50th Anniversary


Merri and I always celebrate special freedoms in May, but this May is golden and extra special for us. 

This May is unique in our lives because my global investing and business adventures began, five decades ago, when I joined Prudential Insurance Company in May 1966.

Then two years later, on May 1, 1968 I left the USA and arrived in Hong Kong May 2, 1968.

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My first passport.

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Here is my my first passport  and the first stamp issued May 2, 1968, allowing me to stay in Hong Kong until June 2, 1968.

I arrived in Hong Kong in the night, the tropical air so soft it was a velvet mist.  Thick evening scents in the fragrant harbor and mellow insects purring in rhythm with the cacophony of the great city!  What a an exotic adventure.

Kai Tak was Hong Kong’s airport then and being American born and bred, I knew nothing about investing aboard.

That was my first airplane trip, first time out of Oregon.  Portland to Vancouver, Tokyo to Hong Kong.  I melted in my heavy woolen blazer, was weary and afraid but excited too.  An incredible global investing journey had begun… and continues to this day.

I gained sales training at Prudential and used this to develop sales teams that sold American mutual funds in Japan, Korea, Taiwan, Thailand, Indonesia, Indonesia, Singapore and the Philippines.

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Here is one of my first sales teams… this one in Hong Kong led by John So Kwok Kee (far left).   You can guess which one I am!

I was 21 years old and had no idea how that trip would lead me throughout Asia for almost ten years and onto business and investing in Europe, California, London, Isle of Man, Florida, The Dominican Republic, North Carolina’s Blue Ridge and Ecuador.

In the last 50 years there has been a lot of change in our freedoms, and our goal at this site has been to share ideas that enhance three basic qualities of real freedom.

#1: The first basic quality of real freedom is natural health.  None of us can be truly free until we wrest ourselves from the grip of the expensive, big pharma fueled, health care system.

Good health is the most valuable asset of all.  I know because there are some moments, always remembered.  Peak experiences. Never forgotten spots in our existence that become crossroads that forever dictate the direction of our lives.  Sharing such a memory about good health from 30 years ago, may help you gain more freedom and wealth now.

A low rumble, the crowded city below, muffled through thick foliage and vibrated over the thin ribbon of asphalt that winds, flat as a snake, through the jungle ahead.

Warm fogs swept in from the South China Sea and hung like a humid blanket in the air.

Bowen Road, mid levels, Hong Kong 1973.  This narrow path flows through the middle of a thick boscage that looms above the most crowded city in the world. The green, freshness and cacophony of birds brought us here each morning.  Amahs that stretched on bent iron pipe handrails, ancient wrinkled men carrying caged sparrows and all types of early risers moved like shadows against the verdant forest in their motions of Tai Chi.

Me?

I jogged. 25 years old, this was the day when divorce papers were served and I also learned I was broke.

Working from the age of 21 for a new hot company my stock options made me a paper millionaire at age 24.  This unexpected wealth created bad spending habits and without the sense to sell, this portfolio was nothing but paper that became worthless.  Plus the ambition and my month-at-a-time tours to Asia had ruined my marriage as well.

So that day I stumbled, more than jogged, wondering what would happen now!  Everything seemed gone and for the first mile or so, I was just running and afraid.

The second mile absorbed me.  The self-pity and fright began to fade.  During mile three I began to sweat and the trauma literally evaporated.  Finally by the fourth mile I was taking stock.  My two kids were smart, strong and already used to my being away.  My soon-to-be-ex had the house, two cars, the boat, all the furniture and the 14 apartments we had managed to buy.  They would be okay.

So what about myself?

On the fifth mile I analyzed my position… No cash, no way to pay next month’s rent and no job. I  was thousands of miles from home.  Most of my clients were unhappy campers focusing their anger on the only Guello (foreign devil) who had not fled the city (me).

Yet as one foot plodded in front of the other, there were several things I realized that I did have.  Energy and the ability to work.  I had my good health.

