Questions and Answers for Cap Averill II and Associates:

Questions and Answers for Cap Averill II and Associates:
QUESTION:
Can you describe how your philosophy differs from that of others?
Answer:

In principle, ours is a pretty straight forward philosophy. In my opinion, traditional investing is based on the premise that the stock market will generally always go up, and therefore, whatever stocks you have in your portfolio will also go up with the market. Combined with this it has always been suggested that risker is good.

With generally falling prime rates of return for the past thirty years, most people have fallen for this myth, with much prodding from their brokers, and even their politicians, who love falling rates because it gets them re-elected when people's 401ks and real estate grow in value.
We have always tried to stress to our clients the importance of changing rates on the performance of the economy. We have predicted the past two market crashes as a result of our historical studies. We are not alone, others have done so as well.

Now, with rates as low as they can possibly go, the economy can not perform as well as we have in the past. I always laugh when I hear brokers say that the historical return of the market is 8% or something close. Are their calculators broken? The 10 year return is a solid negative. Going back 100 years, it took until 1929 for the market to grow to 326 points, then it corrected to 52 points, then it took until 1955 to get back to 326 points WHERE's THE 8%!?!??!??!?!

The market was at just 1000 points when I graduated from high school in 1981.

So their 8% was figured, or contrived I should say, during a select period of plummeting prime lending rates, which spur on artificial growth in the economy. But even that misrepresentation has been destroyed now (thank god). I only feel sorry for the people who are still trying to believe.

This market is not soaring back to 14,000 points.

I mean it will one day, but not soon. Our clients are positioned in vehicles where they will receive the lions share of the returns it does, but I am not telling them I believe it will. In the meantime, unless you are making good fixed returns and stopping the bleeding, inflation will be eating you up as you wait. Not to mention opportunity cost and time value of money. A dollar doubles in 10 years, at 7.2 % deferred from income tax. How lonjg can you afford to wait to find out the market is not coming back to 14,000? It took 30 years to create the mess it is going to take more than a couple to fix it.

If your car goes from 0 - 60 mph in 6 seconds on hi octane, it will not perform the same, or at all on kerosene.

Likewise the economy can not perform equally without the of dropping rates and without lax credit policies from our mortgage lenders

It CAN

Besides after 9/11/2001, in my eye, this positivism became misplaced. With an overnight drop of 30% in the market, it became evident to me that terrorism on US soil for the first time in history put new pressures on our economy (which were never factored into the previous charts).

I simply do not believe that we will be able to prevent all future 9/11s forever, and when the next one happens we will not be able to "free fall" the prime lending rate as we had to, (to save the economy) after the first 9/11.

Again, what the stock market will do under these likely circumstances is simply unknown. These circumstances have never existed. But it would seem logical to me that none of the above effects are likely to have a positive effect on the economy.

They say it takes three generations of people to create a generation self delusional enough to cause another great recession or great depression. I say, we are here. In addition to all of this, the the costs of Homeland Security, FEMA, the costs of foreign wars, are all unprecedented forces which now impinge upon our economy. These forces have simply never been factored in to the historical diagrams and charts the people use to represent their investments even today.

We all know who won last years super bowl. Who will win next year's super bowl? That is the question. In other words, it is easy to talk about last years winners in the stock market. To succeed in the market, you need to know next year's winners.

Warren Buffet's quote was that the economy would likely be in shambles for the remainder of 2009, and likely for some time thereafter.
In our philosophy, we do not pretend to be able to predict the future. So we poise ourselves in the best of all fixed annuities which are not market based, and therefore no client has ever lost a penny investing with us.

We have the the ability to shift between fixed and Standard and Poors 500 index based sub accounts on no less than an annual basis. When the economy is doing poorly, we enjoy safety and security, and good fixed returns. When the economy is poised to do well, we venture into index based accounts where the guaranteed returns are lower, but it is possible to achieve returns which are lower or higher, but generally based on the S&P500 returns for the year. When we do this, we are not just re-gaining money we lost in the prior year, we are truly making money we will not lose in the future.

