Autumn 2002

We are willing to forego some gains in wild times
for the comfort of cash in times like these

Greetings,October 28, 2002

…our Sri Lanka Kids

We are sending the Autumn letter a bit early because itís that time of year when we ask for donations for our kids in Sri Lanka. It costs about $25,000 a year to support 65 children for a year. That is a real bargain. We all are the major support for these kids. This past year, Godwin Pieris, the fellow who started the orphanage died at the young age of 63. Godwinís wife and son and daughter are now shouldering the responsibility of caring for the children. They have stopped taking new children but their responsibility for the children in their care continues. We are hoping that our continued support will encourage the caretakers. As usual, envelopes for returning checks made out to WEORC, the non profit that distributes the money, are enclosed. As we do every year we reiterate that there is no overhead, 100% of your donation goes to the support of the kids. Thanks.

…the markets

When we last wrote on September 4, 2002 the Model Portfolio was unchanged for the year, while the DJIA was down 17%, the S&P 500 was down 23% and the NASDAQ was off 34%. It just so happens that at the close of business last Friday, the DJIA was down 17%, the S&P 500 was down 23% and the NASDAQ was off 34%. Strange, but true. Happily while the major market measures are all off quite a bit for the year the Model Portfolio on October 20th was up 2.6% for the year with a value of $441,159.

Thus our flurry of trading in the last few weeks has improved all our portfolios, although not as much as we would like. We remain torn by our inability to buy with abandon because while stocks are significantly lower than they have been in a long while, we are not yet convinced that an economic turn around is coming soon. And so we remain confined to our past three year strategy of trying to trade rallies and then return to a large cash position. In the future we hope to concentrate more on the DIA and SPY and QQQ for our trading activity in many accounts.

The DIA are trust shares that represent an ownership interest in the DJIA. The SPY represents ownership of the S&P 500 and the QQQ represent ownership of the NASDAQ 100, the top 100 capitalization stocks in the NASDAQ. By purchasing these instruments we can more closely and quickly gain the exposure to the markets that we desire at any given point in time.

We will continue to add broken down out of favor cheap stocks to portfolios as part of our year end package of cheap stocks for recovery after year end and beyond. We will also be adding individual issues like Sears to hold for the longer term when they reach the buy levels where we think they have long term value. And in our aggressive trading accounts we will continues to flip stocks as the spirit and the markets move us. Our aggressive trading accounts have been with us for a while and our used to our activity.

And now we present selections from recent posts on our website .

25 September 2002 7:13 am and as we sit down for a new day the stock futures are suggesting a higher opening. As you'll see below in our colloquy with a website reader we expect an up day today. The Crash of 1987 was a one time event, as was 1929, but in both cases there were days here and there of rallying shortly before the ultimate capitulation. We think the coincidence of all the selling coupled with the end of a terrible quarter for most mutual funds may lead to climax selling next week. We are not predicting. Rather we are trying to find a connection with what is happening now with past events in our memory to plan a rational course of action.

E-mail from reader:

From our past contacts, you have decided to express no interest in managing any of my assets, and that is OK. I probably agree. But I am interested in your insight into the current Market and how the Market institutions are advising their clients. Vanguard has recently come out and told people to stay considerably invested in equities, because individuals will not be able to time when to bail out of bonds (and into stocks) when the Market takes off. They say this is tantamount to Market timing and nobody can do that. So......... this means I should stand by and watch my portfolio go straight into the tank just to keep the institutions afloat. Sounds to me they are jaw boning to prevent a massive collapse. What do you think of such crazy advice? It is true that I will miss the bottom, but I think even I can tell what the fundamentals are and when they generally turn around. By the way on March 17, 2000, I sold all of my stock. The NASDAQ had, up till that time behaved in a logical manner. In the space of a few days its volatility went from almost nothing to off the charts. It would have taken an idiot to not see that!!

Our response:

Hi. And with your prescient selling you have double or triple the reason to enjoy St. Patrick's Day from now on. If you have been reading our website you know that we are in cash. We think that professionals can time the market. We have with success over the past years. We are willing to forgo some gains in wild times for the comfort of cash in times like these. We think bonds and bond funds are the next accident but their collapse may be a few years off. The present market is unlike anything we have seen since 1965 when we started in the business. It has elements of all the big corrections and crashes since then. You must understand that we are speaking with the luxury of four good years of superior performance, 2 flat and one up 40% and one up 20%. We are way ahead of the markets and 98% of investors and we have no inclination to give any back. It's too bad you didn't sell your funds when you sold your stocks. Your instincts were good and you should take solace and gain confidence from that.

If you own mutual funds now we think the down side is another ten percent and then we should have a pretty good rally even though we think the bear market will continue. As we say on the website the war is the wild card. We will probably commit funds at 6800 on the DJIA and 720 on the S&P. We think we may reach those levels by next week. The week before the crash in 1987 the markets had been selling off for several months. On the Monday and Tuesday of the week before the crash the markets dropped. Wednesday was an up day and then Thursday and especially Friday were down days of 3% or more. That set the markets up for a crash. Markets never crash off the top. And so we are thinking that a good trading opportunity will come next Monday or Tuesday. If the stock markets just continue to "wishy wash" down we won't do anything. All that said we see at most another 20% downside with the same kind of upside. We wouldn't sell now. Rather we suggest waiting for the rally that will come in the next month to lighten up. We gave this same advice to several folks in July and we wonder whether they did lighten when the S&P reached 950 in August, up from 760 in July.

