My strategy hedges a little of each. I'm sitting on over $750,000 cash and decided after the bell to put in limit orders (good til cancel) to buy more of each of my current holdings at their three-month low price. I will keep the orders open until February 15. I may get a few three-month low prices. Any remaining open orders will be converted to market orders at that time.

Pierre Cutler
The Sacramento Executive

The company is 38% off its 52-week high of $47.78, closing on Friday at $29.84. Key five-year annual growth rates are stellar - sales up 51.5%, net income up 60.1%, return on invested capital up 26.1%. The company generates plenty of operating cash - growing from $57M to $253M the last five years. Consensus analysts' projected five-year earnings growth rate is 30.4%. With an intrinsic value of $105.10, the company is priced at a 71% discount.

Thanks to investors' fear of Mr. Market, this company is on the 70% clearance sale table and the Sacramento Executive Fund is greedy for CTSH.

Note: The Sacramento Executive Fund owns CTSH and will continue to invest up to 10% of the fund at this price.

Pierre Cutler
The Sacramento Executive

I selected ten companies (CTSH, HLX, FCX, INFY, FTI, HOC, COH, OSK, GRMN, and CWTR) by applying Phil Town's Rule #1 principles - looking for growth rates greater than 10% for the past ten years for bookvalue, earnings per share, sales, cash flow and return on invested capital. I calculated the intrinsic value and then selected companies priced at significant discount. I plan to invest 10% of the fund in each of the top two companies - CTSH and HLX, 5% in each of the next two companies - FCX and INFY, and 2% in the other six companies.

I selected five companaies (BVF, RAIL, KFY, UNTD, and VPHM), by applying Joel Greenblatt's principles - investing in companies with the highest pre-tax earnings yield (the inverse of price to earnings ratio) and the highest return on capital. These companies have been in my Magic Formual Index (subject for an upcoming post) for the past two years. I plan to invest 2% of the fund in each of these companies.

I selected BWLD, JLL and VLCM based on the Motley Fool's "Hidden Gems" principles - under-valued small-cap companies. I plan to invest 5% in Buffalo Wild Wings, because "the girls have gone wild" at this company (see my earlier post), and 3% in each of the other two companies.

And then there's PG. The Procter and Gamble Company - if it's good enough for Warren Buffett to own 105,847,000 worth $6.99 billion, then it is good enough for the Sacramento Executive fund to invest 5% of the fund.

That's it folks! Welcome to the Sacramento Executive Fund!

Note: I personnally own PG, FTI, HOC, and FCX.

Pierre Cutler
The Sacramento Executive

But what is the truth? Since 1945, the market has fallen more than the present decline thirteen times. And what happend after each of these market setbacks? The market recovered each and every time. Imagine that! Did the world come to an end? No. Did the sky fall? No. Should I have jumped off the building and ended my life? No.

So what did happen? Well here are the facts:

1. May 1946, the Dow was at 213. The market fell 23.9% for 38 months until hitting a low point of 162. And ten months later, the market fully recovered.
2. April 1956, the Dow was at 521. The market fell 19.4% for 19 months until hitting a low point of 420. And ten months later, the market fully recovered.
3. January 1960, the Dow was at 521. The market fell 17.4% for ten months until hitting a low point of 566. And seven months later, the market fully recovered.
4. December 1961, the Dow was at 735. The market fell 27.1% for seven months until hitting a low point of 536. And fourteen months later, the market fully recovered.
5. February 1966, the Dow was at 995. The market fell 22.2% for eight months until hitting a low point of 774. And 25 months later, the market fully recovered.
6. April 1968, the Dow was at 985. The market fell 22.2% for 18 months until hitting a low point of 744. And 30 months later, the market fully recovered.
7. January 1973, the Dow was at 1,067. The market fell 46.3% for 21 months until hitting a low point of 573. And 118 months later, the market fully recovered.
8. September 1976, the Dow was at 1,026. The market fell 28.9% for 42 months until hitting a low point of 729. And thirteen months later, the market fully recovered.
9. April 1981, the Dow was at 1,030. The market fell 25.3% for sixteen months until hitting a low point of 769. And two months later, the market fully recovered.
10. August 1987, the Dow was at 2,746. The market fell 36.9% for four months until hitting a low point of 1,733. And twenty months later, the market fully recovered.
11. July 1990, the Dow was at 3,024. The market fell 22.5% for three months until hitting a low point of 2,344. And nine months later, the market fully recovered.
12. May 1998, the Dow was at 9,311. The market fell 20.8% for five months until hitting a low point of 7,379. And two months later, the market fully recovered.
13. January 2000, the Dow was at 11,908. The market fell 39.7% for 32 months until hitting a low point of 7,181. And 50 months later, the market fully recovered.

And my point? The recent decline should not worry the long term investor? Why? It's simple. Long term, the market always makes investors money. My proof:

• January 12, 1906, the Dow Jones hits 100.
• Less than 22 years later, December 19, 1927, the Dow doubles, hitting 200.
• 27 years later, December 28, 1854, the Dow doubles again, hitting 400.
• Less than 10 years later, February 28, 1964, the Dow doubles again, hitting 800.
• Less than 24 years later, February 6, 1986, the Dow doubles again, hitting 1,600.
• Less than 6 years later, January 3, 1992, the Dow doubles again, hitting 3,200.
• Less than 5 years later, November 20, 1996, the Dow doubles again, hitting 6,400.
• Less than 11 years later, April 18, 2007, the Dow doubles again, hitting 12,800.

Pierre Cutler
The Sacramento Executive