And our portfolio values
We spend a lot of time thinking and writing about the economy, but occasionally we need to remind ourselves that we do not invest in the economy, we invest in businesses. So while the big picture remains confusing, at best, we noticed that our portfolios have produced strong results over the last 12 months. Did we get lucky or is our performance advantage over the market based on something more substantial?
First, luck has a lot to do with short-term performance. We never know what a particular stock will do in any given month, let alone a day. But as time stretches out, the luck factor recedes and fundamentals take over.
Earnings for the 2nd quarter of 2010 are in for all our companies and the story is a good one. First, 9 out of 10 reported positive earnings surprises and most of those issued strong guidance for the rest of the year.
But more importantly, here’s how our portfolio companies compare with the S&P 500 during the 2nd quarter vs. last year.
Dock Street Core Portfolio: Profits up 48%, Sales up 37%
S&P 500: Profits up 29%, Sales up 7%
Given that kind of spread in operating performance it makes sense that our portfolios beat the market over the last twelve months. It certainly makes us think we are on the right track.
However, the market continues to frustrate most of us. August was another bad month for the market and while we have made up those losses in the first few days of September, no one has any confidence in where the market is headed.
Aside from the strong profit growth discussed above, we have shifted assets into a more focused selection of emerging market investments. Buying all the emerging markets will no longer work, with much of Eastern Europe stuck in recession, but we believe that focusing on Asia will continue to benefit our portfolios.
So we’ve listed two good reasons not to focus exclusively on the economy when thinking about investments. It is business performance that counts when investing in stocks and ours is not the only economy in the world. Selecting the right businesses and the right countries is what we do and so far, it’s working.
Best regards,
Daniel A. Ogden
