March 2010 Issue: Key Points

"Having the bubble" is a phrase that is typically used among pilots and air traffic controllers to connote a high degree of "situational awareness", which is defined as an understanding of the key elements in a situation, their interrelationships, and the way the situation could evolve over time. To "have the bubble" requires the formation of a mental model of complex system, and the constant updating of that model as the underlying system and situations it creates constantly evolve. It is possible to "lose the bubble", whether due to disruptions to the updating process, or to surprising system behavior that causes you to lose confidence in your mental model. Whether you are responsible for managing many airplanes in a confined space, flying an airplane in combat, performing a complex operation, or managing a large amount of money, "losing the bubble" can be very dangerous, if not catastrophic. Here at The Index Investor and Retired Investor, we constantly worry about whether we still have the bubble, as the world economic and political system enters a period of heightened uncertainty. Quite honestly, over the past month or so, we have read an increasing number of articles by commentators we highly respect that indicate that a number of our long-held views are moving into the mainstream. And that nags at us. If the past thirty years have taught us anything, it is that when your views are the conventional wisdom, it is time to step back and take a good hard look for what you might be missing -- because more often than not, the conventional wisdom turns out to be wrong.

With that in mind, we have been trying to break down the rising uncertainty we (and we're sure you too) feel into the key factors that are driving the evolution of our situation. We've used a framework we have profitably employed over the years to help us evaluate investments in different companies, which includes an examination of the key macro elements in the story, the micro elements, the plan that ties them together to create value, and our confidence in the management team that will execute, and inevitably have to adapt the plan. On balance, we conclude that the conventional wisdom is still missing some very important elements that could have very substantial effects on asset class returns in the years ahead.

In this month's product and strategy notes we highlight new research into how skilled managers allocate their attention differently during recessions and expansions, new products, and how advances in quantitative trading have exponentially complicated the already nearly impossible task of identifying skilled active managers in advance. Finally, in this month's Advisers' Corner, we summarize new research into the age old question, "what makes clients tick?", as well as new findings on what drives word of mouth referals.

| Advisers' Corner: What Makes Clients Tick? | Overview of Our Valuation Methodology | Uncorrelated Alpha Strategies Detail | Global Asset Class Returns | Table: Market Implied Regime Expectations and Three Year Return Forecast | Table: Fundamental Asset Class Valuation and Recent Return Momentum | March 2010 Issue: Key Points | This Month's Letters to the Editor: Changes to Attitutudes About Investing - Mad for Alpha; Does Index/Retired Have a "Black Box" Toward Your Asset Allocation Strategy? | Global Asset Class Valuation Updates Detail through February 26, 2010 | March 2010 Economic Update: Do We Still "Have the Bubble"? | Product and Strategy Notes: Investment Strategies; MSCI Barra - What Drives Long Term Equity Returns; Implications of Algorithmic Trading to Active Management Strategies; and New Products - Longevity Risk Indexes, Disturbing Trends in the ETF Market | Investor Herding Risk Analysis |