Investment Recap First Quarter 2014

The broad stock market indices moved up a little less than 2% the first quarter of the year, Winslow stocks went up approximately twice as much as the market. In our January letter, we cited frothy market conditions as exemplified by the Biotech Sector, Netflix, Tesla, and Twitter and suggested a 5% - 10% market correction would not be a surprise.

Through this week, the tech heavy NASDAQ stock index experienced a full 10% correction, other indices somewhat less. The Biotech Sector and the other “momentum stocks” declined materially. We consider these developments to be healthy and part of a normal Bull Market rotational correction. In fact, we benefit when investors take on a “value orientation” rather than paying unreasonable prices for future growth, in other words a “stock picker’s market.”

This year started out with much more volatility than last year, where stocks moved up in a steady and some what uniform fashion. Clearly, investors are (1), nervous about the developments in the Ukraine and (2), uncertain as to whether the economy will achieve sustained growth and confused about how to interpret the announced tapering by the Federal Reserve. We are quite sanguine that as we are moving away from the severe weather related data of the winter, the balance of the year will show accelerating growth and interest rates will begin to rise.

A long awaited positive, just surfacing this year, has been a huge acceleration in merger and acquisition activity. To date, there have been over 140 announced deals which indicates to us that corporations have plenty of cash on their balance sheets and acquirers are finding attractively valued companies on their shopping lists, another positive to the favorable investment outlook.