Q2 2006 Review


The second quarter drew to a close with a rally in most investment classes. This helped to soothe what had been a volatile and largely disappointing two month period in the world’s financial markets. During the market turbulence, we took comfort, and hoped to impart comfort to clients, that the positions held in client accounts were sound investments based on fundamentals such as low ratios of stock price to earnings, low debt levels, and a solid basis to expect future growth ahead. We are happy to report that after one of the nastiest market periods in several years, almost all Arrival clients are still ahead for the year.

Account values are lower than their highs in early May. The energy and materials positions that led to outperformance suffered meaningful declines due to speculators abandoning positions that they had previously driven up too quickly. As we are not traders trying to time entries and exits from otherwise sound investments, some investments fell harder than we ordinarily would have allowed without taking action. But value investing sometimes means holding onto, as well as purchasing, investments even as others abandon them. We therefore took comfort when markets bounced up strongly towards the quarter’s end, and many of these energy, materials, and transportation stocks moved higher towards a more appropriate level.

What lies ahead? The unexpected. Sometimes it is worth acknowledging that our predictive powers as investors are limited. That is why building a diverse portfolio of attractively valued investments is the best way to build wealth and protect it from the vagaries of unanticipated events. Some investments will always work out better than others, but as long as each investment stands on its own based on a value proposition that can be fully articulated, overall success is likelier no matter the course of future events.

Arrival 3-year Results

The results are in! Arrival Capital has now been managing money for three years and we are happy to announce that the performance of our initial discretionary account beat the S&P 500 by over 11 percentage points. The attached graph shows that $100,000 invested with Arrival in June 2003 grew to $141,000 by June 2006. The same investment in the S&P 500 would have grown to only $130,000. Even taking into account a 1 percent management fee, Arrival generated over 8% in added investment value (or $8,000 on a $100,000 account).

If you have any friends, colleagues or family that could benefit from our style of prudent yet effective investment management or simply use an investment check-up, please feel free to put us in touch with them. Have a great summer.
- posted by Jay @ 2:58 PM