One example is the years between 2005 2007. During this time we were highly weighted in our index accounts, and as a result, we had clients who enjoyed 29% returns for this time period, with very low risk of principle. This was generally not impressive to people who had reasonably good brokers, as the average broker was able to get like returns during this same time period, as a result of the gains in the broad indices.

When the tide goes up all the boats float higher. But with respect to the money you made during this time period, how much did you keep?
So we have structured our people to gain a base interest rate in years when the market falls radically, and make index like returns when the market gains. In so doing, our people generally outperform their risker stock holdings using our safe vehicles.

QUESTION:
So you believe Equity Index Annuities are good investments?
Answer:

Absolutely not. That would be like saying all stocks or mutual funds were good investments simply because they existed. Of 336 index annuity products, 133 offer bonuses to enter. Bonuses to enter can be a real advantage, unless they are taken away in the fine print. In truth, of 336 index annuity products, 14 require annuitization or lifetime income payments be taken in exchange for the bonus. In our eyes these are the inferior contracts, or the "rotten apples".

At Cap Averill II and Associates, we are our clients too. We treat people like we would want to be treated.

In fact we focus on selling only the top 5% (by our criteria) of the available 336 index annuity products, and (of course) we offer a variety of other investments as well.

While normally we are seeing excellent returns on our investments available anywhere in the world, this year we are actually prioritizing safety over return for the first time in our history.

If you were able to take the last twenty years of your investment history, and replace every loss year with a reasonable positive interest rate, where would you be now. You would be where our clients are.

This leaves people asking the question, if I am able to make equal or more net return with lower risk investments, why would I have risker investments in the first place?

This is a question I do not have an answer for:

In my opinion the reason is that brokers make money when money is moved, as well as trailers, while money is in a sub account, as well as the fees they charge. In time, many prudent investors discover that after all, their returns are less than the average gains of the S&P 500. At years end, over 75% of mutual funds under perform the indices, even when the market is gaining. When it falls, well, we all know what happens then.
In the meantime, if a broker was to invest his or her clientele in accounts which needed little or no monitoring, how would their annual fees be justified.

At years end, when it was time to move investments around, (Ex.sell this one to buy that one) they would not be able to make the fees for moving money around either. This would leave just the type of commissions which are the type that we earn here at Cap Averill II & Associates. The important difference about the types of commissions our companies pay, is that ours are not directly charged against your account balance.

This is not viable for high overhead labor intensive "Financial Advisors". In our eye, this type of planner makes things a lot more complicated than are necessary. As a result of how complicated things become, you begin to feel they are indispensable, and therefore they can justify the fees made for moving money between accounts, and the "fee base" or flat service charges they charge against your asset base.

The problem that they currently face is that the buoyancy the economy has enjoyed in the past 20-30 years because of declining interest rates, has now come to an end. Therefore it will be very challenging to justify charging any types of fees when the account holder is losing money. Let alone charging three different types of fees.

After all, anyone can lose money. We don't need to pay someone to lose it for us.

It is sure easier to know when something bad happened in the recent past than it is to know when something good might happen in the future.

When a client splits their investment dollar between us and a traditional fee based brokerage agency, the clock starts ticking as to when the next major correction happens. When that happens, we generally move ahead, and stay ahead. This could take a few years but not always. When a person starts out with more than enough money to live happily forever, and provide an inheritance, and they lose enough to change their standard of living it is truly a sad thing.

Please read the following article, and remember that the total guaranteed value of any security is zero dollars zero cents. In my opinion, people should only ever invest money that they can afford to lose into direct securities. I cast track records aside. It is the future I am thinking about. Our philosophy is not for everyone. Our clients consist of people who have generally made their money through hard work, and want to receive stock market index type returns, with greatly lowered risk of principle.

I appreciate greatly your interest in giving us a chance with you. I will not let you down.

QUESTION:
When someone asks you what the average rate of return is for one of your clients how do you respond
Answer:

I (honestly) respond that I do not believe that it matters. I could go on showing cases where I have equity index clients who have averaged double digit returns, but I feel it is misleading to talk about that when absolutely all macro trends that were affecting our economy then were polar opposite to the forces we are dealing with today. When I tell you that I do not believe in their track records as reliable indicators of future performance at this particular point in time, I am also telling you that I do not expect that our investments will perform equally as well as they have in the past ten years, as the economy is beginning to fail.

