The financial markets continue to be buffeted by the after effects of the horrendous lending practices and financial engineering that occurred over the past few years in relation to subprime lending. Some of those thought to be the best and brightest of Wall Street managed, with the help of unscrupulous mortgage brokers, real estate brokers, real estate developers, and a host of others, either complicit or negligent, to put short-term greed ahead of mid-term common sense. The result has been a turbulent year, with many investment cross-currents. Some of these cross-currents, including a falling dollar, high commodity prices, and lower interest rates, have benefited many Arrival Capital client investments, including energy, materials companies, and industrial companies selling to a brisk international economy. Until the latest 10% market correction (the second of the year), most client accounts were comfortably ahead for the year. The headwinds generated by the latest market swoon have knocked gains back some, but we continue to believe in our approach of creating and managing a diversified portfolio of value-based individual investments.

Even on the worst of market days, Arrival accounts typically decline less than market averages. This is a function of (1) a value-based style with an intended margin of safety in each individual investment, and (2) a diversified portfolio that will almost inevitably have certain positions gaining even as others decline. This year the challenge has been to focus on long term investing and portfolio building. The truth is we do not know for sure when the tide will turn and the subprime mess will be behind us. The market and stock prices move everyday but reacting everyday is usually a poor investment strategy. You can feel safe with all cash until you wake up one morning to see the market substantially higher while personal wealth is unchanged. Better to be engaged, looking for opportunities, and evaluate each investment on an individualized basis rather than on overall market-based emotions. That is what Arrival endeavors to do for our clients each and everyday, no matter the market conditions. Reason is ultimately the best tool to manage money rather than emotion.

December and January tend to be good ones for the financial markets and sitting them out entirely runs the risk of missing an important part of the upcoming year’s gains. Interest rates remain low and are probably going lower, always a benefit for stocks. Earnings remain solid, particularly for companies engaged in selling to overseas economies; and the ratios of stock prices to earnings, revenue and other basic metrics also look to be reasonable. There are no guarantees of course. But the market’s default direction is undoubtedly higher. If Wall Street can get a hold of the mess it created, the true value of the many well-managed companies out there will be unearthed, and investors with the foresight and perseverance to take and maintain meaningful positions will be rewarded.

Enough about money for now. Enjoy the late autumn and the Holiday season. Focus on the truly meaningful and enjoyable things in life and let Arrival Capital sweat the ups and downs in the financial markets for you for the time being.

Best wishes,

Jay Rosenberg
Principal
Arrival Capital Management
www.arrivalcapital.com