Hello from Sycamore,
“Well 2017 has come to a close and we think you’ll agree that it was a very good year. Our Growth and Income Composite gained a bit more than 21% for the year. In fact we had enough gain in 2017 to equal two very good years so we’d not be surprised to see the pace slow significantly over the next year or so.”
You’ve just re-read the first sentence in our year end letter for 2017. With the recent volatility it’s easy to forget how much the market advanced in 2017. Generally speaking we are pleased with 2018 and it has turned out about as we expected. FYI – don’t be concerned…we are not turning into market timers! We don’t like the market’s overall decline of more than 4% but when you sprinkle in the advance in corporate profits and the tax decreases…2018 shapes up pretty well and certainly leaves us optimistic about 2019. The economy continues to chug along and generally ‘weak markets’ are followed by ‘strong markets’. Unless the economy weakens significantly, we feel 2019 could be a good year for investors. Sycamore’s Growth and Income composite performance is listed below. Your individual performance can be found on your individual performance reports which are enclosed. The chart below compares the return of Sycamore’s Growth and Income Composite (gross of expenses) to the S&P 500 index including dividends. All returns are annualized through 12/31/2018.
|Sycamore Growth & Income Composite*||-5.76||9.49||8.28||13.12||8.86||7.84|
|S&P 500 **||-4.38||9.26||8.49||13.12||7.77||5.62|
The Economy As We See It
We think the basics of the economy look good. Our rate of growth (expansion of our economy) was about 3%. This is somewhat better than we’ve been averaging for the last few years and the last few years have been giving us good results. There is a pile of data that tell us the economy is doing well and that last year’s tax decrease for corporations was a win for shareholders. Let’s look at just a couple…unemployment now stands at 3.7% and continues to decline. In fact the recent employment report shows that our nation created 312,000 jobs in December dwarfing an expected 184,000. The federal Reserve Bank continues to raise interest rates which we feel indicates the economy is still on track. At a glance, new orders for durable goods, retail sales, consumer confidence, industrial production and housing starts continue to trend higher. We’ve stated several times over the last few years that we are pleased with the economic “big picture” and that we feel it will provide the platform for growing corporate earnings. We see no reason to change that outlook. Oh…one last thing. We believe that in the long run share prices are driven by profits. Of course, as we’ve seen recently, the market is emotional and anything can happen in the short run.
Recent Securities Transactions
We had a request recently (thanks George) to add a couple of lines each quarter summarizing some of the activity in our portfolios. Keep in mind that not all portfolios contain the same holdings so your individual portfolio may or may not have had the activity that follows.
- SCANA is being purchased by Dominion Resources and we choose to sell the SCANA rather than accept shares of Dominion.
- We elected to sell both Harsco and World Fuel Services. We feel that the recent deterioration of the fundamentals on both of these companies will continue.
- Express Scripts was purchased by Cigna. Our decision was to not hold Cigna at its current valuation.
- We liquidated all holdings of Lamb Weston. This stock simply has increased in price so much that we feel the funds can be put to better use elsewhere – this is what we’d always prefer.
- Praxair was merged int Linde. We expect to continue to hold Linde shares.
- Looking ahead, Harris Corp is buying L-3 Technologies. We like and currently own both companies and intend to maintain that position through Harris. United Technologies has purchase Rockwell Collins and is spinning off their Otis elevator and Climate and controls divisions. We currently own Rockwell and United Tech and expect to keep the shares of United Tech issued for Rockwell and the spin off units at this time.
We’re looking forward to 2019 and hope you are as well. For questions or concerns, please don’t hesitate to contact us with any questions.
Thanks for your business and trust!
Sycamore Financial Group
*Data not audited. *Results reported gross of fees. **Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Investment return and principal value of an investment will fluctuate. Investor value, when sold may be worth more or less than their original cost.