SURIS™ - Simple Understandable Risk and Investment Strategy

1. First Principles. Mr. Evaul created a Simple Understandable Risk and Investment Strategy (SURIS™) to accomplish two things. First, he wanted a time efficient way to identify investments that reduced risk and increased returns. And second, he wanted an approach that was understandable to the clients of VPIA™.

2. Three categories of Potential Investments. Warren Buffett (perhaps the most successful investor ever) and his Vice Chairman, Charlie Munger, view investments as falling into three categories: 1. Yes; 2. No; and 3. Too Hard. Mr. Evaul felt that this was the right approach for VPIA™.

3. Investment Assets Definition. As an initial decision Mr. Evaul determined that for the purposes of VPIA™, Investment Assets would be limited to assets that have direct or an underlying revenue stream (ie earnings). Gold, Antiques, drilling discovery Oil Wells, Art, Tulips, Raw Land, Diamonds, etc. would not be viewed as Investments Assets for the Clients of VPIA™. Over time, this view has expanded so that Crypto tokens (sometimes, inappropriately in the view of VPIA™, referred to as “currencies” or “hedges against inflation”), and startup businesses that have not generated revenues are excluded from the VPIA™ definition of Investment Assets. While this definition may be narrower than that is accepted by most financial and investment experts it is the definition by which VPIA™ limits Risk for its Client. While some of these excluded by this narrower definition of Investment Assets will at times provide exceptional returns, the determination of which of these assets will succeed (particularly without the benefit of generating Cash Flow) simply falls into the Too Hard category (drilling discovery Oil Wells and Art, for example), if not the No category(Crypto and Tulips, for example).

4. Publicly Traded Investments. After a single successful Private Investment for a few Clients of VPIA™ in the early years, Mr. Evaul determined that only Publicly Traded Investments would be appropriate Investments for the Clients of VPIA™. While Mr. Evaul and Mr. Adkisson had a number of successful personal Private Investments in their past, the overall private investment Returns, the effort and energy needed to properly assess a private investment, and the inability to sell in a short time frame without incurring excessive selling costs made this decision an easy one. In addition, the costs of buying and selling Investments in public markets has dramatically decreased over the last few decades. In most situations direct trading costs for buying and selling Publicly Traded Investments are now effectively zero. While this is not to say that some indirect costs still exist, the total cost to buying or selling most Publicly Traded Investments is for all practical purposes no longer a factor in deciding to buy or sell Liquid Assets. While no longer interested in the opportunities offered by most Private Investments, it is Mr. Evaul’s belief that his and Mr. Adkisson’s Private Investments have made them each a better judge of what makes for a good or bad investment opportunity. VPIA™ does not dispute that there are those investment advisors that have had and undoubtedly will have great success in Private Investments. So while undoubtedly there are Private Investments that will dramatically outperform Publicly Traded Investments (think a startup investment in Apple before it went public), for VPIA™ they simply fall into the Too Hard (almost any startup company before they are publicly traded, for example) or No (any such private company that is not properly audited, has no financial history to audit, or has no revenues, for example) categories.

5. US Market Equities/US Treasuries. Worldwide there are perhaps tens of thousands of Publicly Traded Investments made up of Stocks, REITS, Limited Partnerships, Mutual Funds, and ETFs. The most safely regulated and most transparent of these Publicly Traded Investments appeared to Mr. Evaul to be in the United States. In addition, these are the markets most available for an investment firm like VPIA™ located in the United States. As such, VPIA™ limits its Investments on behalf of Clients to those available in United States markets such as NYSE, NASDAQ, or even what could be perceived as less Safe and less Liquid investments in over the counter markets. VPIA™ further limits the Income Investments for its Clients to Dividend Stocks, REITS, Limited Partnerships, ETFs, Mutual Funds, and US Treasuries. VPIA™ does not directly invest in any Bonds, other than US Treasuries. The reason that VPIA™ does not invest in corporate or municipal Bonds is that VPIA™ cannot find a way to be comfortable with evaluating the actual Risk in such Bonds without spending inordinate amounts of time and energy to make such a decision.² In other words, corporate and municipal Bonds fall into the Too Hard category. With US Treasuries (Bonds, Notes, and Bills), VPIA™ is quite comfortable evaluating the amount of Risk inherent in the Investment. Please note that the Value of US Treasuries are inversely related to changes in interest rates for the remaining term. For example, if a 10-year Treasury Note is bought and it pays a 3% annual yield, the Value of the underlying Note will go up if interest rates for such Notes go down and if the Interest Rates for such Notes go down the value will go up. Lastly, VPIA™ will not purchase an Annuity as an Investment for a Client even if it is a Publicly Traded Investments or is tied to a Publicly Traded Investments, such as the S&P 500. The complexity of most Annuity products, and the underlying Annuity documentation makes it an investment for which the assessment of Risk is too difficult in the view of VPIA™. Thus, Annuity products generally fall into the Too Hard category. While there is little doubt that certain Foreign Market Equities, Bonds, or Annuities have been and may in the future be successful, for VPIA™ each of them fall into the Too Hard category.

