Tuesday, April 05, 2011

2011 Quarter 1 Update

April 5, 2011

It has been a while since we have updated you on our thoughts regarding the market climate, both domestic and abroad. As you are probably all too aware, both domestic and global events have been moving at an extremely rapid pace over the past few months, not to mention years. We are clearly feeling the effects of globalization and this will be a trend that will continue. We now live in a world in which all economies and cultures are intertwined, for better or for worse, and information travels at an astounding speed. This reality can make managing money a very tricky business as markets are swayed by the most recent news event coming out of Japan, the Middle East or even right here at home. As a result, investors must be prepared to analyze information in fairly swift fashion, constantly discerning how it might affect current holdings as well as overall investment theses. It also forces managers to make tough choices regarding style. Am I a trader or an investor? In other words, do I move in and out of positions rapidly or do I analyze new information with an eye toward the longer term?

In our opinion it is always a mistake to be a purely “buy and hold” investor/manager. There are few, if any people in the world who could position themselves so perfectly that he or she would never have to make any significant changes in strategy based on new information. It is for this reason that we are constantly evaluating, and then re-evaluating, our positioning as it relates to recent events. It is also a mistake to be purely reactionary as each world event unfolds. What is imperative is to analyze new information and decide: is this piece of information going to have a lasting effect on my current portfolio or is it a blip that will likely pass in the near future? More often than not it is the latter. A perfect example would be the current turmoil in the Middle East and the tragedy in Japan, both very different scenarios to be sure but both likely to have little longer term impact. The Japanese situation will cause some short term glitches as it relates to the supply chain, i.e. a shortage of electronics parts, auto parts, food, etc., but the Japanese will dig out and be up and running in fairly short order. Events in the Middle East are of course creating some havoc in the oil market, a reality that will subside once normalcy returns. It is our belief that as long as Saudi Arabia remains relatively unaffected the long term ramifications for the world’s energy supply will be minimal. Of course we will be watching events there very closely as they unfold.

While there are many challenges facing the global economy, it is our belief that economic growth, albeit slow, is real and will continue in the short to intermediate term. Sovereign nations around the world have pumped large sums of money into the system and this has helped to spur a recovery. This stimulus cannot and should not be continued much longer, however it appears that these policies have been effective to date. It is difficult to say what the longer term effects of such a massive stimulus plan will be, however it is certain that many problems will need to be dealt with going forward as it relates to deficits, inflation, etc.. While these problems are very real we do not believe they will pose significant issues from an investment perspective over the next twelve to eighteen months. That being said, we are maintaining our exposure to equities and fixed income as we feel that the economic recovery will persist. We continue to find good opportunities in the current market climate and are therefore taking advantage of them. While we are certainly aware of the macro issues which exist around the world today we feel confident that the short to intermediate term will continue to provide us with excellent investment opportunities.