It is Christmas, and I frankly don't feel like writing a letter about why there will be a slowdown in 2007, or that the stock markets should see a retreat. This is the season for feeling good. And looking at the forecasts of the vast majority of my fellow prognosticators, some of them are feeling very good indeed. So, no bearish thoughts this weekend.

We will depart instead from the recent litany of problems I have written about and look for something new. I get several letters every week from readers asking how I feel about missing the recent bull market, sitting on the sidelines in cash. Except that I am not in cash. Others ask about where I am actually invested. I have never written about my personal portfolio; but this week I discuss my investments in general, review their performance, and offer a few thoughts on investing and creating wealth. But first...

The Lights of Myanmar

For the last three years, I have asked readers to help Knightsbridge International fund a project to bring solar power to various medical clinics with no electricity in the villages of the Karen tribe of Myanmar. This is a group of people forgotten by the world, who are persecuted in large part because of their religious beliefs (they are Christian, for those who want to know).

And persecution is a mild word. The murderous regime in Myanmar is systematically working on what is tantamount to genocide. They rape, murder, and maim indiscriminately, targeting men, women, and children, old and young. It is yet another blight on humanity, yet we hear nothing of it in the halls of the UN.

Readers have responded graciously and generously with tens of thousands of dollars, and you have been a big part in funding well over 20 solar power systems for health clinics. It has made a difference in the lives and health of a people who are in dire straits. There are children who are alive because of your generosity.

My good friend Walt Ratterman, personally and at his own expense, travels to Thailand, bringing the systems with him. He helps train the doctors and health workers, and sometimes actually goes into Myanmar to help set up the systems. This is at no small personal risk, as the Karen tribe is in a zone that has been under siege for the past several decades. The Burmese (Myanmar) military has been burning villages, raping women, forcing people into slavery, and killing the indigenous people of the area. There is no local embassy to appeal to for aid if he is caught inside the country. If he is caught, he does not come out.

You cannot know the value of solar power, says one of the local doctors, until you have to perform an amputation on a child (because of landmines) in the dark with a flashlight in your mouth. Walt wrote me a few weeks ago. Let me quote:

Hello John and Tiffani!!

"I just got back from Burma, AND my two week detour to the Northwest Frontier area of Pakistan, where I worked on solar water pumping for drinking water for a group of villages there.....quite interesting to say the least.

"The work in Burma this year was more significant than in any of the previous years. In the first part of the year, I made my two week trek through the war zone area of Burma, hiding as necessary to avoid detection, and made a survey of the needs of all the clinics we were working with in the area.

"This past trip, Knightsbridge returned to the area not only with solar training and supplies, but also with a very large amount of medical equipment, and a doctor. We delivered the medical supplies and the solar supplies, and we did solar AND medical training, with our ER surgeon from Johns Hopkins.

"So....as promised, attached is a write up on that trip you can send to your readers. I will be here for a week, and then on December 1st I leave for Guyana to do a survey of the electrical systems for health clinics there. Then, back for Christmas, then off for Rwanda about the second week of January."

Walt is a modern-day hero and a great friend. The stories he tells me of his exploits are simply amazing, as are the stories of many of his fellow volunteers at Knightsbridge, who travel to the really harsh areas of the world bringing hope and care.

These are the guys I wrote about several years back who were the first into Afghanistan offering food and medicine, even before our troops went in. The Taliban had large prices on their head. Rwanda, the Philippines, Pakistan, and Nicaragua are just a few of the vacation spots they have visited with food and medicines. They went into the rebel territories in Sri Lanka after the tsunami, because no other aid workers would take the risk.

Gentle reader, these are the good guys. They make you proud to be human. They do their work for no salaries, paying their own way, just because they can. Below is a link to the letter Walt referred to in his note. I urge you to read the letter, look at the pictures, and then write a check. You can fund solar power for one clinic for about $3,000. But every $30 helps.

http://www.2000wave.com/pdf/knightsbridge_letter.pdf

To support this project, your tax-deductible donation can be sent to:

Knightsbridge International
P.O. Box 4394
Los Angeles, CA 91308-4394

Please identify your donation as: "For the Solar Clinic Project - Mae Sot, Thailand." Thanks on behalf of the Knightsbridge team. And if you are completely insane and like a little adrenaline rush with your good works, think about volunteering. They have found a few fellow crazy types from among my readers.

