First Quarter 2014 J.K. Financial, Inc. Performance Report Cover Letter (Clients)

Dear Investor:

In the 1986 movie Top Gun, the main character Maverick was an all-star studded pilot with a terrific future and skill. Unfortunately for his co-pilot Goose, the all-star Maverick left his wingman to go “all in” alone and ultimately caught jet wash spinning out of control, leading to a terrible accident for Goose.

As an investor, our wingman is diversification. The current market environment, partially controlled by the Federal Reserve/FOMC through Quantitative Easing or QE (the purchase of debt securities to lower rates and spur the economy) is in somewhat uncharted territory as the reduction of QE has commenced.

Over the last quarter, which is a VERY short time for any investor (for us five years is a short time frame), fixed income investments were broadly the best asset class for return as equity investments made little headway. It is highly likely so many other investors left their wingman, changing their diversification at the end of last year, and the beginning this year. Almost every professional investor, including ourselves felt there would be tough sledding for fixed income investments. It is possible the masses were wrong and headed back to their wingman of diversification. Don’t worry we will never leave or wingman, will always stay diversified, and of course will never go “all in” in one area.

Looking forward, we still feel the general consensus is correct and that there will be tougher times ahead for our fixed income portfolios and for equity asset classes as well. Suffice it to say, we continue to hold fixed income investments in a conservative diversified wingman way. If and when rates do rise we will feel a bit of a pinch, but longer term higher rates will be our friend and the move from shorter term to longer term structure will reward our patience.

The Polar Vortex of cold appears to be finally leaving but has left a trail of wonder behind. The main concern is if the economy will accelerate and grow into the tall valuations that were created last year with capital market increases, or if capital markets will drop to more reasonable valuations. We hope for the former but are prepared for the latter.

It would not disappoint us terribly to tread water for some time while fundamentals, economic growth, and valuations return to more reasonable levels. We still believe it is highly likely a soggy year of investing lie ahead, however as mentioned before, one year is a very short time frame.

Have a Good spring!


John A. Kvale CFA, CFP

Enclosure (Q1 2014 Performance Report)

One response to “First Quarter 2014 J.K. Financial, Inc. Performance Report Cover Letter (Clients)

  1. Pingback: Funny Thing Happened on the Way to HIGHER Interest Rates | $treet-¢ents

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