th largest fall among all trading sessions since January 1950. The Wall Street Journal estimated that the 24,000 employees of Lehman Brothers saw $10 billion in personal wealth evaporate as shares in Lehman Brothers fell in value. Long-term employees of Freddie Mac and Fannie Mae have experienced similar losses, which is dreadful to contemplate when you recall Money magazine's March 2006 celebratory assertion that Fannie Mae was "America's safest stock." Remember, the media is in business to sell their product - and right now, fear sells.

History can teach us a lot

In the three years leading up to 2000, the market had gained 86%. In January of That year, net inflows to the market were $44.5 billion. In February, the shortest month of the year, inflows hit $55.6 billion, or nearly $2 billion a day. And in March, investors poured another $39.9 billion into the market. The market was at a record high. Then, coincident with the bursting of the "dot com bubble" the market had lost 50% of its value by October 10, 2002. With the market down over 50%, people continued to sell. October marked the fifth month in a row that investors took out more money out of stock mutual funds than they invested. That had never happened before.

And instead of buying equities at the best "sale" prices in years, investors flocked to bond funds, having bought high and sold low. Bond funds experienced a record inflow of $140 billion in 2002 as they soared to a 46-year high.

However, if investors stayed the course during the market of 2000-02, and held their investments for the five-year period ending in 2004, they would have generated a return of 8.9%. Granted, that was then, but history can teach us a lot.

Please contact me should you wish to discuss your investment portfolio. I also appreciate your feedback on my quarterly letters and other communications to you. On behalf of the rest of my team, I hope you enjoy a restful and enjoyable fall and winter season.