Up and Down Autumn
Stock market indices stand at or near their lows for the year, as the hoped for fall rally has yet to materialize. Tech stocks, in particular, have had a tough year. We have tended to shy away from most tech stocks this year, although recently we began nibbling for certain accounts at the Semiconductor Holder exchange traded fund (SMH), as a contrarian play given the pessimism in the sector.

The best place to be for all accounts has been in the energy sector. Devon, BP, Royal Dutch, Teppco, to name a few, have delivered gains in a year with relatively few winners. Moreover, the sector continues to be undervalued and underowned by funds and individuals, suggesting more gains to come as winter approaches. Other winning sectors this year have included chemicals (Dow, Praxair); real estate (Rouse, IStar, AHR); manufacturers (SWK); and certain special situations, such as Regal Cinemas (50% rise in dividend) and Fortune (FO), a well-managed conglomerate.

Among difficult areas this year have been the healthcare and media stocks (Pfizer, HCA, Comcast, Viacom). But losses have been contained, largely because the stocks were cheap to begin with, demonstrating that value investing, with its emphasis on low valuations and a margin of safety, can protect on the downside when things do not go as planned; as compared with the carnage that ensues when a growth stock suddenly disappoints.

Most accounts continue to hold up well relative to the indices, largely because of the value bent of our stock selection and the contrarian approach we try to employ. We continue to monitor existing positions for signs of impending weakness and constantly search out new and better opportunities. Our first rule remains to treat client capital with great respect, putting it at risk only when the risk/reward equation looks to be markedly in our favor. We thank you for your confidence and encourage you to stay in touch with any questions or concerns you have about your financial future.

- posted by Jay @ 6:16 PM