“Buy Your Straw Hats in Winter.’” – Bernard Baruch

Mr. Baruch profited mightily from the Great Depression. He bought stocks that were cheap and out of favor.

To follow his example, you need both cash and courage. We have maintained large cash balances in anticipation of cheaper stocks. Cheaper prices are here now. We are in the process of marshalling the courage to deploy these cash reserves so that you may profit from Mr. Baruch’s philosophy. We will deploy these funds gradually since what is cheap today may be cheaper tomorrow.

We have been through difficult markets before; notably 1972 and the crash of 1987 (-22% in one day). These and other bear markets have provided opportunities that benefited those who bought while most chose to sell. Sometimes rewards were immediate while in other instances much patience was needed.

We have seen major shocks to financial markets around the world which will subside only very slowly. The house-of-cards, highly leveraged, credit system froze up as a result of huge losses on mortgages that never should have been granted. Heavy government regulation will follow and home prices will be many years returning to prior levels. The American consumer will face a recessionary environment until at least mid-2009.

Americans need to learn to live on less and save for the future. Many will be forced to postpone retirement since they have not accumulated the necessary resources. There will be a period of major adjustment and re-education as pertains to households’ fiscal responsibility. Change will provide new products, new services and new opportunities. We plan to be there for you as such opportunities present themselves.

Tom and I are suffering with you through these challenging days. Although our losses are far less than the market averages, it is disappointing to see our capital shrink. Our investment approach had served us well in difficult times and should serve us well as we face a very different environment.

Very truly yours,

Michael F. Cantlon