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Code of Ethics
PDM Investment Services acts as an independent investment
advisor with strong fiduciary responsibilities. We strive to
comply with applicable laws and regulations governing our
practices. We put the client’s interests first and act in
good faith.
PDM Investment Services, LLC is a Registered Investment
Advisor with the Exchange Commission of the State of
Michigan. For our complete brochure see our Firm Brochure
Form ADV 2. All clients will receive a copy of this form
from PDM Investment Services. Additional information about
PDM Investment Services, LLC or Philip Michalek is available
on the SEC’s website at www.adviserinfo.sec.gov. The
searchable IARD/CRD number for PDM Investment Services, LLC
is 155217.
Strategy
We do not use risky strategies that fall out of favor, no
margin, no shorting, no leverage, no derivatives and no
penny stocks. We only use strategies and invest in
securities we would personally invest in for ourselves. PDM
Investment Services practice a pro-investor structure
offering independent advice, open architecture,
transparency, liquidity and low cost solutions. All of the
client’s portfolio transactions and holdings are accessible
to them thru their custodial account.
Service to Other Clients
PDM Investment Services purchase recommended securities for
themselves and client portfolios. PDM Investment Services
does have discretionary managed accounts that may buy or
sell the same securities listed in our newsletter before or
after they are recommended. Managed accounts own many but
not necessary all recommended securities depending on the
size of their account, goals and objectives and risk level.
Trading Frequency
Our portfolio that invests in individual stocks has a higher
frequency of trades. Higher trading frequency involves
higher transaction costs and tax consequences. Most of our
mutual fund purchases are long-term purchases of over one
year.
Performance and Risk
PDM Investment Services does not in any way guarantee the
portfolio from loss, nor guarantee any minimum investment
performance for client portfolios. Investing in securities
involves risk of loss that clients should be prepared to
bear. PDM Investment Services shall be responsible only for
the satisfactory performance of all duties expressly
assumed. Past performance is no assurance of future results.
All investments involve individual security risk and market
risk. Recommendations and advice are given with the
understanding that the client assumes all risks involved.
Always consider investment objectives and risk before
investing. Investing in individual stocks generally carries more risk than
diversified mutual funds. It is not recommended to invest more than 3% of a
portfolio into an individual stock.
Errors and Omission
The opinions and analysis are based on sources believed to
be reliable and written in good faith, but no representation
or warranty, expressed or implied, is made as to their
accuracy, completeness, timeliness, or correctness. Neither
we nor our information providers shall be liable for any
errors or inaccuracies.
Financial Industry Activities, Affiliations and Brokerage
Practices
PDM Investment Services and Philip Michalek are not actively
engaged in business other than giving investment advice.
There is not a general partner or any partnership in which
clients are solicited to invest. PDM Investment Services and
Philip Michalek currently do not have any arrangements or
are not affiliated with any organization such as a
broker-dealer, investment company, bank, law firm, insurance
company or another investment advisor.
PDM Investment Services is currently not affiliated with any
broker, but suggest low cost on-line brokerage services to
clients. The factors considered when selecting a broker are
on-line stock and mutual fund trading, trading costs, number
of mutual funds offered, reliability, execution speed,
overall satisfaction, access to local branches and research.
PDM Investment Services do not use research offered by
brokerage firms in their client’s accounts.
All trading costs are the same for all clients with the same
broker. Trading costs vary between brokers. We do not
receive any compensation that is contingent on any client's
purchase or sale of a financial product. The advisor does
not receive any compensation from the securities selected.
Website
Our website, www.fginvestor.com is not intended to offer
investment advice and would only offer advice if registered
in that state. The website is designed for product
information and posting of the Focused Growth Investor
newsletter and alerts to clients.
Confidentially
All client information is considered strictly confidential and will not be divulged without specific
authorization of the client or if allowable by law. PDM Investment Services and its employees have an
obligation to keep all information about clients (including former clients) in strict confidence,
including a client's identity (unless the client consents in writing), a client's financial circumstances,
a client's securities holdings, and advice furnished to a client by the firm. We restrict access to non-public
personal information and maintain physical and electronic safeguards to guard your personal information.
E-mail messages are sent primarily to provide information related to our services. This includes notifications
when a new newsletter or alert is sent or posted on our website. E-mails will also be sent informing subscribers
of any material changes or relevant facts relating to the use of our service. We neither rent nor sell your e-mail
address to anyone. We may also send e-mails to current and former subscribers announcing new services, promotions
or special offers. If you do not wish to receive these e-mails, please contact us and you will be removed from
our mailing list.
