Dear Friends and Investors -
These past three weeks, the market has rewarded us with the first real recovery from one of the worst yearly starts by various measures, since 1982, 1930, and even, I have read - 1904! The market rose on a combination of healthy industrial earnings, low interests rates, and attractive dividends that outweighed the impact the credit crisis that has plagued the Dow.
With housing worries still leading the nightly news, equity accounts at MWS Capital were in aggregate down only 3.8% on April 18th. This is better than the S&P 500 and would rank us 7th out of 50 domestic Fidelity Stock funds. We are also well ahead of the -5.3% performance of the five star rated Fidelity Asset Manager fund that most resembles our balanced large cap growth style. This follows a great 2007 where we earned 11% overall for our equity clients. We have beaten the S&P 500 over three years, a major achievement with separate accounts.
As we start May aggregate accounts are within striking of unchanged, and some individual accounts are positive for the year! This week we had +20% moves in Wrigley - on a Buffett sponsored buyout, and in Morningstar - on strong earnings. We have held each for years.
But it is easy to forget the good feelings about the past when the bad loans of the housing bust have caused deep worry about the economy. However, looking back at another year with a poor start - that of 1904 mentioned above - can provide some perspective.
For the record, 1904 was not a good time to get out of the market. That year, Puccini’s Madame Butterfly debuted and we bought the Panama Canal for $10 million. The Dow Jones Industrials, then just 49 points, got off to a bad start, but upon the election of Teddy Roosevelt sustained an advance that carried the Dow up 42% for the year! Over the next 25 years the Dow rocketed and gyrated to a degree hard to imagine today, but stocks were not held by average Americans, and dividends often made up their principal return. Standard Oil shares paid a 10% dividend in that era, for example.
Today the dividend yield of the Dow is as much as a 3 year Treasury bond! This throwback style dividend versus bonds will provide investors with a cushion while the credit crisis is sorted out. The multinational corporations that dominate your accounts, to summarize a recent Bloomberg article, have hoarded a half a trillion dollars of cash and employ lean and technologically adept inventories. They do not need misfiring banks for loans. As we have seen in this earnings season they can withstand a slowdown and still post hefty profits.
I like to describe our economy best as a glacier that moves powerfully and nearly unnoticed below us as we get though our days, grinding through economic setbacks along the way. Progress marches on, and the companies we invest in will still be making goods years from now. And like 1904, we can look forward to the likely election of a “progressive” candidate. No matter anyone’s personal politics, November’s change in the White House is highly anticipated, and big shifts in presidential politics tend to galvanize our country and spur spirits, production, and markets alike.
Matt Shapiro, MWS Capital, May 3, 2008
| 
