2006 Year in Review
2007 starts off with a rare four day lull in the financial markets, giving us the time to study the things that worked in 2006, and plan accordingly for 2007. For clients of Arrival Capital, 2006 was a profitable year in which our focus on undervalued but sound investments lead to steady, market-beating results. The average, fully discretionary Arrival account was up 17.8% for 2006, handily beating the S&P 500's 13.6% return. Even those accounts managed conservatively for income saw double digit returns for 2006. Perhaps most gratifyingly, Arrival's market topping results in a good year for stock markets followed similar outperformance in 2005, a much more challenging year for the financial markets. The lesson learned is that our value-based, contrarian approach can work in almost any kind of market atmosphere as long as we remain disciplined in approach, patient in finding good opportunities, and focused on unearthing and pouncing on the most promising investments.

Drilling down further into the successes of 2006, we can see that keeping trading at a minimum once again paid off, as long as the investments held onto were good opportunities poised for long term outperformance. For example, materials and energy stocks performed well for more that a year before selling off dramatically in May. Even at their nadir in early summer, it would have been easy to give into the pressure of the decline and sell these positions, leaving holders to pay taxes on what in some cases were a few years of accumulated gains. But our analysis told us to hold on, the upside for energy and materials producers just looked too good and the valuations too cheap to knuckle under. Within a couple of months, almost all these investments bounced back, and continued to provide good dividends and diversification to client portfolios.

Constructing diversified investment portfolios of investments each representing good long term value is at the heart of the Arrival investment method and what sets us apart from the pack. Put another way, every investment made for a client must not only stand on its own merit as a sound investment at the time of purchase and for the foreseeable future, but must also fit into a smart, value-based portfolio able to thrive in good times like 2006 and yet weather more difficult circumstances should they arise.

Looking ahead, we are excited at the chance to continue to help clients build their wealth and security by being their eyes and ears in the financial markets. We remain on the look out for investments of enduring value selling for inexpensive prices because of transitory problems or merely because of under appreciated potential. For our income oriented investors, our goal remains to find investments paying secure interest or dividend payments yet with the potential for meaningful capital gains, a double victory of sorts for the conservative investor. Where do all these opportunities exist? We can start with 2006's underperforming sectors in healthcare and technology. Companies formed through spin offs or undergoing restructurings also offer promise. But the real answer is that good, value-based opportunities are often created by the folly and/or inattention of others. The investment situation is fluid, and largely unpredictable; putting a premium on the sort of disciplined, opportunistic approach Arrival Capital employs. The work therefore continues, and with it our appreciation of your trust and confidence. Here's to a happy, healthy and prosperous New Year.
- posted by Jay @ 1:15 PM