SPENCE Asset Management

Highest Duty August 2011

January 15^th 2009 turned out to be one of the most remarkable days in recent American history. It was very cold in New York City that day and the nation was deep in the throes of a recent financial system meltdown that had rocked the entire world.

U.S. Airways flight # 1549 took off from La Guardia in Queens that afternoon and within a matter of seconds after takeoff, the plane smashed headlong into a flock of Canadian geese that were flying in a “V” formation just beyond the runway. Several of the birds quickly passed into the engines and were destroyed. Within a matter of a few more seconds, the captain and first officer found themselves in the cockpit of a passenger jet loaded with 155 people attempting to climb over New York City with a complete loss of power.

In the stirring book, “Highest Duty,” Captain Chesley “Sully” Sullenberger provided a narrative of how he immediately began drawing on every hour of training he had absorbed throughout his professional piloting career. This extraordinary man managed to make quick lifesaving decisions. A couple of hundred seconds later, Sullenburger executed a spectacular water landing in the ice cold water of the Hudson River. Every single passenger survived. It is a harrowing tale and we highly recommend the read.

As we reflect on the piloting profession we realize that the last few years, although not life threatening, making asset management decisions has felt like the financial version of an interrupted flight path through unparalleled economic turbulence. At times, it seems as if we have no power in our investment aircraft. Often we feel the urge to survey the landscape for a place to set the investment plane down, especially given the “flock” of politicians scattered about ready to damage the growth engines of our economy.

In reading “Highest Duty,” we were struck by the similarities between the practices of good flight safety and making prudent investments. No doubt any person boarding an aircraft has at least some sense of the possible risks. And investors, particularly those willing to own shares of businesses, also understand that there are certain risks. Regardless of these risks, the pilot and his or her crew have duties to perform. And there are many integral redundancies in the professional routines of airline captains and their crews. Any frequent traveler understands this principle when they hear flight attendants verbally walking the passengers through the “safety features of the aircraft” for what seems like the two hundredth time. The principle of “redundancy” and safe air travel go hand-in-hand.

When it comes to essential routines, investing requires similar redundancies. In “Poor Charlie’s Almanac, The Wit and Wisdom of Charles T. Munger,” Munger, the Vice Chairman of Warren Buffett’s Berkshire Hathaway, makes it a point to describe how all professional pilots make extensive use of “checklists” as a means of ensuring they do not repeat mistakes that had caused previous aviation disasters. Munger highly recommends that portfolio managers also create their own checklists to avoid repeating investment disasters. Munger suggests that all mistakes be re-visited regularly so that the thinking errors and the processes that led to them can be internalized as prevention tools.

At Spence Asset Management we remain a work in progress but, just as Sully Sullenberger’s reiterates that his entire adult life prepared him for that fateful day in the winter of 2009, every business day since 1983 has prepared us for the investment decisions we make today. We have an experienced crew that has logged plenty of investment flight time. We developed and deployed analytical checklists long ago that continue to evolve- while we have made our fair share of mistakes, we have learned from them and integrated them into these checklists that are religiously reviewed before we “take flight” in a new investment. We continuously review all of our “accidents.” Naturally these steps provide no assurance that there will not be new mistakes made in the future and it certainly cannot offer protection against severe investment wind shear, business turbulence, and/or economic and political equipment failures. What our methods do provide is experience, confidence, and stability to our approach to navigating through the unforeseen.

Rest assured we will continue to survey the horizon and review our checklists in the weeks, months, and years ahead. And in the meantime we want to thank you for flying with us. It is also our “Highest Duty” to do our best, to get you where you need to go.

Jim Spence, Eric Walton

The information contained herein is for informational purposes only without regard to any particular user’s investment objectives, risk tolerances or financial situation and does not constitute investment advice, nor should it be considered a solicitation or offering to investors. To determine if investment in a Separately Managed Account with Spence Asset Management is an appropriate investment for you please call 1.800.230.1840.

Investment Advisory Services are offered through Spence Asset Management, a federally registered Investment Advisor. Investment Advisory Services offered through IAR’s of Spence Asset Management, a Registered Investment Advisor to all residents of the United States.

The views expressed here are those of Spence Asset Management and are subject to change with market conditions. The information contained in this newsletter is derived from sources believed to be accurate. You should discuss any legal, tax, or financial matters with the appropriate professional. Neither the information presented nor any opinion expressed constitutes investment advice or a solicitation for the purchase or sale of any security. Market forecasts cannot be guaranteed. Past performance does not guarantee future results.