And now, let's go on to something far less important and see what my portfolio looks like.

Who's Afraid of a Bull Market?

Before jumping into my portfolio, let me offer a few thoughts on investing and creating wealth. Very few people actually create wealth from their investments. There are the exceptions that prove the rule, but the fact remains that most people who acquire wealth do it either by saving money or through the building of a business, whether their own or in conjunction with others.

Gary North has a good definition of being rich. You are rich when you have enough assets to live off the income (return) from the principal in the style you want to be accustomed to, taking into account inflation.

For some people that is not a lot of money, as they have modest lifestyles and goals. I remember counseling one couple a few years ago. They had built a sizeable nest egg over the years by living a very frugal lifestyle on what were very good dual incomes. They had no children and were planning on leaving their assets to a favorite charity. The husband had come to me to ask for investment advice, as he was worried about having enough income to last them for their probable lives.

He was looking for investments that had mid to high teen-plus returns. His current portfolio had a ton of risky investments, and fluctuated greatly. They had taken a great hit in the last tech wreck. When we went over their circumstances I just smiled. I told him he was taking way too much risk. He simply had to become an income investor and spend twice as much money as they were currently spending, saving the rest to see his portfolio grow well beyond inflation expectations.

Noting that he was an adrenaline investment junky, I told him to take a small portion and use it for the riskier investments, but to take his wife and travel more and spend more. His wife just sat there with a huge smile on her face. As we went over the numbers, he began to realize what I was saying.

"You have run the retirement race and won. Stop running." Now, there is nothing wrong with being a prudent manager of assets, and in working to maximize risk-adjusted returns, but they were close to their 70s and really had all they needed to live in a far greater lifestyle than they ever had.

That is not the normal experience. Most people do not save enough. Saving money and investing with reasonable risk parameters is the best way to watch your nest egg grow over time. Start sooner rather than later.

Yes, there are a few investment all-stars. But over the long haul, the average investor is going to be lucky to make more than 8-10% a year. That means 50% will do worse. Yes, you can have some good years, and after the '90s investors seemed to think that 15% was reasonable. The '90s were an aberration. If you have managed to do 15% compound a year since 1999 on your entire portfolio, you have done very well. Very well, indeed. (Or you have had real estate in California. Hope you sold last year.) You have also probably taken a lot of risk, or had excellent timing.

The second way to build wealth is through building a business. Look at the various lists of wealthy people. All of them had at their roots a business. You might have to go back a few generations to find it, but a business was in there somewhere.

I should note there are a lot of people who have recently gotten rich through stock options. That is not investment. I consider that building a business. Maybe the secretaries at Microsoft got lucky when they decided to work for a young Bill Gates, but it was still a business that was at the source of their wealth.

Some will argue that there are investors in real estate who have made large sums. Those who have done so would argue that buying and renting real estate is a business, even if it is part time. Dealing with tenants is not easy.

I see the purpose of the investment enterprise as growing the capital we have either saved from our income or created through business. I want to do it on as reasonable a risk-adjusted basis as I can.

So, how do I personally do that? The source of my income and savings is my business. I grow my portfolio using a combination of hedge funds, managers, a value stock here or there, some private equity, and through the building my own business. I have just said that 8-10% was what most people could expect to get on their portfolios. And now I must confess that I try to do better than that, which of course means I am taking more risk than the large majority of my readers should be taking.

I am 57. I have a growing business, which I will discuss in a minute. Someone asked me one day what I would do when I retire. I said I would read whatever I wanted, write whatever I liked, and travel to fun places and spend a lot of time with my family. Which is exactly what I am doing, so why bother retiring? I expect to "work," if what I do can really be called work, for at least another 20 years.

So, I have a longer time frame in which to save and invest. I try to "drag some money to the side" each year and put it into funds or investments on which I hope to get reasonable risk-adjusted returns. And I invest from time to time in some high-risk investments with a portion of my assets that I feel I can lose without endangering the entire enterprise.

I fully fund my retirement accounts every year. My "retirement account" money (IRA, SEP, etc) is invested in a fund of hedge funds. It is up around 11% this year so far, and I am happy with that. Because it is a hedge fund, I can't say anything about it, nor will I tell you which fund it is when you write and ask. So don't ask. The rules won't let me tell you.

