Investment Recap Fourth Quarter 2004

The final quarter of last year represented a much welcomed, and to some, a surprisingly strong market recovery. In fact, all of last year’s gains occurred in the period beginning one week prior to the November election. Once again, our stocks outperformed the general market.
 
Much of the market recovery was due to factors we outlined in our October letter to you: the end of election rhetoric, excellent corporate earnings, as well as, importantly, a desire by underinvested hedge funds to get invested in stocks. For this year, we expect corporate earnings to be up about 10%. Corporate balance sheets are in great shape, and historically, years ending in the number five over the last hundred years, have averaged over 16% returns (now that is a statistic to hang your hat on). The negatives are slower profit growth versus last year, and the prospect of higher interest rates. Weighing all of these factors, we would go with the projection we made for a year ago and expect high single digit returns.