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Dear Fellow
Shareholders:
The year that
just ended has been a difficult one for our nation’s economy, for stock
markets around the world, and for millions of Americans. Lives have been torn
apart by war, civil liberties have been curtailed, and fuel prices have risen
to the point that discretionary purchases are not possible for many.
However, there is
room for optimism. Stock markets plummeted over the past twelve months. The
definition of a bear market is one that has fallen by 20% from its high. This
means that the United States, Japan, China, Europe, and the emerging markets
are all in the grip of bear markets. The easiest thing to forget during a
market downturn is that markets recover. In
the last nine bear markets in the U.S., the recovery from the point of the
20% drop has been rapid, returning an average of 17% within the year.
I believe we may be approaching the time
for this anticipated recovery. Our consumption habits are changing and we have wrung the excesses
out of the pricing of stocks. Americans are ready for dramatic shifts in
national policy, placing quality of life at the center. We also face a
presidential election that provides us with an historic opportunity to set
our country on a new path.
The GDP rose 1.9%
during the second quarter of 2008. Corporate earnings have also been strong.
When you exclude the big banks and brokerage firms involved in the mortgage
business, the Standard & Poor’s 500 gained 8.5% in operating earnings
during the second quarter.
Why haven’t we
had a better market? Most stock pricing models are based on the anticipated
future growth of the underlying earnings of a company. But over the past
twelve months the stock market did not rise, despite positive corporate
earnings in most sectors. The dramatic drop in earnings at financial service
companies overwhelmed the psychology of the market, and investors were
discouraged.
Wall Street hates
risk and marks prices down for it. The risk of the unknown, the havoc the
world has experienced, is factored into investment decisions. The gradual
movement of the nation towards a foreign policy that is a bit more moderate
should reduce perceived risk and contribute to greater investor confidence
generally. Domestic infrastructure projects, including green
projects, will also give investors more confidence by creating new jobs
and more consumers.
As this report
went to print, some of the most dramatic events in our economic history were
taking place. Again we are seeing how the excesses of Wall Street — unleashed
by deregulation — have contributed significantly to our problems. Once again,
it is alarmingly clear that our system of finance cannot continue to operate
as if its actions didn’t affect all of our lives. To my ears, recent events
echo my firm’s motto: The way you invest matters.
We may be on the
verge of a significant restructuring of our capital markets, and of
government’s role in those markets. Let us hope that we are entering a new
era, where Wall Street must consider its impact on Main Street.
We at Domini
Social Investments continue to offer the basic building blocks for a
diversified portfolio. Our equity funds are designed to allow you, the
shareholder, to designate what part of the world you want to emphasize. Our
bond fund is conservatively managed (as demonstrated by the fact that we
fared very well during the subprime turbulence).
We know that this
market has been frightening and difficult, and we recognize that it may be
hard for you to stay calm and implement the plans you have for saving for the
future. However, we believe that our investors have the ability to look
beyond short-term volatility and focus on long-term value. We thank you for
your investments with us and for your ongoing support of responsible
investing.
Very truly yours,
Amy Domini
amy@domini.com
1046
09252
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