1st Quarter 2006 Review
We are happy to report that 2006's first quarter saw every client account move higher, as a combination of good momentum in energy, materials, and industrial stocks outweighed tougher times for media, some financials, and conglomerates. We were less happy that market volatility was a bit higher than we like, and that skittish financial markets in general provided a headwind to overall returns. Some days it seemed every idea was a good one, and on other days it looked like nothing was working in this environment. But that is what we get paid to do, sweat out the day to day gyrations, keep the steering wheel steady, and keep an eye out for investments with good value that will stand the test of time amid varying market conditions.

Sticking to a disciplined, value investing approach, with a good dose of contrarian analysis mixed in, allows us to methodically build portfolios with investments that we believe have limited downside and meaningful upside. For example, we seized an opportunity recently to pick up or add to positions in YRCW, a national trucking company that announced disapointing results, showing our contrarian bent. On the other hand, sometimes we find a good idea in a rapidly growing company still largely undiscovered by Wall Street, like healthcare services company Ventiv (VTIV). At other times last quarter, we took advantage of what we believed to be temporary declines in an otherwise promising sector like metals and materials, to purchase shares in AAUK.

The upside moves in commodities, energy and certain industrials have validated the investments we have made in these areas; however, we remain focused on the still reasonable valuations of these companies. If these valuations become too stretched, or the economic situation changes, we will not hesitate to take profits and move on to more undervalued or less picked over areas. On the other hand, we continue to believe that many financial and healthcare stocks, as well as select companies undertaking a restucturing, that have not performed well of late will appreciate over time and thus we have had patience that we think will ultimately be rewarded.

Patience and constant vigilance -- watchwords when it comes to successful, long term investing. We remain ever mindful that losing money is often more painful than making money is joyful. That is what makes value investing so compelling. If done right, each investment has an asymmetrical risk/reward scenario built in. When these positions are then mixed into a diversified portfolio, the chance for building wealth is maximized. We thank you for continued confidence and support of what we do.
- posted by Jay @ 3:38 PM