Bill N. Parish - Registered Investment Advisor
Fee Based Investment Advisory Services
10550 SW Allen Blvd., Suite 223
Beaverton, Oregon 97005
Tel: 503-643-6999 Fax: 503-221-3161
Email: bill@billparish.com
Dear Client,
Best wishes for a most wonderful holiday season and thank you for the opportunity to work together this year. It has been an exciting year and looking forward to 1999 we should see some outstanding opportunities. As you know, I am working hard to identify these areas and using a very disciplined approach.
In addition to opportunity, there is also one unique risk factor that does require special attention. This factor is the decline in the quality of corporate accounting practices here in the United States. In October this resulted in the Chairman of the Securities and Exchange Commission announcing a major initiative to improve corporate accounting practices. This is not to say that future prospects are not bright but rather that the financial results at many leading companies are now misleading. Microsoft has in fact become a financial pyramid scheme.
You all know that I was once a practicing Certified Public Accountant and might be thinking that this concern is simply a function of my background. That is simply not true.
As your advisor I must note with passion and conviction that this reform is critical to our success and important not to ignore. I am doing my best to support such reforms and publicize examples of questionable practices that should be reviewed. This has included issuing press releases on PR Newswire, writing letters to the SEC, Federal Reserve, State Regulators and speaking about this situation whenever possible.
Some might ask why I am pursuing this issue? My response is that it is much better to expose the scheme, let those companies distorting their results experience a decline in their stock prices and most importantly allow capital to flow to its most productive use. To do nothing is to join the scheme and compromise not only your future portfolio returns but also general economic conditions. Financial pyramids are dangerous and can destabilize not only the financial markets but also the overall economy.
The enclosed letter to Robert Parry, Federal Reserve Bank Governor, outlines this classic financial pyramid scheme at Microsoft and Cisco Systems. I have received numerous emails from both Microsoft and Cisco Systems employees thanking me for explaining these programs.
During the last 2 months I have also received calls from various media organizations ranging from USA Today to CNBC yet no one has covered this story. This is especially difficult for media organizations to divulge since the bulk of their advertising revenues are coming from technology and financial services companies benefiting from the pyramid.
I am therefore now recommending that we use this as an opportunity to lock in gains on technology shares to whatever extent needed to ensure that your cash position is adequate, that is between 30 and 50 percent of total assets, depending upon you time horizon and goals.
This is not a recommendation based upon timing the market but rather one based upon recognizing the existence of a sophisticated financial pyramid scheme that like all such schemes will end with considerable financial loss for most participants.
For employees of technology firms with substantially all their assets tied up in company stock I am also recommending, for the first time, that they consider purchasing put options as a hedge against a sharp decline in their company stock due to these accounting irregularities. Put options increase in value when a stock declines and thereby reduce the impact of a sharp decline, which is especially important when stock values are used as collateral for loans.
Going forward I will also officially define any company meeting certain parameters to be part of the pyramid. When a company becomes part of the pyramid they will be put on a "pyramid participant list." I will also recommend to any interested clients how to purchase put options on such companies as a means for combating the scheme and benefiting from a decline in the stock price. This strategy will of course include publishing materials designed to expose and deflate the pyramid.
As you know, I am very focused on the long-term horizon or "next business cycle." This allows us to minimize trading activity in order to reduce taxes and fees and also improve overall returns. Please do not however think that I am too conservative. If you want to be aggressive and trade frequently I am glad to support you but must also note that when it comes to short-term oriented investment decisions your chance of losses is greatly increased. This is important for me to say because we have clearly entered a highly speculative market and it is difficult to say how long this current condition will last.
Please do let me know if you have any questions regarding this most unusual situation. Again, we should have some excellent opportunities for investment in 1999 by successfully planning for and steering clear of this pyramid. This of course includes a strategy unique to each client based upon their risk free cash level, investment horizon, etc.
Thanks again for the business and looking forward to working together in the coming year. Best regards.
Sincerely,
Bill Parish
www.billparish.com