The media today is replete with terrible news and dire predictions about economic conditions in the United States and around the globe. And yet, as we analyze certain industries and companies within those industries, we see that the years of implementing arduous policies and undertaking challenging work have bolstered the earnings potential for many businesses. Indeed, those companies which have concentrated on making their operations more efficient, on strengthening their balance sheets, and on improving their profit margins are finally reaping rewards for their decisions.

Throughout the world, governments and central banks are responding to the burden of indebtedness, a lack of financial liquidity, and the build-up of inventories. With economic growth slowing around the globe, we anticipate that the expected timelines necessary to alleviate these conditions could be protracted. It is not a question of “if” but rather “when” the excess number of unsold houses, idled factories, and shelves of goods are brought back into balance. Higher than average rates of unemployment have muted consumptive behavior, and more households are seeking ways to stretch their restricted income. It could take a little more time to reduce the excesses in the system, but we have every confidence that eventually and inevitably, finances and inventories should revert to manageable levels. In the meantime, businesses and individuals continue to consume. Companies continue to produce a steady supply of goods and services to meet quality requirements, and people continue to buy those goods and services in quantities and at prices which are within their current parameters.

And speaking of buying, we recently began to accumulate equities! Our longtime clients are well aware that we tend to be early into opportunities and early out of harm’s way. We remain consistent in our style. The stocks which we are acquiring represent those companies which have spent many years reorganizing themselves, and which are now poised to take profitable advantage of the next economic upswing.

The cornerstone of our investment strategy is the preservation of capital. To that end, we continue to maintain a high proportion of our clients’ assets in United States Treasury Obligations. At the same time, we believe that the profit potential within several industries ought to be stellar in the upcoming economic cycle, and we are meticulously selecting equity positions for our clients’ portfolios in anticipation of the upturn.

Many investors are familiar with the calculation of the price-to-earnings ratio, and apply this tried-and-true compilation when making investment decisions. Over the past thirty years, we have likewise made successful use of this critical calculation. There is an equally important calculation which is based upon the price-to-book value per share. Whenever we decide to purchase a stock, we rely upon both sets of calculations. When corporations commence major financial reorganization, there is necessarily a period of time required for the stabilization of their balance sheets (that is, their book value) which precedes the resumption of positive earnings. The world is in the midst of just such a period. Therefore, we are able to purchase the stock of well-run and financially solid companies at, or even below, their net book value per share in anticipation of robust earnings to be generated in the near future.

The stock market could either decline gradually, or could plunge violently based on a critical news report. The cause and manner of the downturn are truly secondary to the careful preparation which must be in place before the inevitable decline. We have experienced several months of wild volatility, with hundred-point swings throughout the day triggered by computerized trading programs. We remain vigilant and calm in the midst of such chaos. We are confident that the long-term prospects for the global economy are solid and sound. As prudent investors, we shall pursue a forward-looking strategy which positions our clients advantageously ahead of the cyclical upturn.

We look forward to speaking with you about our investment philosophy and management strategy at your convenience.

George A. Leylegian
President and Chief Executive Officer