I jogged along thinking about my many wealthy customers who had tons of cash and gobs of assets, but were mostly diseased, exhausted and consequently perpetually afraid.  If anything went wrong in their business, banking or the economy and politics, they were doomed.  They could not build again.  Life for them was just the paper they had already accumulated.  They were always bound up by that because they feared they could never last out tough times or rebuild.  They were trapped by their wealth and rotting lifestyles.

Suddenly over the last five miles I felt extremely rich and free!  That was the moment when I realized the basis of real freedom is good health.  Money can come and go, but if we are physically fit, with stamina and good energy we can always rebuild wealth.

That’s the moment I have never forgotten and over the past 40 + years I have kept a continual watch for new ways to be stronger, more flexible, in better shape and more immune from disease, in my global travels.

This search for health, vitality and longevity is one of the reasons why Merri and I moved to Ecuador and lived with an Andean shaman in a remote Andean hacienda for over a year.

Having lived with the indigenous there, Merri and I learned that good health and longevity come from easy, but special exercises, good nutrition and good sleep so our bodies are fit and strong and our minds clear.

#2: The second quality of real freedom is the ability to earn through service.  So many promises, purchasing power of money, savings, pensions, health care, social security, financial security, privacy, have all been broken so many times that no promise made by big business or big government can be trusted.  The only true form of wealth is to have some value, to be able to serve (or produce) in a profitable way.

A multi dimensional micro business brings freedom as it redesigns your lifestyle by bringing profit, fulfillment and  peace of mind, through doing what you love.

The way I maintain freedom and continual lifestyle reinventions is to “Go Try Things”.

gary-scott

Here I am working in the woods on our North Carolina Farm trying to explain the importance of this phrase “Go try things”… which sums up why you not only can but should gain the benefits of an international business.

In the winter, I work at our Florida home instead.

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I started trying things in Hong Kong 48 years ago.

Then I moved onto Fiji and after a decade found “New Things” living in London.  While conducting London real estate tours, I spotted distortions in the Isle of Man that led to an Isle of Man business.  Years of real estate tours helped me pick up unimaginable profits… because I tried new things.

However Britain’s gray winters soon drove me to the sun.  Merri and I found ourselves in the sun watching sun rays sparkle on the emerald prisms of cool, spring fed pools in Naples Florida and the Dominican Republic where we found more “New Things”.  We conducted Dominican real estate tours but continued to self publish as well.  Then in the process of trying new places and new things, 20 years ago we stumbled onto Ecuador.

We continue to “Go try things”.

Our business has evolved over 50 years from Hong Kong to London to Europe to the Isle of Man to the Dominican Republic to Florida to North Carolina to Ecuador and back to Small Town USA. 

While in London in the 1970s, I wrote my first book, “Passport to International Profit”.

Passport-Internatonal-Profit-gary-scott

One chapter in the book was about the “Concept Conversion Trick” and how it creates the “Soil Defense Syndrome”.

Here is an excerpt from that chapter:

“The Concept Conversion Trick begins when people agree on a good concept for working and living together.  The people go to work and if the concept is good they will create a paradise.  The government gives them a flag and a song. Then the government pulls the trick.  The government convinces the people that the flag and song are important.  Then while the people are busy watching the flag and singing the song, the government replaces the concept with a set of ever increasing written rules and regulations administered by bureaucrats and backed up by a police force.

“This trick trades people’s individual freedoms for a shiver up the spine when the song is played the piece of cloth is waved.  The Concept Conversion Trick turns spirit into matter.   Like trading love for a beautiful plastic doll.  When the trick has been pulled and the dust settles, the people realize too late what has happened.  Anyone who steps out of line is called unpatriotic or even criminal.  He is swatted down by the bureaucracy or police force, crushed with overwhelming power or made an example of so others will tow the mark ‘for the good of society’.  All this is done in the name of public interest.”

If this writing sounds prophetic having been written over 40 years ago, it was not.  A simple review of any previous great society shows that this trick was part of its evolution.  Like the Roman Empire, things may get better for a while, then worse and then better again.  In the long term, as societies age, they lose their original vibrancy and life.

That book began my self publishing career because I was fascinated by how societies differ, yet are so much the same.

This is how our business continued to evolve, trying things of interest and fascination to us.  Not once did business turn out as we expected… but always there was some success… happy customers…. good deeds…. great service… profit… fulfillment and adventure all originating from just trying new things or doing old things in new ways.