I do you no favors to pretend differently.

I would also lose my credibility when you see with your own two eyes that this economy is in serious disrepair, with no safety net of lower interest rates to fall back on. With that said, I have my money in the investments we offer because I believe that they are the best option available through both these rough financial times and the good times as well.

QUESTION:
My broker says you guys are "too good to be true". Will you explain to him how you guys get stock market index returns without losing money in bad years?
Answer:

It's very simple. The investments that we have are contracts which guarantee your principle. In the years we feel the market will do better than fixed returns, we enter into one of the index based return sub accounts.

Your money still stays in guaranteed and fixed vehicles. The insurance companies who manage these equity index annuities use part of your interest to purchase options on the S&P 500 so that if the S&P gains, we are in a position to credit your account with returns which correlate with the S&P returns.

If the market loses, we do not exercise our options, and you do not lose a penny, and in addition, you gain the remainder of the interest due you, which was not used in the option purchase.

QUESTION:
They say that you can't match their returns. Can you?
Answer:

Yes we generally can. Especially in a falling market/failing economy. Don't find out about an economic downturn the hard way.

We realize that I need to earn your trust, and I am 100% comfortable with that. We hope you remember that even if in a given year we under performed your risker investments, which resulted in a little bit lesser of a POTENTIAL return for you (which you probably will not truly realize in these difficult times) will not change your family's standard of living. On the other hand, a major further correction in the market, (which I firmly believe could happen even without a terrorist event) would cost you a great deal of money. What do you feel? If the market fell like that do you really believe that we could count on you gaining that money back by the time you intend to retire? ... a bird in the hand...

Our mission statement states that we care for all people equally, regardless of the size of their investment portfolio. Our consultations are free of charge.

QUESTION:
If you do not charge for your consultations, how do you make your money?
Answer:
We are paid by the companies we invest with. This is not directly out of your investment account.
You never get a bill from us.

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QUESTION:
Can you describe how your philosophy differs from that of others?
Answer:

In principle, ours is a pretty straight forward philosophy. In my opinion, traditional investing is based on the premise that the stock market will generally always go up, and therefore, whatever stocks you have in your portfolio will also go up with the market. Combined with this it has always been suggested that risker is good.

With generally falling prime rates of return for the past thirty years, most people have fallen for this myth, with much prodding from their brokers, and even their politicians, who love falling rates because it gets them re-elected when people's 401ks and real estate grow in value.
We have always tried to stress to our clients the importance of changing rates on the performance of the economy. We have predicted the past two market crashes as a result of our historical studies. We are not alone, others have done so as well.

Now, with rates as low as they can possibly go, the economy can not perform as well as we have in the past. I always laugh when I hear brokers say that the historical return of the market is 8% or something close. Are their calculators broken? The 10 year return is a solid negative. Going back 100 years, it took until 1929 for the market to grow to 326 points, then it corrected to 52 points, then it took until 1955 to get back to 326 points WHERE's THE 8%!?!??!??!?!

The market was at just 1000 points when I graduated from high school in 1981.

So their 8% was figured, or contrived I should say, during a select period of plummeting prime lending rates, which spur on artificial growth in the economy. But even that misrepresentation has been destroyed now (thank god). I only feel sorry for the people who are still trying to believe.

This market is not soaring back to 14,000 points.

I mean it will one day, but not soon. Our clients are positioned in vehicles where they will receive the lions share of the returns it does, but I am not telling them I believe it will. In the meantime, unless you are making good fixed returns and stopping the bleeding, inflation will be eating you up as you wait. Not to mention opportunity cost and time value of money. A dollar doubles in 10 years, at 7.2 % deferred from income tax. How lonjg can you afford to wait to find out the market is not coming back to 14,000? It took 30 years to create the mess it is going to take more than a couple to fix it.

If your car goes from 0 - 60 mph in 6 seconds on hi octane, it will not perform the same, or at all on kerosene.