6. Risk and Returns-Treasury Bills and The S&P 500. The next questions in developing SURIS™ were what the appropriate Risk what would be to take and what would be the appropriate Returns to expect. To do this, Mr. Evaul believed like many financial and economics professionals that the place to start is with the least risky Publicly Traded Investments and to see what Returns they provide. In Mr. Evaul’s view and in the view of many financial and economic professionals, the least risky Liquid Asset investment today and for at least the past 70 plus years has been US Treasuries. While no investment is entirely safe, US Treasuries (like the US Dollar), are backed by the strongest economy in the world which generates revenues like no other economy today or ever has. Because the Risk is less, the Returns are relatively less as well. At the beginning of 2023, one month US Treasury Bills (Bills having maturities of up to 2 years) were returning a little over 4% a year and just 1 year earlier they were returning around .25% a year. While long term rates for Treasury Notes & Bonds (Notes having maturities of 2 to 10 years and Bonds having maturities of 20 to 30 years) generally are higher than those for the shorter-term Bill this is not always the case. For example, in the beginning of 2023, 10-year Notes and 30-year Bonds were in the 3.8 range with Treasury Bills (2 years or shorter maturities) returning in excess of 4% and therefore creating an example of an Inverted Yield Curve. In any event, VPIA™ generally looks at the US Treasury Returns in determining whether to invest in other Liquid Investment opportunities. Comparing Treasury Bills, Notes, or Bonds is dictated by the investment with which it is being compared. If the expected Returns for another more risky investment (a publicly traded stock, for example) are lower than the available Treasury Returns of the appropriate time frame, it is not a good investment to make in the view of VPIA™. And this is the basis for all Liquid Asset investing that VPIA™ does for its clients. If there are few if any Investments that are expected to beat US Treasuries, then VPIA™ would be investing mostly in US Treasuries for its Clients. The S&P 500 index of U.S. Stocks has for the last 70 years, however, returned over 10% a year (and for the time period beginning in at the end of 2004 when VPIA™ began its Investment Advisory Business, was at 9%) with no 15 calendar year period ever producing a loss¹. The S&P 500 Returns to see the results for the last 70 years and for any given 10-, 12-, or 15-year period are here¹. Mr. Evaul realized that the hard part for VPIA™ would be to find U.S. Liquid Equity Investments that will exceed the return of the overall S&P 500 with less risk. To do this, VPIA™ would need to determine what the expected Returns would be for that Investment and the Risk would be for a given Investment. This determination in the view of Mr. Evaul and many other financial professionals could be best done by first creating and comparing a Discounted Cash Flow⁵ analysis for each potential Investment.

7. Discounted Cash Flows. To determine the Discounted Cash Flow of a potential Investment, it is necessary to estimate the Cash Flow from the Investment, the timing of that Cash Flow, and the proper Discount Rate for the Cash Flow. Unfortunately, this is a rather complex analysis that requires considerable time and experience to do in a way that adds value to the process of evaluating an Investment opportunity. And it is anything but a precise science, since it relies on estimates of future Cash Flows and picking the right Discount Rate. Indeed, it is safe to say that it would be the exception not the rule that the Cash Flow estimates, and Discount Rates chosen by the very best at doing Discounted Cash Flow analysis would match the actual Cash Flows or the right actual Discount Rate. For this reason, VPIA™ believes in utilizing the Margin of Safety concept used by the person who first articulated the meaning of Value Investing, Benjamin Graham, in his investing classic- The Intelligent Investor. Thus, if looking for a 20% Margin of Safety, once the Discounted Cash Flow is calculated, VPIA™ would be interested in buying at a Price 20% less than the Discounted Cash Flow calculation that would indicate the value of the Investment. The need for a Margin of Safety in utilizing Discounted Cash Flow to determine Value is simply a recognition that while the Discounted Cash Flow analysis is a math calculation it is still just a rough guess dependent on unknowable variables (such as future Cash Flows). In any event, Mr. Evaul was then faced with the question of how VPIA™ would add value in choosing its Investments, since neither Mr. Evaul nor Mr. Adkisson had the skill set needed to make the Discounted Cash Flow analysis that Mr. Evaul believed appropriate for valuing an Investment.