We live in a fortunate era.  Throughout most of history, life expectancy and requirements of work meant that the most experienced sector of the work force was no longer physically able to continue.  In our high tech environment we have a chance to create their most important pinnacle career at a time when previously we would have retired.  This is the first time in mankind’s history when the value of our experience is worth more than the cost of getting it.

Today we have a global income with a self publishing micro-business with readers around the world, but run from our current homes in Smalltown USA.

Self Publishing has created exactly the lifestyle we desire with a farm in North Carolina, orange groves and home in Florida.

We have also made each of our homes multi dimensional… a home AND a source of income.  This is important because multi dimensional homes help us escape governments that cannot keep their economic promises.  History is littered with stories of serious national debt and economic problems that ruined pensions and retirees.  The burdens of debt and fiscal imprudence cause governments and societies to lose their ability to keep their promises.  Multi dimensional earnings can help overcome the risks these conditions create.

Starting without a penny… deeply in debt, writing and independent publishing have brought all of these material benefits to Merri and me, numerous homes… many investment properties and millions in the bank… all debt free.

We have lived in some of the most crowded cities in the world (London and Hong Kong) and now choose to live in some of the most isolated wilderness one can find.

Our secret weapon has been a personal anchor of value.

Recently as part of our 50th year anniversary I was interviewed on an investment webinar and the moderator asked me this question:

There are a lot of real estate investors who have been successful buying, selling and holding real estate in their own backyards.  A few have been successful investing in 2-3 markets in the USA.

But it is rare to find a successful real estate investor who has been investing in real estate all over the world.

And even more rare to find a real estate investor who has been successfully investing all over the world for FIFTY (50) years!

You are that guy!  What’s the secret?

My secret to freedom has been to use an anchor of value that I developed to invest in American residential real estate.  Though I created this anchor in the 1960s it has helped me invest in real estate, stocks, bonds and business around the world to this day.

The philosophy behind this strategy and tactics can be used to create your own anchor for investing in shares, bonds, currencies or commodities  as well as real estate.

Let’s look at value first.  The anchor helps me understand that I am investing for profit, not to be right. 

Based on the “profit rather than pride” principle  there are two (and only two) reasons why we invest in real estate.   To rent for income or to resell the property for more than we had invested.

Based on this reasoning, there are three ways to spot value in residential property.

#1: The first way to spot value is based on how much NET income can the property generate after taxes, insurance, maintenance and management costs.

#2: The second method is based on relative comparables.  Calculate how much similar properties in the area are selling for.  Also find out how much similar properties in other areas are selling for.

#3: The third method is to calculate how much a property would cost to replace with new construction.

What is the anchor?

We can build an understanding of residential value by understanding the monthly mortgage payment or rent a buyer or renter can pay.  In the USA, for example, the typical bank limit on monthly mortgage payments is about 28 percent of your gross monthly income.  Banks generally will let a borrower devote up to 28 percent of their household income in a mortgage payment and expenses (including taxes, insurance and HOA dues).

If there are many families in an area who earn an average of $4,000 a month, then this will be a good market for rentals at $1,000 a month.

This simple formula provides a basis from which all dependable value can be measured.   This is the science of the valuation.

Using this approach, years ago, Merri and I have been able to spot dozens of contrasts, distortions & trends in real estate value, everywhere.

An added factor to add into the mix is appeal.  You could call appeal the art of the valuation.

Sometimes an investment can be a really good value, but a hard sell.  The best investments are underpinned by appealing good value products and services.

Investing in what you know (and  enjoy) helps you understand appeal and makes it easier to mesh the art and the science of valuation.

For example, Merri’s and my background have a lot in common.  Merri’s formative years were in Georgia and mine in Oregon.  There were many differences between these states.  Yet as baby boomers we have much in common.  We saw the same shows on TV, Howdy Doody, the Cisco Kid, Ed Sullivan, Gunsmoke. Roy Rogers, etc.  We read the same books in school such as the Bridge over San Luis Rey, the Red Badge of Courage.  We saw the same movies, heard the same radio , listened to the same Golden Oldies, read the same news, the same magazines, so it is not surprising that our tastes are pretty much the same.

