Investment Recap Fourth Quarter 2018

We would like to thank our good friends at Strategas Partners for reminding us of the memorable quote (during the 1960s) from legendary journalist Eric Sevareid, “the biggest big business in America is not steel, autos, or television. It is the manufacture, refinement and distribution of anxiety.”

Unparalleled dysfunction in Washington is increasingly a concern. Additionally, investors have become “spooked,” about whether the Federal Reserve will aggressively raise interest rates this year. Furthermore, the ongoing tariff issues between the U.S. and China are disturbing. These matters culminated in an emotional and climatic selling spasm during the 4th quarter.

As of now, Washington is no healthier, but Chairman Powell of the Federal Reserve has clarified their policy and aggressive rate hikes are not in the cards. Meanwhile, there has been progress on tariff talks with the Chinese authorities. Valuations, which were driven to very attractive levels in December, have begun to recover substantially. In the first half of this month, our portfolios have recovered most of last year’s losses and a good deal of relative under performance from 2018. In fact, our stocks have outperformed most days this year.

History shows that major corrections are often the precursor of a change in leadership in the market. We are expecting that small cap and value stocks will do well in the foreseeable future, as market leadership rotates to these cheap and neglected areas. From our vantage point in the Midwest, we are in position to observe that business goes on and can even thrive despite the “noise” from our politicians. To illustrate the market progress since the beginning of the year, we have taken the liberty of providing an updated appraisal as well as a year-end report.

Finally, we want to mention that Cynthia Eng, CFA has joined our firm as a Vice President-Research Analyst. Cindy has a degree in Economics and Mathematics from Cornell University. She was part of the small cap equity research team at J.P. Morgan in New York. Cindy replaces Neil Malkin.