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TREES INVESTMENT COUNSEL VIEWPOINT (Q4
2007)
The fourth quarter of 2007 was epic with respect to the culmination
of the housing and credit crisis. The lack of risk management
that has unfolded turned out to be so egregious and widespread that
Boards of several mega institutions, including Citibank, Merrill
Lynch and Bear Stearns, had no choice but to force the resignations
of their CEOs. Mortgage brokers have been to the brink of
bankruptcy, and the whole trust and faith in our systems and
measures has been shaken. The financial magnitude of the
fallout has proven larger than any of us could have imagined, and
the ultimate numbers are nowhere near decided - we have heard
estimates as high as $500 billion. Even half of that is
enormous. No doubt, this period will be remembered and studied
for years to come.
While the year ended with a slight uptick (the Standard and Poor's
500 increased a little over 3%), the reality is that 2007, the
second half in particular, was characterized by a couple of dramatic
rises and falls. Following a 9% decline from the 3rd quarter
high to low, the stock market plunged 16% from the year highs in
early October to January 22. Moreover, performance of sectors
and individual securities varied wildly. Financials, the worst
performing industry, fell 20.8% in 2007.
We are beginning to see repercussions around the globe from the
financial market turmoil. Growth is slowing on a broad basis,
and shoes are still likely to drop. The good news is that our
radar is up, and some first class companies are selling for what we
believe are reasonable prices. We have not seen this kind of
value in several years. Admittedly, near-term, we expect
gyrations, but we believe that our 3-5 year time horizon positions
us to make smart long-term decisions for our clients, and to take
advantage of the lemmings that sell when momentum is negative and
buy when it is positive. The current emotion is fear, and to
us that is indicative of opportunity.
The New Year brings some internal housekeeping changes at Trees
Investment Counsel. We still have the same players, but we
have made some adjustments to our titles and roles. Jay, our
fearless leader, is now Chairman. He continues to be involved
on a daily basis and is our thought leader. Jackie is our
President and Chief Operating Officer. She is watching the
portfolios closely, managing fixed income positions and looking at
more macro portfolio issues. Scott is our Chief Investment
Officer and as such is leading the charge with respect to primary
research and stock ideas. Tina, our office manager, is Vice
President of Administration. Everyone knows to call Tina with
technical administrative issues.
We wish everyone a happy, healthy and prosperous New Year!
January 25, 2008 |