8. Genesis of SURIS™ (PSIs), Creating a Portfolio to Increase Returns and Reduce Risk: The first step in creating the SURIS™ approach was to realize that there would be very little value added by Mr. Evaul (and/or Mr. Adkisson) in reviewing the financials and the quarterly/annual reports of every U.S. Publicly Investments in order to determine the expected Discounted Cash Flow of each possible investment. Indeed, if Mr. Evaul and/or Mr. Adkisson became proficient at such reviews (and that would certainly take years), the total universe of U.S. Publicly Investments was (even at the narrowest of limitations, whereby only the S&P 500 Companies were reviewed) vastly too large for VPIA™ to review in an efficient manner.⁴ To solve this problem, Mr. Evaul recognized that there were certain Proven Successful Investors (PSIs), that consistently outperformed the S&P 500 and had done so for long enough to conclude that the PSIs were picking U.S. Publicly Investments that reduced Risk and increased Returns. Mr. Evaul was perfectly willing to proceed on the assumption that certain PSIs were outstanding at making the Discounted Cash Flow analysis or had an approach to picking Equities that gave them the same edge as doing the Discounted Cash Flow analysis would have provided. Such PSIs included, for example, Warren Buffett, Charlie Munger, Russell Morrison, Martin Whitman, and Lou Simpson. While Mr. Evaul could at that time ask Mr. Morrison for his personal views and even for his current portfolio, the others were not so available to Mr. Evaul or Mr. Adkisson. The Securities Laws of the United States, however, did require that substantial investors, for the most part, must share with the SEC (and therefor the Public) their quarterly changes in public, long investments, and their complete ownership of public equities within 45 days of the end of each quarter. As such, if Mr. PSI on behalf of his mutual fund invested in ABC stock in the last quarter of 2002, he would have to declare so publicly within 45 days of the end of the quarter describing how much he bought and how much in total he owned of ABC stock at the end of the quarter. And while the amount paid by Mr. PSI might not be disclosed, the high, average, and low price of the stock for the quarter would of course be available. So if the only thing that changed within 45 days of the previous quarter's closing since Mr. PSI bought ABC stock in the previous quarter was that the stock was trading well below the lowest price that it had traded for in the previous quarter because the market as a whole had gone down, VPIA™ could buy the same Equity as an PSI for a lower Price than that paid by the PSI. So long as the decrease in price was not the result of a fundamental failure of ABC company but was a simple result of the ups and downs of the market, it seemed to Mr. Evaul that he had found a Simple Understandable way to limit the number of potential Investments with reduced Risk and increased Return potential without needing to do hundreds of Discounted Cash Flow analysis on an ongoing basis. While Mr. Evaul would in many instances still review the earnings, the balance sheet, and other financial information of the Investments identified as potential Investments for VPIA™ Clients based on the ownership and purchases of the PSIs, the number of potential Investments was dramatically reduced by relying on the information provided about PSI ownership and PSI purchases/sales. And as such, the SURIS™ (Simple Understandable Risk and Investment Strategy) approach was created. With no Discounted Cash Flow analysis required, Mr. Evaul could identify and review those PSI investments to decide if VPIA™ wanted to invest in those Liquid Equities that had been purchased by such PSIs in a previous quarter or before. Essentially, this would limit the universe of equities that VPIA™ would look at to those purchased by great value investors (the PSIs) identified by VPIA™. With this limited universe of Equities to pick from, Mr. Evaul could look for Liquid Assets that could be bought for Prices that were equal or less than the PSIs had paid for the same assets or even at higher Prices if Mr. Evaul was convinced that the Value of the Equity justified the increased Price within a Margin of Safety. So rather than study the financials of thousands of Liquid Investment opportunities, Mr. Evaul would have to identify the PSIs worth following and then decide which of the PSI investments would be appropriate for VPIA™ Clients. To do so Mr. Evaul could review the earnings, balance sheet, and other financial information of the PSI’s Investments before making the ultimate decision to buy or sell an Investment for VPIA’s™ Clients. The VPIA™ review of such financial information has over time become more in depth and critical to this process as the VPIA™ Principals gained more experience. In addition, Mr. Evaul and Mr. Adkisson could and did use their Diverse Career and Business experiences to further limit the Equities in which they would invest. For example even if the PSIs were investing in property REITS, VPIA™ is reluctant (or at least demanding of a larger Margin of Safety) to invest based on VPIA’s™ understanding of fees and management incentives inherent in the real estate business. Or VPIA™ could decide to have an increase exposure to an Investment in which the PSIs were invested, if their experience indicated that there might be more Value to an Investment then the PSIs indicated by their allocation to such an Investment. For example, a PSI might have a less than average allocation for a potential Investment they had made, and the reason appeared to be the possibility of a negative lawsuit result. VPIA™ using the experience of its Principals in legal matters might believe that the potential negative lawsuit result should be discounted and therefor decide to take larger position than the PSI investment might have indicated. It was these concepts that were the genesis of SURIS™.