I will say that the fund of hedge funds is mostly invested in what I call "nondirectional" hedge funds. The managers look for funds that try and deliver returns in some part of the market without having to have that market go up or down. It's just a style I personally like. The fund is highly unlikely to be a "home run." I simply hope it compounds reasonably over time.

I own one stock I call my stupid stock. There is a story here. In the late '90s I sometimes invested along with a hedge fund I knew that invested in PIPEs, or Private Investments in Public Equities. Back then, you could make 20-25% or so in 4-6 months. There were risks, of course, but it seemed so easy for a few years. Times have changed, and the returns from such investments are no longer near the old days (not even close!), but it was fun for awhile. I must also confess that I invested too much in some of the deals. I have since become more cautious in my old age.

It was easy until one of those easy lay-ups showed me the risk. The management of the company in which I invested (along with a number of people and funds) had a "stupid" problem getting their offering registered with the SEC. One month, then two months, then half a year and then a year went by. I forget now how long it took, but when it was finally registered and we could get our stock, the bear market had already started.

Now this was a health services firm that was trying to convert itself into a dotcom. Like a lot of companies, they looked at all the money being thrown at dotcom ventures and decide they would go for it. Bad timing for the company and investors. And bad business model, as it turned out. When I finally got my shares, the price had been driven down by the various funds and people (legitimately) selling. I spent some time with the management of the company and realized the value of the real estate the company owned was greater than the market cap of the company, which was by now a very micro-cap bulletin board company. The stock was "stupidly" priced. I was stupid to have made the original investment. Thus it became my stupid stock.

But it was also now a deep-value company, or at least I thought it was. I decided to hold. Management went back to what they knew how to do, which was run a health services company. And they have grown the company very well over the last five years. Each year, earnings go up, as well as revenues. Value investor Peter Lynch bought a bunch of shares. The stock is up over five times from my original strike price. I have sold enough to get a lot more than my original investment, and still have about a double left.

The stock is up about 25% again this year. Again, I can't tell you the name of the stock, as I will sell more of it as it goes up, and don't want to "tout" a stock that I am selling. I expect it to get close to my target in the not too distant future, and then I will be gone, a very satisfied customer. As I sell, I will take the proceeds and put them into various money managers and alternative funds.

I have investments in two other private financial-service firms besides my own firms. It is a field I know and am somewhat comfortable in. They are very long-term investments. One company is struggling. I still like the management and have hopes for it. The other is doing very well. We should all be doing so well.

I have a larger investment in a high-tech start-up for which I have great hopes. I met a retired EVP of Texas Instruments who is a local angel investor. His last assignment at TI was running their DLP program. He is quite the tech-savvy gentleman. He is a reader who met my publisher at a dinner and asked for an introduction. We met and hit it off, finding that our Mavericks tickets were about ten feet from each other.

Over time he introduced me to one of his local deals. It was in the telecommunications area. In the late '80s, I was involved with the early cellular telephone start-ups and was very lucky. It was my first really big hit. I did learn from the inside about the excitement of being involved with a revolutionary new technology.

I think we are at the beginning of yet another paradigm shift in the telecom world. The world is going wireless. There are several horses in the race to bring true high-speed wireless broadband to your home. I mean 20-40 Mbps today (and eventually much, much faster) at low cost. Fast enough to do VOIP, download HDTV real-time over the internet rather than a cable hook-up, and not have to be somewhere near where your wires connect. Think of it as a hot spot on major steroids that covers whole cities and counties, for a fraction of the cost of pulling cable or fiber. It is going to turn the telecom world on its head. "You ain't seen nothin' yet!"

Someone, or several someones, are going to be able to succeed in this new world. After a lot of thought and homework, I decided to place a bet on the one my friend showed me. I have been very pleased so far, but it is early in the race. Ask me in five years if I was lucky. I should note that if it fails and I lose my money, nothing really changes for me. If it wins, it will change a lot of things.

My biggest investment is in my business. (I am going to describe my business, so if that is not of interest, you can skip down to the next heading.) Seven years ago I was a partner in a nice-sized investment management business that was essentially a manager of managers. That is, we searched for and selected managers we liked and then offered those managers and services to clients. My partner bought me out (for various reasons, though we remain good friends). I took a combination of cash and residual income.