We don't know whether any of this is a help. We are reacting to the markets and not predicting at this point. We have plans of action but we have to see how we arrive at different points to make up our mind.

4 October 2002. 7:01am and today is the anniversary of the 100th birthday of the "old stockbroker in the sky". Much of what we know we learned from him and as we take our sauna tonight we will think of all the saunas and sit ups at Gus Clem's Health Club in the 1960s and 1970s and the nightly German dinners of ox tails and bratwurst and knackwurst and fresh thuringer sausage and strawberry crepes at The Red Star Inn where we were regaled with stories of "bucket shops" and Stewart and Borg Warner underwritings and surviving the Great Depression. We'll remember the success we shared riding the New York New Haven bonds to big profits after years of worry and wonder. Penn Central, Palm Beach, Commerce Group, Bethlehem Steel, Consumers Power preferred A, the 1974 package of ten REITs, and all the other successes and failures were part of our learning experience from the master. Immortality is living on in others and the "old stockbroker in the sky" is certainly immortal. He came from nothing, an orphan at 9, and died rich in friends and family. And he lived life to the fullest. R.I.P.

Late last night SGP warned and lowered earnings expectations for the foreseeable future. Bummer. Now we know how all the tech stock holders feel. At least we didn't buy SGP until it was off 60% form its high and maybe we deserve some credit for profitable trading of the stock in the $30 to $40 range the last few years. But our eagerness to catch the bottom in the stock has left us less smug. Obviously whoever was selling knew more than we did. That's called inside information but we have to live with our decisions. We knew SGP was in a transition period and the sell off in the stock is a function of the transition. We thought the sell off the last few days was a function of the "get me out" at any cost year end mutual fund syndrome.

But it is not the end of the world since our only other stock positions in most account are Qwest which is at $2.35 and so can only lose that much and Pepsi. And we made a small profit in Verizon and a scratch profit in SBC while exiting the DIA even. A busy week and we will have to try and do better next time.

9 October 2002. We are still in a bull market frame of mind. Our fear of losing money has enabled us to avoid much of the disaster of the last few years, but at some point as stocks approach investment or speculative value we are going to have to begin to assume risk. That's what we tried to do last week but after we bought the few stocks our trading mentality reasserted itself and we blew the positions out.

Even for those of us who have survived the turmoil of the last few years, this is a difficult market to game. We think we are approaching a denouement in the sell off and that a 30% rebound is in the cards but whether it occurs from 7000 on the DJIA or 7800 is the difference between a rational risk/reward scenario and a less than optimum one. And so we will continue to muddle along and hopefully catch the next up move.

Since (today October 9th) is our 59th birthday we have decided to begin investing our money. Investors Intelligence bullish readings are down to 31% which is a low level that merits placing funds in investment situations. Stocks are reaching our buy levels and we aren't going to second guess ourselves.

Happy Holidays


Please make your tax deductible checks payable to WEORC, (WEORC is an IRS approved tax exempt foundation) and send in the enclosed envelope. None of the donation is used for overhead. 100% to the kids.

Lemley Yarling Management Co.
208 South La Salle Street
Suite 723
Chicago, Illinois 60604

Enclosed please find a donation in the amount of: $                                  .

Please make your checks payable to WEORC



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Owen Flynn's Burial

They buried Owen Flynn today

On a snowy February sway back hill,

And not a tear for him was shed

Cause all his folks 'cept two were dead.

The church set there like a Christmas card.

The folks were dressed against the hard cold.

The graveyard seemed from a Dickens book

With sand and snow and a slushy look.

At least by appearances you'd have to say

The years had been hard on the people there,

The young ones gaunt and lean and old

And the old folks lookin' of stories to be told.

And yet any sorrow was strangely lacking

And missing also was love,

For there's an age you reach in life

When people say enough.

Perhaps that judgment is too harsh

For Owen had surely lived past his years

And when you've buried sons and daughters first,

For an old single man it's hard to find tears.

Then who was this man? And why were they there?

Since no one was his peer.

Well, out in the country they bury their dead

And in death everyone is dear.

The service was over and lunch would be served

As soon as Owen was in the ground

The women save one to the kitchen repaired

While the men folk moved on to the ground prepared.

The folks trudged slowly up the sand snow hill

With talk of tractors and cows and hay

The hearse, incongruous, shiny and new

Led the mournless way.

All of sudden a scream let out

Owens tombstone came crashing down

A leg was broken, a man in the grave

And Owen still waited above ground.

The man climbed out; the ambulance came

And Owen was quickly disposed of.

For that's the problem when you live past your day,

Your either forgotten, or in the way.

BL Feb 1974







The market value of the Model Portfolio is net of advisory fees, brokerage commissions and other related expenses. Model Portfolio results reflect reinvestment of dividends and other earnings. The Model Portfolio column is the overall return of the portfolio for the period shown. The S & P 500 is an unmanaged S & P composite of 500 stocks widely regarded as representative of the stock market in general. Unless otherwise indicated, index results include reinvested dividends and do not reflect sales charges.

Past performance is not indicative of future results. Other methods may produce different results for individual portfolios and for different periods and may vary depending on market conditions and the composition of an individual portfolio. Care should be used when comparing these results to those published by other investment advisors, other investment vehicles and unmanaged indices due to possible differences in calculation methods. A list of all recommendations made by Lemley, Yarling Management Co. for the preceding one year period is available to advisory clients upon request


Autumn 2002
Summer 2002
Spring 2002
Winter 2002
Autumn 2001
Summer 2001
Spring 2001
Winter 2001
The factual statements herein have been taken from sources we believe to be reliable but such statements are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.