The fact we are NOT special gives us the ability to understand appeal.  There are 60 million baby boomers who have that same background.  This gives us confidence that if we like a house, others will like it as well.  This gives us good judgement (from an investing point of view) when it comes to appeal.

Our strategy is to buy houses that appeal to us which have a reasonable potential to return a decent income (and likely appreciate) based on rent in the $1000 a month range.

For example, we recently looked at a nice house just offered and with access to a wonderful lake, 2 bedroom, 2 bathroom, in very good shape with an asking price of $169,000.  The house fit the $1,000 profile and because it had a very nice guest cottage as well, meant we could likely charge $1,200 a month rent.  Merri and I looked the place over and felt just fine offering $140,000, knowing we could go up to $145,000.

How did we come to such a price?

The math worked like this.  The house will rent for $1,200 a month.  The rental market is strong and at this price it will rent quickly.  That creates an income of  $14,400 a year.  Our target ratio of price to rent is 10%.  We want a 10% cash flow, so $14,400 a year rent justifies a $14,400 price.

First, the area where we are buying is in a bit of a bubble.  Prices have started to rise beyond a reasonable expectation of return.  We did not think the house would rent for $1,300 or $1,400 a month so we were not willing to rise to the $169,000 price.

We did not get that house.  In fact this was the fifth house in a row on which we were outbid.  Because faith is vital to successful investing, we need to stick to our strategy, and our strategy is based around that 10% cash flow.  That percentage is sufficient to give us a reasonable return on our investment.

Just because everyone else is paying too much for houses, does not mean we should make this error as well.

Anchors of value help us remain logical so we don’t invest in trends that are turning into bubbles.  Anchors of value help us avoid giving back profits because we stayed in a trend for too long.

For example, my real estate anchor of value first created in Portland, Oregon in the 1960s helped me successfully understand good real estate trends in Hong Kong, Fiji and London, then the Isle of Man, Naples, Dominican Republic and Ecuador and eventually led Merri and me to invest in Smalltown USA in Mount Dora, Florida.

Real estate has always been in our blood.  I do not know why but by the age 21, I had already built a $2,000 windfall into seven duplexes and a house  on 14th Ave (mortgaged then to the hilt) in the small town of Gresham, Oregon.  I could have continued to buy, sell and rent real estate in Oregon but the wanderlust bug bit me and when I was offered a job to sell mutual funds in Hong Kong, I began to travel throughout Asia.

Owning those duplexes and that house left me with an anchor of value.  I understood rents (at that time the 1960s) from $125 in Smalltown USA to $250 a month in cities.

When I arrived in Hong Kong in 1968 real estate rentals were about the same as in downtown Portland.

Fear had created good value in Hong Kong.  In 1968 there were communist riots and bombs being set off in the streets.  The first day I arrived a motorcycle policeman had his leg blown off by a terrorist bomb.  The Chinese army was massed on the border and there were continual talks about an invasion. Hong Kong businessmen were fleeing.  Real estate was literally being given away.

Life went on.  We all figured out the fastest route to the British and American war ships in the harbor for a quick exit in case the Chinese decided to invade.  We watched out for boxes in the street that could be bombs.  Then we just got busy with life, working and earning so we could pay our rent.

I rented a huge apartment on Shouson Hill Road overlooking the ocean and the village of Aberdeen.  The owner wanted to sell this block of apartments but I had no money or experience then.  He was so desperate that he made a deal.  Instead of paying him $250 a month rent I invested $250 into mutual funds for him.

Then in 1970 the company I worked for sent me to London to spend a year at its headquarters developing a European sales training program.  I rented a nice house near Golders Green tube station on Finchley Road.  The rent was the equivalent of $250 a month.

In 1971 I was moved to work in San Francisco and I purchased a home in Petaluma, California.

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I bought this house in Petaluma California for $33,000 and assumed a 5% GI mortgage. Payments were about $175 a month.

In 1972 I returned and worked in Hong Kong for another four years.

