When considering investing in stocks and investing with First Wilshire in particular, we caution investors about the following risks and considerations. We take these points very seriously and expect our investors to do so as well. Please consult our brochure and our ADV (available upon request) for more information.
Do Not Expect Historical Returns – Past results are no guarantee of future performance. We are not just saying this. Past results are only one piece of information to consider in selecting a manager. Particularly important in evaluating a manager’s past performance is to look at past bad return periods to gauge risk tolerance. We do not invest to achieve a certain return; neither do we try to match our past returns. What we do is work hard to carry out the strategy that we believe will result in the best long-term performance.
You Can Lose Everything – Investing in stocks is inherently risky and can result in complete loss of capital. While diversification and buying stocks with limited perceived downside can limit this risk, any investment in stocks can go to zero. Consider the recent bankruptcies of GM, Circuit City and Lehman and the plunge of Citigroup and AIG.
Must Have a Long-Term Outlook – First Wilshire’s strategy (and any good strategy in our view) is geared to long-term investors. We do not put undue attention on daily price fluctuations and we do not attempt to time the ups and downs of the market. Large drops in the stock market often cause investors to sell at precisely the wrong time and buy back at higher levels. In our experience, trying to time the market usually results in returns far below the market averages. If an investment in a First Wilshire managed account is appropriate, it is strongly recommended that investors maintain their First Wilshire managed account for a minimum of three years. First Wilshire does not want to manage investor’s assets for less than three years and will not approve a new managed account if it is known that an investor intends to leave after a short period of time.
Diversify Across Asset Classes - A First Wilshire account is not considered appropriate for an individual’s or an entity’s entire portfolio. Diversification across assets is a tool to limit downside risk.
Some of Our Investments Will Fail – Investing in stocks is highly uncertain. Rigorous research and buying discipline can improve the odds of success, but there will always be companies that fail. While we strive to pick good companies with limited downside risk, some have experienced and will experience significant drops in value or a complete loss.
We Strictly Follow Our Strategy – At First Wilshire we insist on buying stocks that we truly believe to be good value, and will not bend to the trends of the market or whims of other investors. We do what we believe will accomplish this goal and do not take client requests to buy or sell specific stocks.
No Two Accounts Will Be Identical and Therefore Will Not Produce Exactly the Same Performance – Our analysts’ buy recommendations can change rapidly as stock prices fluctuate or when we find new ideas. The timing of opening an account and subsequent cash flows can significantly affect the portfolio’s composition.
Smaller Companies Can Be Particularly Risky – In general, small-capitalization stocks are more risky than larger stocks due to lower trading liquidity, less available information and less financial resources than larger companies. First Wilshire’s analysts and portfolio managers rely to some extent on the integrity of company management, auditors, and the applicable regulators charged with oversight.
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