The residual income has shrunk over time, and this month will see the last of it go. I knew when I started over that I had a limited time to build another business before the income would be gone. I could either bank all of the income and go to work for another firm, or start over. Since I am essentially unemployable, I decided to start over, basically in the same business, but with an emphasis on alternative investments. I thus funded my current business with the proceeds from my previous one. It was higher-risk than I thought at the time, but I am now glad I did it.

I was already writing newsletters, but decided to stick my letter on the internet in August of 2000. It began to grow, and I kept changing my business model to deal with the growth. One of my long time friends (Mike Casson) decided to publish my letter and spent a great deal of his time and money making it successful. Finally, it became evident that the letter was going to grow even more and that it was a good source of new business. (We send the letter to a lot more than 1,000,000 readers each week.)

I had a choice. I could either take in a partner and new capital, with a lot of employees and management responsibility, which would keep me from doing the things I liked to do, or I could partner up with another firm. Good friend Mark Finn introduced me to Jon Sundt at Altegris Investments. He had just taken his division of Man Financial private. I had lots of potential business but needed more research staff and support personnel, and he had lots of research staff and support personnel and needed more potential business. We had a real commitment to serving clients and a belief in alternative investments. We agreed on how to split fees, and a new business model was born. We have both seen our respective businesses grow.

A few years later, I partnered with Niles Jensen and Absolute Return Partners in London, which has been a very good situation both for me and for our clients. I have partnered with Pro-Hedge in Canada, and within a few months we will finally be able to work with clients in Canada. It has taken us a lot longer than we originally estimated to get all the necessary legal arrangements made.

I have partnered with EFG, the third largest private bank in Switzerland, to deal with clients in Latin America, Switzerland, the Middle East, and Asia. And last but not least, with Plexus Asset Management in South Africa.

This year, about half the growth in the business came from outside the US, predominantly in Europe, but I expect the mix to become more global this next year.

Sometime in the next month, we will finally announce a new program for recommending managers who are available to non-accredited investors. It has taken longer to do than I thought it would, as there are a lot of legal hurdles, as well as organizational ones, to jump. But we have done it. I am pretty pleased at the initial mix of managers who will be on the platform.

So, that is my portfolio. A very nice business that affords me a great life, that is growing fairly rapidly (although I admit there were times when I wondered if I was going to be able to hit critical mass soon enough), and that should be around for quite some time, if we all (meaning my worldwide partners) do our job of serving our clients properly. A modest investment portfolio that is growing reasonably well. Some private equity and one aggressive venture capital start-up. And I do have my working capital in very liquid money markets and CDs.

Next year, I will add some more managers and funds as investment funds become available. I will work on growing the business, because that is the real source of my portfolio income. And I will continue to have the time of my life.

So, there you have it. Nothing really special. But it is consistent with what I have been writing over the past years. I eat my own cooking. I have not "missed" the bull market. I chose to avoid it, as I see a lot of risk that I don't have to take when I can go elsewhere and get returns that are adequate for my purposes.

Sometime next year I expect to become bullish on the stock market, after what I think will be a correction. That will possibly change the mix of managers I use, as I like to find managers and funds which are working with the wind behind them, and not having to row, as Ed Easterling puts it.

California, South Africa, and a Vacation

The kids are all home. We will have all seven kids, along with their friends and husbands, my mother and sister, and who knows all in for Christmas dinner. Smoked turkey and prime rib and all the fixings. I am the main chef and love it. Most of the kids are grown, but there is still a lot of noise and excitement (some would call it chaos) when we gather. Tonight I take one of the twins to dinner with Peter and Barbara Bernstein and then on to a Mavericks game. Peter and Barbara have grandkids in the Dallas area, and it is one of my great pleasures in life to have gotten to know this investment giant.

I will go to California after the first of the year and then to South Africa in late January. And at some point I am going to take a week or so off for a vacation. I am beginning to feel the need to recharge the batteries.

If you are an accredited investor (currently, a net worth of more than $1,000,000) and are interested in learning more about the hedge funds and other alternative investments that we work with in conjunction with my partners, I invite you to go to www.accreditedinvestor.ws and sign up for my free Accredited Investor E-Letter. I will be sending out another edition right after the first of the year. See the website for details, as well as the risk disclosures. (In this regard, I am president and a registered representative of Millennium Wave Investments, LLC, member NASD.)

Let me wish you a very sincere Merry Christmas. I hope that you get to spend it with family and friends. And let me thank all my readers, for it is you who have made it possible for me to have such a great life!

Your grateful for all that God has given analyst,