September 18, 2005


Recent research has found that investors exhibit greater behavioral biases when there is more uncertainty, as measured by market wide volatility, and stocks are more difficult to value. Surprisingly, during periods of higher uncertainty, investors are more likely to show overconfidence. They will place more reliance on their forecast relative to what the situation may dictate. Investors will also show a tendency toward hanging onto losers and selling their winning positions, the disposition effect. These behavioral biases often occur during periods of high uncertainty which is also when there is the greatest potential for trends. These periods of uncertainty are also when the value of disciplined investing will be most important. The uncertainty we faced in the summer may be coming to an end if the slow growth theme continues to take hold. This may allow for greater trend potential; nevertheless, we will not hold to any prediction or place undue confidence in any trend. Our objective is to stay focused during these times and not allow any biases to affect our disciplined and systematic trading approach.

Mark S. Rzepczynski, Ph.D.

President & Chief Investment Officer