Mid-Quarter Update
Financial markets have been tossed around a bit thus far in the quarter by seemingly contradictory trends. A first, fears of higher inflation and interest rates sent financial and many industrial stocks lower. Then, fears of an economic slowdown brought longer-term interest rates back down to near record lows, breathing new life into higher yielding Real Estate, financial, and utility companies. Oil has played its role in the uncertain climate, confounding many observers by moving back over $50 a barrel.

Our strategy has stayed fixed on finding value that will come to the surface regardless of the economic circumstances (which change frequently, anyway). In this regard, the energy sector (Devon, Royal Dutch) and solid dividend payers (SVM, TPP, AC, HCN) have done well. Our materials picks (AWC, NEM) have faltered from time to time, but remain solid values and a good way to diversify a portfolio. Timber stocks (PCL, RYN) have been terrific, sporting high dividend yields and price appreciation, the best of both worlds. Media stocks continue to tread water, but their cash flow generation and valuable assets should lead to higher prices soon (Viacom, CMCSA). We continue to stick with some of the best managed companies out there that continue to deliver, even as their stock prices are not as cheap as when we first got clients involved, such as LLL, FO and PX.

We are often asked about our stock picking methodology. Simply put, we search for value that has been created by either companies or the markets, themselves. We use quantitative and qualitative research to find companies that are creating value. Who has a great new product or service? What company is being better managed? Which companies may be sold to outsiders? A related search focuses on when markets create value, often by ignoring or punishing companies beyond what is financially sensible. This is the behavioral or contrarian part of the Arrival style. For this to work, we know and follow literally hundreds of companies. When the market reacts in an inefficient matter, we are then ready to seize the opportunity, as we have done in the past with financial companies (Alliance Capital), industrials (Stanley Works, GE), healthcare (Pfizer, HCA, Teva) and even in technology (SMH, Symantec).

We have confidence that our approach to finding good investments, building portfolios, and then managing those portfolios according to client needs is the right one. We appreciate your trust and look forward to serving your financial management needs.
- posted by Jay @ 1:59 PM