Likewise the economy can not perform equally without the of dropping rates and without lax credit policies from our mortgage lenders

It CAN

Besides after 9/11/2001, in my eye, this positivism became misplaced. With an overnight drop of 30% in the market, it became evident to me that terrorism on US soil for the first time in history put new pressures on our economy (which were never factored into the previous charts).

I simply do not believe that we will be able to prevent all future 9/11s forever, and when the next one happens we will not be able to "free fall" the prime lending rate as we had to, (to save the economy) after the first 9/11.

Again, what the stock market will do under these likely circumstances is simply unknown. These circumstances have never existed. But it would seem logical to me that none of the above effects are likely to have a positive effect on the economy.

They say it takes three generations of people to create a generation self delusional enough to cause another great recession or great depression. I say, we are here. In addition to all of this, the the costs of Homeland Security, FEMA, the costs of foreign wars, are all unprecedented forces which now impinge upon our economy. These forces have simply never been factored in to the historical diagrams and charts the people use to represent their investments even today.

We all know who won last years super bowl. Who will win next year's super bowl? That is the question. In other words, it is easy to talk about last years winners in the stock market. To succeed in the market, you need to know next year's winners.

Warren Buffet's quote was that the economy would likely be in shambles for the remainder of 2009, and likely for some time thereafter.
In our philosophy, we do not pretend to be able to predict the future. So we poise ourselves in the best of all fixed annuities which are not market based, and therefore no client has ever lost a penny investing with us.

We have the the ability to shift between fixed and Standard and Poors 500 index based sub accounts on no less than an annual basis. When the economy is doing poorly, we enjoy safety and security, and good fixed returns. When the economy is poised to do well, we venture into index based accounts where the guaranteed returns are lower, but it is possible to achieve returns which are lower or higher, but generally based on the S&P500 returns for the year. When we do this, we are not just re-gaining money we lost in the prior year, we are truly making money we will not lose in the future.

One example is the years between 2005 2007. During this time we were highly weighted in our index accounts, and as a result, we had clients who enjoyed 29% returns for this time period, with very low risk of principle. This was generally not impressive to people who had reasonably good brokers, as the average broker was able to get like returns during this same time period, as a result of the gains in the broad indices.

When the tide goes up all the boats float higher. But with respect to the money you made during this time period, how much did you keep?
So we have structured our people to gain a base interest rate in years when the market falls radically, and make index like returns when the market gains. In so doing, our people generally outperform their risker stock holdings using our safe vehicles.

QUESTION:
So you believe Equity Index Annuities are good investments?
Answer:

Absolutely not. That would be like saying all stocks or mutual funds were good investments simply because they existed. Of 336 index annuity products, 133 offer bonuses to enter. Bonuses to enter can be a real advantage, unless they are taken away in the fine print. In truth, of 336 index annuity products, 14 require annuitization or lifetime income payments be taken in exchange for the bonus. In our eyes these are the inferior contracts, or the "rotten apples".

At Cap Averill II and Associates, we are our clients too. We treat people like we would want to be treated.

In fact we focus on selling only the top 5% (by our criteria) of the available 336 index annuity products, and (of course) we offer a variety of other investments as well.

While normally we are seeing excellent returns on our investments available anywhere in the world, this year we are actually prioritizing safety over return for the first time in our history.

If you were able to take the last twenty years of your investment history, and replace every loss year with a reasonable positive interest rate, where would you be now. You would be where our clients are.

This leaves people asking the question, if I am able to make equal or more net return with lower risk investments, why would I have risker investments in the first place?

This is a question I do not have an answer for:

In my opinion the reason is that brokers make money when money is moved, as well as trailers, while money is in a sub account, as well as the fees they charge. In time, many prudent investors discover that after all, their returns are less than the average gains of the S&P 500. At years end, over 75% of mutual funds under perform the indices, even when the market is gaining. When it falls, well, we all know what happens then.
In the meantime, if a broker was to invest his or her clientele in accounts which needed little or no monitoring, how would their annual fees be justified.

