2004 Beckons
Stocks continue to be the investment of choice, moving upwards even as valuations get stretched and terror alerts are raised. Obviously, the improving economy is the driving force, along with a rising tide of rank speculation and investor gamesmanship. We continue to try to steer clear of the speculative parts of the market and focus on companies that continue to be undervalued on any number of metrics, including the discounting of future growth. This has led us, among other places, to what we term undervalued tech, such as Taiwan Semi (TSM) and Seagate (STX), which makes sense when considering where growth is like to come in '04 and how much you have to pay for it. We also continue to hold our energy and health positions, which have run up nicely in the past couple of months. As for new areas, retail has been hit relatively hard, as of late, so we are focusing, as usual, on identifying companies that are doing well but are being unfairly punished by our favorite thing -- the tendency of market "professionals" to overreact to slightly disappointing but often quite temporary news or mini-trends.
- posted by Jay @ 5:39 PM

 
Toward Year-end
It is puzzling how many in the investment community obsess over year-end goings on in the market. After all, unless a client needs to pull out money on January 1st, why buy and sell securities to "lock in" a particular return or hold a stock for "window dressing" in an account. Like much that is wrong with the money management business, the answer lies in the manager's interests rather than the client's. At Arrival, our approach instead is squarely focused on continuing to generate return on your account. That means not buying or selling to safeguard paper gains on a position. If a stock is in danger of going down without greater upside potential, then it should be sold, whether the month is December or May. If a capital gain can be put off until the following year without unwarranted risk, then that is what should be done. In general, we are happy with the way most account positions are going. Energy, financials, media, and industrials continue to do well. Dividends yielders are moving up and generating cash. Good small caps (profitable and undiscovered) are hard to find but pay off when you do. Tech continues to underperform, but we are sticking our toe in with low PE tech such as Seagate and TSM. These need to be monitored closely, however, and have yet to do much. Stay tuned.
- posted by Jay @ 4:56 PM

 
Reward and Risk
December starts off as much of the year has gone, a big move up followed by some downward consolidation. Many of our account positions are at 52 week highs, moving with the market. What concerns us, however, is that our investment choices do not follow the market down, in case of a pullback, nor do we want excessive exposure to single stock circumstances -- a bad quarter, accounting scandals -- that are not already priced in or, in some cases, mispriced in. In short, we are striving to capture the upside and them some, but avoid undue market risk that can drag us back down. The answer, we believe, is found in solid companies generating cash and dividends. Companies like Royal Dutch, ServceMaster, Dow Chemical, Wells Fargo, Viacom and others found in the accounts we manage. We hopefully bought these at depressed prices and, as the economy improves, not only benefit from higher earnings and cash generation, but from improving market perceptions that cause Price/Earnings multiples to expand. We have attempted to couple these mid and large cap cash generators with smaller cap companies that have improving businesses and are largely underfollowed by Wall Street. The result, we believe, will be to capture maximum benefit from keeping our clients exposed to stocks, without excessive volatility or slavish tracking of any pronounced downturn in the market next year. Here's hoping.
- posted by Jay @ 4:59 PM