9. Why Focus on Public Stocks Traded in the United States- The S&P 500. The history of the S&P 500 is one in which it generated, on average, double digit Returns for the last 70 years and within no 15-year period in which there was a loss. The S&P 500 historical returns are here.¹ This S&P500 history made the decision to invest in Equities traded in the United States an easy decision. If the United States avoids catastrophe, such as World War III, VPIA™ believes that the United States continues to have unmatched advantages in the world economic stage. Even if the future long run Returns of the S&P 500 are reduced to average 6% to 8% going forward, this still means that investing in the S&P 500 should double Liquid Assets roughly every 9 to 12 years instead of roughly doubling every 7 years as it has done since 1945¹. Given enough time to allow for the Magic of Compound Interest to take place, these types of Returns will give those who invest early and consistently in the U.S. Publicly Traded Investments an excellent opportunity to grow their wealth. Besides the Magic of Compound Interest, you can also use the Rule of 72 to easily determine how long it takes to double an investment at various rates of return. It is the design of the SURIS™ approach to invest in Equities traded on a US Market to have less Risk than the average S&P 500 Equity and have Returns above that of the S&P 500 in a Simple Understandable Risk and Investment Strategy for the Clients of VPIA™.

10. Price vs. Value. The Value of something is what it is worth, and its Price is what someone will pay for it. The Efficient Market Theory proposes that with liquid and well attended markets with relatively fast and accurate information flows, the Price of a Liquid Asset must closely approximate its Value. It is the view of VPIA™ that over a long period of time, Price will certainly reflect Value, but in the short-term Value and Price will often vary and at times that variation can be dramatic. For Value Investors like VPIA™, it’s the discrepancy between Value and Price that gives rise to greater Returns and less Risk. For example, when the after hours quarterly earnings report of an Equity drives the Price down 10% based on a computer written headline and another computer algorithm reacts to the headline, a more thorough review of the earnings report might indicate that the quarter was actually quite positive. As a result, buying the Equity following the 10% dip in Price, in the view of VPIA™, would be viewed as taking advantage of the short-term inefficient market that has miss-priced the Equity allowing the Price to diverge from the Value in a way that provides Value investors with an opportunity for reduced Risk and greater Returns.

11. Portfolio Management is not Picking Stocks (Investments). While picking Stocks (i.e., choosing specific Investments) for Clients is an absolute necessity in Managing an Investment Portfolio for a Client, the managing of an Investment Portfolio is much more. Yes, first to Manage an Investment Portfolio, VPIA™ must pick specific Investments for the Portfolio. VPIA™ must choose how much of the Portfolio to invest and in what percentages. For example, in a VPIA™ Valad Plus® Equity Portfolio for a Client, VPIA™ must decide how much of the Portfolio to allocate to each Equity Investment and whether all the Assets in the Portfolio should at any given time be fully invested or held as Cash / Treasuries. This decision will in the view of VPIA™ differ at various times and is a decision that is regularly being reevaluated by VPIA™ on an ongoing basis. Then the decision to buy or sell a given Investment must be made and that decision is based not just on what VPIA™ has in its Valad Plus® Equity Model Portfolio, but on what the Price / Value proposition of the specific Investment is at the time an investment decision is to being made by VPIA™. Managing an Investment Portfolio is a dynamic, ongoing decision with respect to each Investment in the Portfolio and each potential Investment being considered for the Portfolio that VPIA™ makes periodically in Managing Investment Portfolios for its Clients. Another example of Portfolio Management occurs when VPIA™ simply recognizes the individual characteristics of its Clients. For example, if a VPIA™ Client retires from a U.S. Publicly Traded Investments company after 30 years of service in which they have accumulated substantial shares of the company, it makes sense that the Portfolio for that Client not include that company since the Client is probably already overly allocated to that position. If Clients are forthcoming in their Financial Position and Goals, VPIA™ can better serve them in designing a Portfolio that better suites the Individual Client.

