2011
Year End Letter
December 13, 2011
Dear Clients and Friends,
Another year has come and gone and we have seen another twelve months of unusual activity in the financial markets. As we have noted in past letters, markets have been increasingly volatile over the past decade. We have seen a truly bipolar S&P 500 Index in recent months. The S&P 500 moved up 10.9% on a total return basis in October - the best October performance in nearly 20 years. This was followed with a November where the Index declined 7.5%. The Index declined through November 25th, and then rallied substantially the final few trading days of the month. At one point, the S&P 500 declined for seven consecutive days. Volatility indeed.
There is much to worry about: contagion from the European debt / political crisis, the possibility of a return to a declining economy domestically, the ever prickly political-military situation in the Middle East, the ability of developing markets to maintain robust growth, and our gridlocked political and fiscal situation in the United States, just to name a few. In spite of the past two months of volatility, investors who remained invested, even through the seven day stretch of continuing declines, ended with a positive net gain. As we have pointed out before, this is one of the major – perhaps the major – takeaway from the past five years: stay invested in a diversified portfolio and do not try to time the market.
Further, the volatility of the past few months – in fact, the past five years – has provided the opportunity to buy stock in high quality companies at reasonable prices. We are value oriented, long-term investors. If you make that claim and you can't buy stocks like MMM, Intel, DuPont and GE at valuations of less than 10 times earnings and dividend yields of 3% to 4%, then when can you? This is especially true given the current interest rate environment with ten year Treasury yields at a lowly 2% as this letter is written.
That doesn't mean there is no risk that Europe falls apart (further) and/or that the U. S. economy will not roll over into another recession, or any other negative scenario will not occur. Speaking plainly, there is always a chance of Armageddon. However, to perpetually focus on the negative while ignoring the clear historical evidence that probabilities favor less severe outcomes ensures mediocrity, at best. When viewed through the long lens of history, current market valuations look reasonable.
Your continuing business and trust in our ability to manage your investments serves to focus our efforts at every turn. As of this writing, Stewart and Patten manages close to $700 million on behalf of our clients. We fully understand this number represents the collective hopes and dreams of many families and organizations. We will continue to do our utmost to ensure the intelligent and sensible investment of funds you entrust to us.
Along these lines, we would like to take this opportunity to let you know about a recent addition to the team here at Stewart and Patten. Casey West joined us as a Trading and Operations Associate in October of this year. Casey has worked as a high school teacher and in industry. He recently completed a Master's Degree in Finance as well as the rigorous curriculum for the Chartered Financial Analyst credential – all while working full time and starting a family. Casey has hit the ground running and is helping us in trading, operations and fixed income research.
Finally, as is usual this time of year, we end on a sincere note of hope and peace as we enter the holidays. More than anything, we wish you and yours a wonderful holiday season and happy New Year.
As is always the case, never hesitate to call us at 415-421-4932 with questions, concerns, or comments.
STEWART AND PATTEN CO., LLC