The early 1970s was a time of serious inflation.  During that time I watched the prices and rents of real estate at the duplexes in Gresham, the house in Petaluma, and especially in Hong Kong rise… a lot!

In 1976, when I moved from Hong Kong back to London and noticed that London real estate was priced about the same as it had been in 1970.  This puzzled me. Why had London property prices remained flat despite inflation?

On investigation, I learned that there had been a huge real estate crash in 1970 continued to distort and dampen real estate prices six years later despite the rampant global inflation.  The British pound had also collapsed dropping 35% versus the U.S. dollar from 2.4 dollars per pound to a new all time low of 1.52 dollars per pound and at one point hit a low of one dollar per pound.  To my way of thinking, London houses, which I thought were already very cheap by world standards, just became 35% cheaper.

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The house in Bedford Park.

I could not resist and began property shopping and eventually bought a five bedroom house in Bedford Park in West London. I made a 10,000 pound down payment and took a 25,000 pound loan to meet the 35,000 pound asking price.

First, I was right. London property had been under priced.  I was able to sell the house four years later for 115,000 Pounds.  I made a profit of 80,000 pounds.  But the currency change helped enormously too.  The pound had risen to over 2.2 dollars per pound.  My 80,000 pound profit was now worth $215,000.

I was willing to make this  purchase because I could rely on a mental anchor of value… a residential property that a working person could rent in the $250 a month range.  I was investing in what I knew and was comfortable with.

Manx real estate came next.  In the 1980s I had an offshore corporate formation business and noticed that Isle of Man overseas companies were as good as Jersey and Guernsey structures, but cost less than half.  This led me to believe that the Isle of Man would increase in popularity as a financial center.  While visiting, Merri and I discovered that a long depression had forced over 2,000 properties onto the Island real estate market (population was only 60,000).  We began taking real estate buying tours to the Isle of Man because rents and house prices were so low.  Some delegates purchased remodeled beach front condos for $12,000.

Then while conducting a seminar in Florida, we saw that real estate in Naples, Florida was much less expensive than on the East Coast of Florida.  Rents in Miami  and Ft. Lauderdale seemed really high to us, but Naples prices were much lower.  Merri had been living in Naples for some time and found a wonderful old large house just off the beach.  We bought it for a song (compared to the price we sold it for!)

Naples prices skyrocketed while we were living there and in 1995 we visited Ecuador.  Merri and I saw Ecuadorian beach front lots that would cost two million dollars in Naples that were selling for $5,000.   We saw we could buy a house on Ecuador’s beach for a price that we understood and were comfortable with.

By 2009 Ecuador prices has skyrocketed and Florida real estate faltered.  We began selling out our Ecuador real estate and buying again in Florida.

In Florida we saw great rental value.  We also wanted to live closer to our children and grandchildren.  We knew that studies had shown that 80% of adults 45 and older believe it is important to live near their children and grandchildren.  Those 60 million people, just like us, were thinking differently about where they would buy and/or rent a home.

We selected Mt. Dora as a small town to buy rental real estate for numerous reasons, but the first feature was its proximity to our daughter and grandson.

I can look back through this 50 year travel and real estate adventure and see that my decisions and investments have all been linked to that original anchor of value.

We live in a turbulent world and can expect rapid change, hidden agendas, huge shifts in communication.  When we are caught in the currents of such rapid shifts, our anchors of value can help us remain steady and secure.

#3: The third quality of real freedom is to have a mathematically based financial information system that repeatedly reveals a diversified selection of good multi currency investment values.

I developed the international investing course Purposeful investing” (Pi) to share ways to reduce stress, add safety and increase profit.  This course is based on my fifty years of global investing experience and aims at creating restful rather than restless wealth.

Slow, Worry Free, Good Value Investing

A golden rule of investing is “there is always something we do not know”.  Investment ideas might have some connection to truth, but never contain the whole truth and nothing but the truth.  Every investment is based on approximation.  Investments rise and fall in value, at least temporarily. The fluctuations create  stress, worry and fear, three of an investors’ worst enemies.  These emotions cause the “Behavior Gap”, a trait exhibited by most investors, that causes them to underperform any market they choose.  The behavior gap is created by natural human responses to fear.  The losses created by this gap grow when investors trade short term under stress.