12. Evolution of SURIS™. In the subsequent years of applying SURIS™, VPIA™ found that over and above its ability to pick and follow PSIs, to utilize the experience of the VPIA™ Principals to find differences in Value and Price, and to take into account the individual differences of VPIA™ Clients, that there were more things that VPIA™ could efficiently do to identify Investments that could have greater Returns with lower Risk. First, there were some rather low hanging opportunities based simply on commonly accepted macroeconomic concepts that in the view of VPIA™ were plainly wrong or were not being acted upon by the market in determining Price. And by just avoiding these macroeconomic mistakes or taking advantage of these macroeconomic opportunities, VPIA™ felt it could outperform the market. The first example of these macroeconomic opportunities arose when VPIA™ came to expect in a macroeconomic view that the growth of the health care sector of the US economy would outpace the general growth of the US and World economies. Overtime VPIA™ further decided that individual drug stocks seemed to have too much potential legal and R&D Risk. As such the VPIA™ investment in Health Care generally will be through a mutual fund (now an ETF) of Health Care Stocks. Additional decisions were later made to invest in Medical Equipment individual stocks and in Drug ETFs, but to limit the Drug basket to Biotech instead of traditional Big Pharma. As such VEP, has a position in both a Medical Equipment ETF and a Biotech ETF¹. The next macroeconomic example that came to be the view of VPIA™ in the years following the 2008/9 Financial Crisis was that the constant drumbeat of financial experts saying the S&P 500 Price to Earnings (P/E) Ratio was too high by historical standards was misleading. While true on its face, the statement in the view of VPIA™ misses the point. As noted above in the view of VPIA™ the proper investment Returns for Risk Assets is a relative number, not an absolute number. So, while an 18 P/E might be higher than the historical average S&P 500 P/E, it was not on a relative basis too high when the then record low level of Yields for Treasuries were taken into account. For example, if historical Treasury Notes had 4% Yields (an effective P/E of 25) and current Treasury Notes have 2% Yields (and effective P/E of 50) , the expected S&P 500 current P/E, would in the view of VPIA™ have to exceed twice the historical P/E to be considered too high ¹. As such, investments in higher P/E stocks such as those in the Tech industry were not too high and VPIA™ was able to invest in them to great success beginning around 2015 through the 2021 time period. With Treasury Rates on the rise again in 2022 and 2023, the comparison to historical P/E Rates in the view of VPIA™ became more appropriate. As Mr. Evaul and Mr. Adkisson gained in experience and had the opportunity to see up and down markets in real time, the SURIS™ approach continued to evolve. For example, the Quality of Management by 2009 became one of the leading additional indicators that VPIA™ was looking for in an Investment. As such in 2009 at least one of the PSIs that VPIA™ had been following was eliminated from the list of VPIA™ PSIs, because it was clear that Quality of Management was not a concern for that investor. Similarly, as a last check before any Investment for a VPIA™ Client is made, the Debt of the potential Investment is reviewed one last time. VPIA™ prefers Investments that use debt to their financial advantage and that do find themselves at the mercy of their creditors when the market goes down, which it always does at some point in time. Currently, VPIA™ has added to its SURIS™ approach by extrapolating the Price graph of a potential Investment from February 2019 assuming the graph followed the Price movements for the previous 15 years instead of the anomaly that occurred in outsized Returns from March 2019 to January 2022 in determining what Price VPIA™ may be willing to pay for a given Investment. And beginning in 2023, VPIA™ began to be much more active in changing 5-10% of its portfolios to add to those positions in the portfolio that it considers to be the strongest and best priced. While this activity can be compared to playing Gin Rummy with our investments (an approach that Mr. Buffett has stated he is unwilling to take in preferring the traditional buy and hold approach), it appears to VPIA™ that with the current speed of information available to investors accelerating on a daily if not hourly basis, the need to act quickly and a bit more often may be necessary to achieve market beating results than it was in the past. 

13. Four Questions Asked by VPIA™ Clients. VPIA™ over the years has been asked by Clients four questions on a regular basis: 1. When and How Can I Retire?; 2. Can I make a Significant Return with No Risk?; 3. Do the Level of Returns Really Matter?; 4. Should I wait to place my wealth with an Investment Advisor until the Market, Economy or World Affairs are less uncertain?

