2nd Quarter Update
At 2005's halfway point, most client accounts are trending higher than market averages. This outperformance is largely due to continued exposure to industry sectors that are doing well, such as energy, healthcare and industrials, and to those companies we were able to purchase at a discount to intrinsic value. The financial markets, in general, have provided little tailwind to specific investments we have made. That makes it imperative that every investment we make stand on its own merit. The price paid, the growth expected, and the extent market players are unduly negative or simply ignorant about a company's prospects all factor into our investment strategy. The chance to profit must heavily outweigh the possibility of loss before we will commit precious client capital. Once we have settled on an investment's promise, we then see where it can fit into a properly diversified portfolio. The end result should be a portfolio that is diversified as to industry and other factors but nevertheless contains a mix of our best ideas at any given time.

Looking ahead, the price of oil, the level of inflation and interest rates, and the strength of the economy will all continue to affect the financial markets. As these forces unfold, we will look for opportunities created by market over or under reaction to specific, often transitory events. Apart from these emergent opportunities, we continue to look for solid players in niche areas like water purification (Pentair) as well as chemicals (Praxair) and medical testing (PKI). Undervalued industry leaders also continue to draw our interest (IGT, TROW). Finally, we will stick with winning positions for as long as these companies can continue to execute well and create enduring and growing value for shareholders -- companies like Fortune Brands, Dow Chemical, Wells Fargo, SFCC, and others that we have been fortunate enough to add to client portfolios in the past few months and years.

We look forward to a profitable second half for all clients. We thank you for your confidence and never take for granted the importance that our work holds for your financial future.
- posted by Jay @ 11:02 PM