Q2 2012 Investment Update
The slow and steady upward climb in stock markets in 2012 has been heartening for investors who have endured so much pain and volatility over the past five years. At Arrival Capital, where our goal has always been to take a client’s financial worries and put them on our shoulders, the decline in volatility and fears of impending economic collapse have enabled us to get back to the work of picking investments based on value and long term potential, and creating portfolios that can meaningfully increase net worth.

Investing well is never particularly easy. Even in the best of times, one has to fight off the urge to find safety in the herd, either in up or down markets, and chasing past performance rather than future opportunity. In 2012’s first quarter, the move from fear of losses to fear of missing easy gains has been striking in its quickness. Arrival Capital again cautions not to get too high or too low. Let market swings be a signal to use price to your advantage, maintain some cash as markets hit highs ready to deploy on the inevitable downswings. The watchword is prudence. Does your current portfolio allow you to be positioned to generate wealth in keeping with the general growth in the economy or are you too cautious in a way that will lead to losing economic ground?

Another way of being imprudent is to chase high performance with a high risk portfolio that does not adequately protect against sudden market deterioration. It may feel good on the way up, but such gains can quickly feel like quicksand if losses are too heavy to bear and too damaging to your long term financial stability.

Some risk taking is of course essential to sustained investment performance. But the risk must be controlled to the extent possible by security selection, portfolio construction, and having a thought out plan on short term cash needs and long term wealth creation goals. We are individuals not mini versions of the S&P 500 index. A stock index doesn’t have children to send to college or a retirement to finance. An index doesn’t have kids to leave a legacy to, or a vacation home to buy. These individual factors make it necessary that your investment life correlates to your real life. This matching of financial tools with personal circumstances is at the heart of what Arrival Capital strives to do for clients. Using a combination of value oriented stocks, bonds, ETFs, REITs, cash and other highly liquid financial tools we can create portfolios that generate real wealth, that can in turn be used to fund real life needs, not least of which is financial peace of mind.

It seems unlikely that the 12% first quarter return of the S&P 500 index will be repeated for the next three quarters of the year. What investors should really wish for is sustainability and consolidation. With financial stability as a backdrop, investors can then focus their attention on getting the highest possible potential benefit for an acceptable level of risk.

In terms of specific sectors, we continue to like the agricultural sector as well as dividend paying industrial stocks. Reasonably priced healthcare and technology stocks with still untapped potential also look attractive, as do retail oriented companies with under appreciated brands High yield bonds, international real estate, energy and cash round out components of a solid, diversified portfolio. The key is what price do you and can you pay for individual investments. That is where patience and a contrarian bent of going against the herd can pay off in terms of downward protection and eventual outperformance.

In short, 2012 is off to a good start. Let us hope the economy as a whole continues to grow and generate opportunities for us all.
- posted by Jay @ 10:38 AM