a. When and How Can I Retire?- ESERꞏ3™. The first question is: When can I Retire? The answer that is given to VPIA™ Clients is a simple one: ESERꞏ3™ Earn as much as you can, Save as much you can, Earn as long as you can, and you can Retire when you can live on 3% of your liquid assets⁵. Dramatically more sophisticated financial plans are available. Such plans calculate projected expenses considering numerous expected (but unknowable) variables such as health, taxes, inflation, housing needs, vacations, family emergencies, sale of assets, inheritances, acts of God, etc. and are calculated and coupled with a calculation of expected (but precisely unknowable) income from Liquid investments and other sources such as Social Security. VPIA™ views this granular approach as perhaps useful for those who have strong budgeting experience and skill, but then only for those that understand that the Budgeting Process is a never-ending dynamic process of projection (guessing the future), which is perhaps more art than science. VPIA™ instead offers an understandable approach based on substantially broader concepts that a Client can easily understand and retain. This VPIA™ approach than can be granulized by those Clients with the skill to do so, but for most it provides a rough idea of what it will take to retire within a Margin of Safety. Theoretically if average investment returns of between 6% and 12% are achieved and the Client can keep their annual expenses below 3% of their Liquid Assets, those Clients will never run out of money even with historical inflation factored in. And if over a bad year or two the Liquid Assets are down 20% or 30% and the Client must spend 4% of their Liquid Assets, they have the Margin of Safety to do so. In general, the S&P 500 has Returned 10.78% for the last 77 years and around 9.05% since VPIA™ was founded in 2005 (Past performance is no guarantee of future results). Please click here to see historical S&P 500 Returns. If only a 6% Return is reached in coming years and the Client can generally stick to the 3% rule, then the Client will never run out of money¹. One last thought on Retirement Funding is the question of should a Client retire early. VPIA™ has a clear answer in the ESERꞏ3™ approach, but has found it necessary to emphasize that many Clients are best served working 2 or 3 more years at the end of their careers (health permitting) than trying to retire 2 or 3 years early. For the Client that has more than enough in Liquid Assets, this is not an issue. The problem arises when the Client does the math and concludes that they can justify an early retirement, so long as they cut back some things and get better at budgeting. VPIA™ has found that those Clients able to do this are the exception, not the rule. Such newfound budgeting skills are in our experience better anticipated in theory than found in practice. The problem then becomes the need to go back to work. And the job at which the Client was highly compensated with certain amount of earned respect toward the end of a successful career may no longer be available. Few 60-year-olds would will enjoy having to be a school crossing guard or superstore greeter in order to make ends meet. So again (health permitting) VPIA™ recommends Earning for a couple extra years, not a couple fewer years, in the situation where the Liquid Assets needed to implement the ESERꞏ3™ approach are not clearly adequate.

b. Can I make a Significant Return with No Risk? Over the years, Mr. Evaul and Mr. Adkisson were often asked the second question: Can VPIA™ create an Income Portfolio that was Safe and Returned in excess of 4%? The answer when first asked in 2005 was: Yes. Absolutely. Short term US Treasuries were paying in the 6% ballpark¹. But that did not last. By 2008 and until 2022 short term US Treasury yields were more often consistently under 1 %. As such the answer to the question became an emphatic: No. Not even close. To address this concern for Safety and Return, VPIA™ developed its Valad Income Portfolio strategy, which combined the safety of Treasury Bills with the Risk and Return of certain Dividend Paying / Distribution Investments. Please see the discussion below the VIP strategy.

c. Do the Level of Returns Really Matter that Much? And the answer is a resounding YES. The Magic of Compound Interest: Why Returns Matter. For example if a Client started with $100,000 and left if invested for 40 years with 2% Returns the Client would have $220,804; with 4% Returns $480,102; with 6% Returns $1,028,572; with 8% Returns $2,172,452; with 10 % Returns $4,525,926; and with 12% Returns $9,305,097¹. So if a Client choose what they perceived as a safe approach CDs Returning on average 2% on an initial investment of $100,000 for 40 years, the Client essentially has done little for their Retirement. Having Retirement Liquid Assets of just over $200,000 and at a limited 3% spend rate will only allow them to spend around $550 per month in retirement. On the other hand, if the Client earned just 6%, then the Client would have created capital of a bit over $1,000,000 from which the Client can spend 3% ( around $2,500 every month), or even 4% would have created capital of a bit less than $500,000 from which the Client could spend 3% ( around $3,400.00 per month) without diminishing their Retirement Capital¹.

d. Should I Wait to Place my Wealth with an Investment Advisor until the Market, Economic or World Affairs are more certain? No. This basically was the advice given to Warren Buffet in the early 1950s, when he announced he was leaving his investment job in New York to open his own investment business in Omaha. Both his Mentor (Benjamin Graham) and Mr. Buffett's father encouraged him to wait until the future was more certain (at the time, they were facing the Hydrogen Bomb, The Cold War, and the Korean War as great uncertainties). Had he taken their advice, Mr. Buffet as of the end of 2022 would be more than a 100 Billion dollars poorer¹ because the future is always uncertain. In the view of VPIA™ there are times to be out of the market, at least to some degree, but the number of times that it is clear beforehand that it is appropriate to be out of the market are relatively few. In addition, the chances of someone other than a seasoned financial professional being better at picking those times are about as good as a layman diagnosing the amount of plaque in your arteries instead of relying on a medical professional. While there is little question that a layman can get it right when the financial professional or medical professional gets it wrong, the chances of this occurring in the view of VPIA™ are rather small. And if you do try to time the Market and are wrong, the consequences to your wealth can be dramatic.³ While an Investment Advisor may not keep up with the S&P 500, the fees paid to the Advisor may still be of great value. First the Advisor may keep the client in the Market over the long run when the client might at times have felt that the future was too uncertain to be in the Market. And at least historically being in the Market for the long run has generally been the right call for the financial health of the clients. Second, an Advisor might properly reduce exposure to the Market prior to a Market downturn thereby having a favorable impact on the financial health of the client. Third, the Advisor might have the client in investments that are less impacted by a Market downturn and thereby once again favorably impacting the financial health of the client in a Market downturn. 

