Dear Clients/ Friends, This has been a very frustrating year for investors. As you all know, I hold the same types of securities in my portfolio so to quote a former President – “I feel your pain”. The stock market over the past couple of years has been a classic case of a step forward and a step back. We are all looking forward to the times when at least it is a step and half forward then back, which is a more normal environment. Yesterday, the Federal Reserve finally raised the FF rate (short term rates) which is an indication of hopefully a return to some normalcy in economics and investing. I believe the Fed will be very slow in raising rates and only in response to better economic and employment data which after some initial indigestion will lead to an improving longer term investment environment. That said, from our ongoing conversations I think and have thought going back several years that markets will only provide investors with lower than average returns due to the “hangover” after what happened in 2008.
This is shaping up to be a year where some very good long term values are being “created” in the market. I only wish that I started buying in now, instead of earlier in the year. I am referring to of course energy and commodity oriented stocks. The companies are now trading at very low valuation levels and for the better capitalized equities, long term value will in my mind offer good performance for patient investors. For example, Conoco Phillips has a dividend yield of 6% and should be able to keep it at that level as long as oil prices stabilize. Other good opportunities exist in quality companies undergoing some transition such as Walmart, with a dividend yield of 3.25% and Glaxo with a yield of 6%.
On the bond front, with the recent news of a mutual fund locking up investors funds and as we now enter a modestly rising rate environment, I stress now as I have in the past how important it is for investors to build a quality, laddered individual bond portfolio. This is a technique that can protect investors and offer assurance of earning a better income yield and returning their original principal. This is what bonds are supposed to do and they have been proven very beneficial when stock markets hit heavy surf!
In closing, I believe the portfolio of stocks we own are high quality, pay very good dividends and will offer good returns over the long term for patient value oriented investors. I am not expecting great returns, but just a return to a more normal environment as the economy underneath looks to be firming up. I look forward to meeting with each of you individually and custom designing the right plan for you and your families. Please keep me in mind if any of your friends or family members needs a conservative investment manager or just desires a second opinion on what they are doing. Feel free to distribute this letter to such interested parties.
Merry Christmas and Happy New Year!
Mark Del Pezzo, CFA
email@example.com/ cell 904-707-8992