Q2 2011 Preview -- Spring Forward
Unrest throughout the Mideast and a brutal earthquake in Japan, followed by radioactive contamination in large swaths of that country (the world’s 3rd largest economy) would not seem to be a good recipe for building confidence in the world’s economic recovery. Yet these significant and, in the case of Japan, terrible events, which caused the world’s financial markets to bend but not break in mid-March, showed that economic confidence and fundamentals are getting stronger, as evidenced by the stock market’s snapback rally into the beginning of April.

Employment in the United States continues to grow, as do corporate profits and government tax revenue. Putting all this together, one can make the case that the stock market and the economy are returning to some semblance of normality, with winners and losers, ups and downs, but not the omnipresent fear of disaster that seemed to permeate finance for the past four years.

As markets shake off this “cost of fear”, investors should more than ever focus on identifying emerging trends, undervalued companies and special situations. Approach will matter more than simply putting cash to work when the coast is clear and pulling your chips back when trouble is brewing.

Arrival Capital’s approach remains grounded in value investing and contrarian analysis, always underpinned by a thesis on where the world is going in terms of trends and societal changes. This approach has kept clients in a mix of material and industrial stocks, buoyed by the growth of emerging economies, select healthcare companies riding a demographic wave, and select tech, retail and financial companies that are cheap based on profits, revenue and the value of brands and/or future prospects.

Investing once again looks to becoming a process of research, timing and putting together a portfolio that can withstand surprises but also capitalize on getting enough things right about the economy as a whole and specific companies and investment areas to drive up net worth.

At Arrival, we strive to see the forest and the trees. The macro and the micro of the investing world. We need to protect our clients from the threat of inflation and a falling dollar, and do so through investments in commodities, and those companies deriving their revenue and profits from foreign sources. We also need to guard against a slowing economy, and do this with investment in quality dividend paying stocks, sound bonds and, yes, cold hard cash that can provide a margin of safety for a portfolio and provide capital to take advantage of often temporary market or stock dislocations.

We look for individual companies that are selling at attractive prices based upon their cash generating powers, asset value and/or the likelihood that another company might eventually want to buy them out, as happened to one of our favorite stocks last year, J. Crew.

All of the above is not some secret sauce or algorithm. It is simply the function of an investment process combined with an outlook, based upon research and observation. It is this process that Arrival Capital seeks to offer its clients, in tough times and good times, in the cold of winter and through a hopeful spring.
- posted by Jay @ 2:37 PM