Our fginvestor.com website is a secure site that uses Secure Sockets Layer (SSL) software that encrypts the
information, such as credit card numbers that you input. By using this site, you agree to our use of your user
information as described in this privacy policy. As we add new technology and new services, we will update our
privacy policy. We encourage you to look to this policy on a regular basis for our most current privacy policy
practices.
Terms of Use
The content of the fginvestor.com, Focused Growth Investor newsletter or other reports are the property of
PDM Investment Services and subject to copyright, trademark and intellectual property rights. You may not
reproduce, retransmit, redistribute, upload or post any part of our website, newsletter or report in any
form or by any means, other than those strictly related to your own personal, noncommercial use. Any
other use of our content is strictly prohibited unless prior written permission has been obtained from
PDM Investment Services. International copyright law protects all of the content on this website.
Focused Growth Investor is a Trademark of PDM Investment Services, LLC. Copyright 2006 © PDM Investment
Services LLC, All rights reserved. ISSN 1930-0700
Performance Calculations
Performance returns of the T. Rowe Price Equity Index 500 Fund are shown for general industry-wide
comparative purposes. It should not be assumed that the benchmark represents a similar investment
strategy or asset class as the Focused Growth Investor Portfolios.
The performance calculations are verified by Alpha Performance Verification Services. For a copy
of the Independent Verifier’s Report, contact us or see our website.
Performance from 2003 through 2010
The Diversified Mutual Fund & Sector Portfolio performance was calculated based on our
Moderate
Risk Portfolio recommendations each year from 2003 through 2010. Returns do not represent actual
trading and they may not reflect the impact that material economic and market factors had on the
adviser’s decision making if the adviser were actually managing client money.
• The performance calculation includes capital gains and dividends.
• The performance calculation excludes custodial transaction fees (0.2% *), portfolio management
fees (1.0% *) and taxes.
Performance from 2011 Forward
The performance displayed for the Diversified Mutual Fund & Sector Portfolio and the
Focused
Sector Stock & Mutual Fund Portfolio is the performance of the Actual Accounts of Philip Michalek
at a moderate risk level.
• The performance calculation includes capital gains, dividends and custodial transaction fees.
• The performance calculation excludes portfolio management fees (1.0% *) and taxes.
Past performance may not be indicative of future results. It should not be assumed that all
clients follow the Focused Growth Investor Portfolios. The performance of a specific client
or newsletter subscriber’s account may vary substantially from the displayed performance
results. For reasons including personal objectives, risk tolerance, variations in actual
account holdings, variations in custodial fees, variations in the investment management
fees, market fluctuations, the date on which a client engaged in the managed account services,
and any account contributions or withdrawals. Since the time period displayed is historical,
there can be no assurance that future results achieved by clients in the future will resemble
those represented by the actual or model portfolios. Our investment strategies since 2003 are
similar, but have continued to improve over time. The improvements in investment strategies
over time may alter future results.
* Cost Estimates:
Stocks transaction fees are $7 per trade and mutual funds are $0 or $17 per trade at Scottrade.
About half of the mutual funds we trade have a $17 transaction fee and the other half have no fee.
In a stock portfolio with 50 round trip stock trades it would cost $700 or 0.7% for a $100,000 portfolio
annually.
In a mutual fund portfolio with 20 mutual fund trades it would cost $170 or 0.2% for a $100,000 portfolio
annually.
In larger portfolios, transaction fees become even less significant.
Our portfolio management fees average 1.0%.
Tax-deferred accounts do not incur any taxes.
Portfolio Specification Calculations
The portfolio specifications are calculated using the annual return of each of the 8 years
and the 3 year, 5 year and 8 year annualized return of the Diversified Mutual Fund & Sector
Portfolio and the T. Rowe Price Equity Index 500 Fund.
Performance (Alpha)
Alpha is the performance of the portfolio greater than the T. Rowe Price Equity Index 500 Fund.
The average of the 3 year, 5 year and 8 year annual performance for the portfolio minus the average for the benchmark.
A positive number is the percent the portfolio outperformed the benchmark each year on an annualized basis.
Performance Consistency
The number of years the portfolio outperformed the benchmark divided by 8 years. For close years, a 0.5 credit is used in the calculation.