14. The Current VPIA™ Portfolio Options. VPIA™ has three portfolio options for its Clients: 1. Valad Equity Portfolio (VEP); 2. Valad Income Portfolio (VIP); and 3. Valad Cash Management Portfolio (VCMP).

a. Valad Equity Portfolio (VEP). The VEP approach (beginning with the first Clients of VPIA) is one in which only U.S. Publicly Traded Equities are invested in. While cash that is not invested may be in a money market or Treasuries, the VEP is otherwise made up of exclusively of U.S. Publicly Traded Equity Investments. Each VEP Client has a separately managed portfolio. It the opinion of VPIA™ that the VEP approach should reduce Risk below that of the SP500 with a substantial chance of Returns in excess of the SP500.

b. Valad Income Portfolio (VIP). Beginning in 2021, VPIA™ began to offer its VIP approach to replace the 40% portion of the traditional 60/40 (equity/bond) portfolio and address the concern raised by some Clients and potential Clients about increased Safety coupled with Income. The VIP concept allows the Client to decide to go with an Income/Safety, instead of an Equity, approach by combining the Safety of Treasuries with Income and Risks from Dividend/Distribution Equities. For example if a Client had $10,000,000 to be invested in a VIP, the Client would be asked to decide on an allocation between Treasuries and Dividend/Distribution Equities that provided the Client with the appropriate amount of Safety. In the first year of so of offering the VIP concept, this meant allocating a portion of the Client’s account to Treasuries earning less than .25%. Thus, if the Client allocated 50% to Treasuries, the Return would have to come almost entirely from the Dividend / Distribution Equities. As of the beginning of 2023, Treasuries were returning in excess of 4%. While the VIP Equities providing Dividends/Distributions in the view of VPIA™ should have more Risk than the S&P 500, when combined with as little as 40% in US Treasuries it is the opinion of VPIA™ that the overall Risk is less than that of the S&P 500¹ While coupled with a 40% to 60% Treasury allocation, VPIA™ uses its VIP approach to replace the 40% portion of the traditional 40/60 (equity/bond) portfolio concept for Clients interested in increased Safety above that of the SP 500 with overall Returns comparable to the Vanguard Total Bond Market Index Fund ETF (BND). It is the opinion of VPIA™ that the VIP concept provides increased Safety and increased Returns when compared to the BND.

c. Valad Cash Management Portfolio (VCMP). Beginning in 2022, VPIA™ has been asked on several occasions to address the Cash Management issues that Clients and potential Clients were confronting. While interest rates in general were low, traditional institutions historically relied on for Cash Management were frustrating their clients by paying rates clearly below what Treasury Bills were paying out, even it if was .01% vs .25%, and those traditional institutions did not offer the Safety of Treasury Bills. While there might be an FDIC Guarantee, the Guarantee was not available for Funds exceeding $250,000 per account. VPIA’s™ Cash Management Clients and potential Clients would have in excess of $250,000 that the FDIC guarantee. The difference in Returns and Risk that could be offered by using Treasury Bills was significant in the view of VPIA™. As such, VPIA™ now offers its Clients the VCMP. In general, for Clients with substantial operating needs or relatively short-term Cash positions in excess of $1,000,000 the VCMP approach would put such Cash into Treasury Bills (or Treasury Bill Money Market funds) of less than one year duration and with permission of the particular Client to consider using Treasury Notes where VPIA™ deemed appropriate. Until the VCMP returns exceeded 1% annualized returns, the Client would be charged no fees by VPIA™. While the Returns for Clients were under 1% until near the middle of 2022, they exceeded 1% in the second half of 2022; exceeded 4% in early 2023; and by 2023 Q2 approached 5% with only the Risk that accompanies the ownership of United States Treasury Bills/Notes.

15. Our Investing Observations. Below are "Our Investing Observations" which represent lessons (some tongue in cheek) generated in over 20 years in investment advice experience. 