The “Purposeful investing” course helps learn how to avoid the Behavior Gap by creating easy to use, low stress, safe, profitable strategies that combine good value investments with unique, personal profit goals.

Pifolio – The Pi Model Portfolio

Lessons from Pi are based on the creation and management of the Primary Pi Model Portfolio.  The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets using my (almost) 50 years of global experience and my study of the analysis of  Michael Keppler.

Our analysis begins with Keppler who continually researches international major stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  He compares each major stock market’s history.

From this research, Keppler develops his Good Value Stock Market Country Selection Strategies.  His analysis is rational, mathematical and does not worry about short term ups and downs.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage funds such as State Street Global Advisers.

The Pifolio uses Keppler’s Country Selection Strategy to construct a diversified, risk-controlled, portfolio that invests in Keppler’s BUY rated stock markets.  The portfolio gives equal weighting to each BUY market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but is a share normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent. The management is passive and tries to emulate the performance of the index.

The portfolio does not contain any individual stocks because country ETFs provide diversification into a basket of equities in the country covered.

The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

This is an easy, simple and effective approach to zeroing in on value because little management and guesswork is required.  The Pifolio is simply  a diversified portfolio of good value indices.  A BUY rating for an index does NOT imply that any stock in that country is an attractive investment, so you do not have to pick and choose shares.  Investing in the index which is like investing in all the shares in the index.  All you have to do is invest in an ETF that in turn invests passively in all the shares of the index.

The original Pifolio began with 70% diversified into the following good value developed markets: Australia, Austria, France, Germany, Hong Kong, Italy, Japan, Norway, Singapore and the United Kingdom.

30% of the Pifolio was invested in Keppler’s Good Value Emerging Markets: Brazil, Chile, China, Colombia, the Czech Republic, Hungary, Korea, Malaysia, Poland, Russia, Taiwan and Thailand.

The Pifolio consists of iShares ETF that invested in each of the MSCI indicies of these markets.

Developed Value ETFs in the Basic Pifolio:

Symbol         ETF               Country
EWA        iShares MSCI Australia
EWG        iShares MSCI Germany
EWU        iShares MSCI UK
EWQ        iShares MSCI France
NORW    iShares MSCI Norway
EWI         iShares MSCI Italy
EWO       iShares MSCI Austria
EWJ        iShares MSCI Japan
EWH       iShares MSCI Hong Kong
EWS        iShares MSCI Singapore

The Good Value Emerging Market ETFs  (30% of portfolio – except China)

Keppler’s good value emerging markets currently are: Brazil, Chile, China, Colombia, the Czech Republic, Hungary, Korea, Malaysia, Poland, Russia, Taiwan and Thailand.

The ETFs we invest in are:

FXI       iShares MSCI  China  (China is given a developed market weighting)
THD     iShares MSCI  Thailand
EWZ     iShares MSCI Brazil
ICOL    iShares MSCI  Colombia
EWT    iShares MSCI Taiwan
EWM   iShares MSCI Malaysia
EWY    iShares MSCI South Korea
ECH     iShares MSCI Chile

When we are in good health and earning income, we also have to protect and increase our savings and wealth.  The only clear understanding of value of investments is that derived from mathematical based financial news rather than speculation based economic news.

Life is a trip and we have an entire globe to enjoy the ride.  Expanding our horizons beyond the education we gained within our local borders can help our visions penetrate the mists of tomorrow so we can adjust to gain opportunity in change and avoid dangers ahead.  This philosophy has reaped millions for Merri and me.  More important this approach has helped us enjoy amazing adventures as we follow our purpose and feel that we are doing more for the world than just making a buck.

Today, entering our 70s, we feel healthier and more energetic than 50 years ago.  I might not be wiser… but am more experienced and seem in a better position than when I took that first trip to Hong Kong 48 years ago today.

We’ll keep looking for better ways to improve our natural health, energy and desire so we can profitably serve and wisely invest for the future.

Merri and I look forward to the year ahead… and we look forward to sharing it with you!

Gary

 


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