Investment Recap First Quarter 2007

The stock market was basically flat for the first quarter (with gains of approximately 1%). Once again our stocks outperformed, and the margin of outperformance has widened further during April. We mentioned in our January letter the likelihood of a “pause” or “correction” following nine consecutive months of stock market gains through year end. A correction did occur in the middle of the quarter and we committed cash reserves to stocks during this weakness.
Our results have been helped by the takeover and mergers of Realogy (H) and Wild Oats (OATS), as well as big gains from our large weighting in consumer stocks including Tempur-Pedic (TPX), Big Lots (BIG), and JoAnn Stores (JAS). Hopefully the stock downturn in February and March represented the low for the year. We are optimistic that the “soft landing” in the U.S. economy will result in continued low inflation coupled with moderate earnings growth.