     OUR INVESTING OBSERVATIONS

1. Money moves slower than you expect, slower than it should, and always slower than you want or need it to.

2. Opening Accounts and filling out Forms takes longer than moving Money.

3. If the opening of an Account or filling out a Form is a process that you want to make slower, involve your investment advisor instead of our experienced in-house administrative staff.

4. ACH/Wire Transfer never works the first time.

5. Anyone claiming to be an Expert who can precisely predict the future is telling you two stories: One they are not experts and two they cannot predict the future. True Experts know predicting the results of a Complex Adaptive System is a probability calculation, not a parlor trick with a precise outcome.

6. Compounding is the 8th wonder of the world. The simplest way to understand it is the Rule of 72s.

7. Price is not Value.

8.  Nothing is as expensive as free or bundled Professional Services (e.g., Investment, Legal, Medical, Accounting, etc.).

9. Discounted Cash Flow is the way to value an Investment. And its Corollary -  8A. Without Revenue there can be no Investment Value - Tulips, Gold, Crypto, etc.

10. Management Matters: Exceptional Managers create exceptional returns. And its Corollary-
 10A. Nothing is more dangerous to a good business than bad Management, with complacent/inattentive Management a close second.

11. Incentives matter: Like gravity pulls objects towards the Earth, Incentives (intended or not) change behavior.

12. Timing Matters: Being Right but being early or late is still being Wrong.

13. Liquidity Matters: In and of itself Liquidity has value.

14. Never set a Limit Price that expires later than the end of the trading day. And its Corollary-
 14A. Since almost every Stop Loss gets implemented, just sell it now while the Price is higher.

15. No Event is fully Priced In until it has occurred. And its Corollary-
 15A. Event Risk cannot be accurately measured until after the Event occurs.

16. The Risk of an Annuity, a Corporate bond, or a Municipal bond is unknown to most Purchasers and unknowable to almost anyone not trained as a high priced, finance lawyer. And its Corollary-
 16A. The Sellers of such Bonds and Annuities do not draft lengthy, difficult to comprehend, legalese burdened, governing documents to benefit Buyers.

17. Never Invest in an Industry where the only business plans that appear to succeed require operations that are immoral, illegal, or both.

18. Every Dollar should be respected. There is no such thing as an excess Dollar, but your First Dollar has a greater Value than your last Dollar.

19. The Inverted Yield Curve did not predict the 2020 recession.

20. The inclination is to sell Winners too early and keep Losers too long: Don’t.

21. ESER•3™- You can Retire when you can live on 3% of your Liquid Assets.

22. SURIS™- The best Investment Strategies are Simple and Understandable. And its Corollary-
 22A. Execution is the hard part.

23. The Value of Investment Returns is a concept requiring a comparison to the Safest Returns currently available (U.S. Treasuries).

24. In the long haul buying Great Companies at good Prices beats buying Potentially Great Companies at most any Price.

25. If you picture an account services provider with floppy shoes and a big red nose, you may not have underestimated them.

26. If an investment advisor manages enough assets, it is extremely difficult for them to beat a market benchmark over any extended time frame. 



¹ Past performance is no guarantee of future results.

² Please note that a mortgage or bond ETFs could be a VPIA™ Investment given the right Manager, because the Risk assessment can be made by the ETF Manager.

³ If an investor was out of the market for the best 30 days of the S&P 500 for the past 30 years (one day a year on average) ending December 31, 2022, the wealth of that investor compared to an investor that simply stayed invested in the S&P 500 would have his returns reduced by 83%. https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/timing-the-market-is-impossible.html. For example if an investor began with $100,000 invested in the S&P 500 and left it invested for 30 years, the end result would be a bit over $1,700,000¹. But if the Investor was out of the Market on each of the 30 best up days for the Market during that 30 year period, the final result would be a bit less that $380,000. While no one would be unlucky enough to only be out of the Market on the 30 best days of the Market, this is still a strong reminder of how hard it can be to try to time the Market. And one should always remember that if the Market continues, as history has shown, it is the place where Capital will grow. Furthermore, if you do decide to try and time the Market, you will have to time it right twice; once to get out of the Market and again when to get back into the Market. Going two for two in timing the Market is quite a difficult challenge in the view of VPIA™. As such, timing the Market in the view of VPIA™ should rarely be attempted and is best undertaken with the insight of a seasoned financial professional.

⁴ In is noteworthy that with the addition on Mr. Celuch, it is the expectation of VPIA™ that Mr. Celuch’s skill will be quite well suited to do more direct financial analysis, such as Discounted Cash Flow analysis.

⁵ Please note that the Percentage of Liquid assets approach is not an invention of VPIA™ and has been used for many years by a number of financial experts in various ways to counsel their clients.

Investment Advisory Services offered through Crescent Advisor Group, Inc., a Registered Investment Advisor