At years end, when it was time to move investments around, (Ex.sell this one to buy that one) they would not be able to make the fees for moving money around either. This would leave just the type of commissions which are the type that we earn here at Cap Averill II & Associates. The important difference about the types of commissions our companies pay, is that ours are not directly charged against your account balance.

This is not viable for high overhead labor intensive "Financial Advisors". In our eye, this type of planner makes things a lot more complicated than are necessary. As a result of how complicated things become, you begin to feel they are indispensable, and therefore they can justify the fees made for moving money between accounts, and the "fee base" or flat service charges they charge against your asset base.

The problem that they currently face is that the buoyancy the economy has enjoyed in the past 20-30 years because of declining interest rates, has now come to an end. Therefore it will be very challenging to justify charging any types of fees when the account holder is losing money. Let alone charging three different types of fees.

After all, anyone can lose money. We don't need to pay someone to lose it for us.

It is sure easier to know when something bad happened in the recent past than it is to know when something good might happen in the future.

When a client splits their investment dollar between us and a traditional fee based brokerage agency, the clock starts ticking as to when the next major correction happens. When that happens, we generally move ahead, and stay ahead. This could take a few years but not always. When a person starts out with more than enough money to live happily forever, and provide an inheritance, and they lose enough to change their standard of living it is truly a sad thing.

Please read the following article, and remember that the total guaranteed value of any security is zero dollars zero cents. In my opinion, people should only ever invest money that they can afford to lose into direct securities. I cast track records aside. It is the future I am thinking about. Our philosophy is not for everyone. Our clients consist of people who have generally made their money through hard work, and want to receive stock market index type returns, with greatly lowered risk of principle.

I appreciate greatly your interest in giving us a chance with you. I will not let you down.

QUESTION:
When someone asks you what the average rate of return is for one of your clients how do you respond
Answer:

I (honestly) respond that I do not believe that it matters. I could go on showing cases where I have equity index clients who have averaged double digit returns, but I feel it is misleading to talk about that when absolutely all macro trends that were affecting our economy then were polar opposite to the forces we are dealing with today. When I tell you that I do not believe in their track records as reliable indicators of future performance at this particular point in time, I am also telling you that I do not expect that our investments will perform equally as well as they have in the past ten years, as the economy is beginning to fail.

I do you no favors to pretend differently.

I would also lose my credibility when you see with your own two eyes that this economy is in serious disrepair, with no safety net of lower interest rates to fall back on. With that said, I have my money in the investments we offer because I believe that they are the best option available through both these rough financial times and the good times as well.

QUESTION:
My broker says you guys are "too good to be true". Will you explain to him how you guys get stock market index returns without losing money in bad years?
Answer:

It's very simple. The investments that we have are contracts which guarantee your principle. In the years we feel the market will do better than fixed returns, we enter into one of the index based return sub accounts.

Your money still stays in guaranteed and fixed vehicles. The insurance companies who manage these equity index annuities use part of your interest to purchase options on the S&P 500 so that if the S&P gains, we are in a position to credit your account with returns which correlate with the S&P returns.

If the market loses, we do not exercise our options, and you do not lose a penny, and in addition, you gain the remainder of the interest due you, which was not used in the option purchase.

QUESTION:
They say that you can't match their returns. Can you?
Answer:

Yes we generally can. Especially in a falling market/failing economy. Don't find out about an economic downturn the hard way.

We realize that I need to earn your trust, and I am 100% comfortable with that. We hope you remember that even if in a given year we under performed your risker investments, which resulted in a little bit lesser of a POTENTIAL return for you (which you probably will not truly realize in these difficult times) will not change your family's standard of living. On the other hand, a major further correction in the market, (which I firmly believe could happen even without a terrorist event) would cost you a great deal of money. What do you feel? If the market fell like that do you really believe that we could count on you gaining that money back by the time you intend to retire? ... a bird in the hand...

Our mission statement states that we care for all people equally, regardless of the size of their investment portfolio. Our consultations are free of charge.

QUESTION:
If you do not charge for your consultations, how do you make your money?
Answer:
We are paid by the companies we invest with. This is not directly out of your investment account.
You never get a bill from us.