The first few days of January can sometimes be viewed as a new beginning. Thus far in 2008, however, it looks as if 2007 refuses to go away, at least as far as the financial markets are concerned. 2007 was a year that saw financial excesses give way to financial panic and retrenchment. The proverbial chickens came home to roost and took a lot of pizzazz out of stock market performance. With a market return of 3.5% for the S&P 500 index, investing was a tough slog, with relative success depending on how much financial stock exposure you managed to avoid. Arrival Capital overall account performance once again exceeded the S&P 500, this time by about 1.3%. But returns were more dispersed than usual, with a few accounts trailing the average and many accounts significantly out performing. The determining factor was largely a result of exposure to financial stocks, which traditionally have a place in a value-based portfolio, particularly for accounts focused on generating income and, ironically, stability.

One lesson of 2007 was that trends, once in place, can last much longer than originally thought. Bank stocks can head lower and keep going lower for months. By the same token, energy and commodity prices have risen for the past three years. Arrival Capital has gotten the energy and materials story right over the past three years, which accounts for part of client outperformance during that time. A profitable lesson learned. We were too eager, however, to pick at falling financial stocks in 2007, a not so profitable lesson learned. Another important lesson is that maintaining a diverse portfolio with a built in margin of safety will allow us to take advantage of a trend, perhaps for years, and that these successes will outweigh the inevitable missteps and miscalculations.

What investable trends are still going strong or just beginning? Here is a sampling:

(1) International economies continue to expand and diversify, with or without U.S. economic growth.

(2) Healthcare remains a priority for the aging, developed world, and new solutions and cures will be found, despite the current state of drug companies.

(3) Infrastructure, whether for energy, water or transportation, must be invested in on a worldwide scale.

(4) Technology continues to evolve rapidly, creating both opportunities and traps for investors.

(5) Innovation, whether technical, financial, or managerial, remains the lifeblood of economic growth and, therefore, economic reward.

(6) Vast pools of capital run by hedge funds and mutual funds tend to move in herd-like fashion, over and under-reacting to market events, often creating investing opportunities.

Arrival Capital builds portfolios. Portfolios of stocks for client accounts, and portfolios of ideas to draw upon as time unfolds. These ideas are the product of research, experience, and observation. Putting together ideas and translating them into actionable investment strategy is perhaps the most important value we can add to our client’s financial lives. If enough of these ideas prove true enough, our clients will be closer to their destination of financial security, closer to arriving (in case you wondered where the firm name comes from). Arrival Capital is focused intently on protecting and growing our client’s capital and ever appreciative of being allowed to share in the journey of our clients to a secure future. We look forward to a prosperous and brighter tomorrow.