The third quarter of 2007 was a wild, volatile and ultimately profitable one for investors. A few times during the quarter I sat down to pen a mid-quarter update, only to see things shift dramatically, sometimes hour to hour. I therefore decided to hold off drawing any conclusions in communications to investors and spent my time in the more important task of assessing each client account, evaluating risk, and, most crucially, looking to add long term investments selling at sharply lower prices caused by the panic. The result, I am happy to report, is that all discretionary accounts are up for the year at an average rate of 8.5%, almost a percentage point above the year-to-date return of the S&P 500 index.

Volatility was certainly higher than previously experienced, but according to the science of investing that volatility is often the price we pay for healthy long term returns. The question is how to handle the volatility. Do you look to unload positions and simply stop the pain of declining net worth or do you look for opportunities and carefully prune only those investments whose long term outlook seems to be permanently impaired? Professional investment management, in general, and Arrival Capital’s services, in particular, can be of great use to investors during turbulent times, serving as a buffer between an investor’s passing emotions and the long term approach that should be adhered to. That is not to say that clients did not communicate with us regarding their concerns. But during times of stress, the Arrival Capital approach has worked, hopefully providing further reassurance during the next bout of turbulent times, which are as likely as a cold day in January.

What were we watching and buying in the third quarter? A mix of fast growing but attractively priced technology stocks, multi-national industrial and manufacturing companies continuing to benefit from a vibrant world economy, undervalued healthcare stocks, the same energy and materials stocks that have driven performance for the past three years, and beaten down financials that are not existentially threatened by the subprime implosion. That is certainly a lot of stocks to choose from, which is precisely the point. The stock market’s panicky sale and 10% correction was in fact the best time to initiate long term investment positions as long as there was a margin of safety and the probability of long term future gain because of a present under valuation. We were there everyday to be opportunistic on our client’s behalf.

To sum up, the summer of 2007 was a reality check on investor behavior and expectations. Those that kept their heads came out wealthier and most likely with better, more diverse long term portfolios. It also is worth mentioning that some of the leading hedge funds during this period, so-called “quant funds” designed by Wall Street’s “best and brightest” got absolutely annihilated during this period, and were forced to sell during the worst of all times. Although it would be nice to believe in black boxes that can spit out market beating returns based on numbers alone, the summer’s results show that personalized and human case by case analysis of investments and portfolios still has a lot to offer, an “organic” approach to investing that Arrival Capital continues to practice. We thank you for your continued confidence and ask that you consider referring us any individuals who could stand to benefit from our steady approach that has proven its effectiveness in good times and bad. Enjoy the autumn.