Risk (Standard Deviation)
The Microsoft excel formula STDEV.P (for the 8 years of annual performance)
Risk Adjusted Return (Sharp Ratio)
(Average return of the 8 years minus the 90 Day T-Bill rate) divided by the standard deviation all multiplied by 100.
The Microsoft excel formula AVERAGE (The 8 years annual performance)
The 90 Day T-Bill rate over the past 8 years has been 2.0%.
Maximum Drawdown
The year with the most negative return over the 8 year period is the maximum downdraft.
Portfolio Management Cost
The average annual portfolio management fee for the portfolios managed by PDM Investment Services.
Fee Schedule
Portfolio Management, 401 (k) to IRA Rollover
Advisory fees for Portfolio Management are based on a percentage of assets under management. Fees are payable on a quarterly
basis after each quarter. The fee is based on the market value of the assets under management at the beginning of the quarter.
The client is responsible for brokerage transaction fees and any other charges incurred by the custodian on the client’s behalf.
For portfolios containing stocks, add an additional 0.2% per annum to the base fee listed on the fee schedule below. For 401k
accounts subtract 0.2% per annum from the base fee listed on the fee schedule below. Clients are billed quarterly and can pay
by check or credit card. The quarterly fee is 25% of the annual fee listed below. The fee schedule is effective for new clients
after October 31, 2010. Fees may vary from schedule for prior clients.
1.2% per annum on accounts up to $50,000
1.1% per annum on accounts up to $100,000
1.0% per annum on accounts up to $200,000
0.9% per annum on accounts up to $300,000
0.8% per annum on accounts up to $500,000
Either the client or advisor may terminate this agreement at any time by telephone and confirmed in writing.
In the event this agreement is cancelled, the fee payable by client shall be paid for the current quarter. Upon advisor receipt
of written notice of termination from client, advisor shall complete portfolio management for the quarter and collect the final fee.
Wealth Plan Development, Portfolio Analysis & Design, 401 (k) Asset Allocation Optimization, Stock Option Management
This fee is typically between $60 and $200. If you select PDM Investment Services to manage your portfolio, this service is free. If you
elect self-management, the rate is $30/hour.
Focused Growth Investor Newsletter
The fee for the Focused Growth Investor newsletter is $120 per year for 12 issues or $200 for two years for 24 issues, paid in advance.
Upon cancelation, a prorated refund will be distributed for the unsent issues of the term. You receive a free subscription with portfolio
management services.
Sources of Information
PDM Investment Services uses research material prepared by others including newspapers, newsletters, on-line services,
timing services and company press releases.
Portfolio Management Contingency Plan
In the event that Philip Michalek could no longer perform the duties of portfolio management per the Advisory Agreement
and Business Operating Procedure, you would be notified by Renee Michalek and advised on the steps to take with your portfolios. Renee
Michalek is kept up to date on the portfolios under management, client contact information and the contingency plan. Philip Michalek
is in the process of finding a partner or affiliate able to perform portfolio management on a regular, temporary or permanent basis,
if required. Per the advisory agreement, Philip Michalek is your current assigned portfolio manager which will not change without client
consent. An office disaster should not have any significant impact on portfolio management services due to the custodian arrangement
and the file backup process.
Your portfolio holdings are available on monthly or quarterly portfolio summaries sent to you by PDM Investment Services or monthly
brokerage statements. In the lower right corner of the portfolio summary, you will see the base, target active and actual asset
allocation. Most of the stocks and mutual funds in your portfolio are selected as long-term holdings, and should not require
immediate attention. The target active is the strategic allocation that is varied from the base for the current market conditions.
This allocation typically does not change much in a six month period, but may see a more significant adjustment each February. The
Diversified Mutual Fund & Sector Portfolio contains only mutual funds, which should be able to go unattended longer than the
Focused Sector Stock & Mutual Fund Portfolio which contains base mutual funds and stocks. Managing a portfolio with individual
stocks does require more active management.
Under most market conditions, the Diversified Mutual Fund & Sector Portfolio could go unattended for six months without any
significant performance damage. The Focused Sector Stock & Mutual Fund Portfolio should not go unattended for more than three
months. If you plan on leaving your portfolio unattended longer than the times listed above, adjust the allocations to the
base percentages. If a new account is in the process of implementation, allocate holdings to the percent listed on the right
hand side of your new account portfolio summary. Your local retail Scottrade office can assist you with trading and answer
questions regarding asset allocation adjustments.
This contingency plan offers you the option of using the new assigned advisor or gives you the time to find a new advisor to transfer accounts to.
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