Hello from Sycamore,

Building the wealth of our clients means we focus on essentials and generally avoid the clutter associated with marketing ourselves as a firm. But sometime the news is so good that it becomes a genuine occasion to celebrate with our friends. We just had one of those moments.

In 1990 we began to manage separate accounts for our clients and, since September of 1996, we have had those accounts independently verified by Ashland Partners. We send our verification and the composite performance of the accounts we manage as a whole to Morningstar, a company that rates managers against other managers in their category. Morningstar awards stars from one to five, with five stars being the highest rating possible. It’s an important, and highly coveted, standard of excellence.

Since roughly …forever… Sycamore Growth and Income Composite performance has been rated with four stars. We manage with a conservative bent and have been pleased to consistently earn a 4-star rating, believing it spoke to our investment management abilities going forward.

As of 3/31/2016, Morningstar awarded our Sycamore Growth and Income Composite performance the elusive 5-star rating! This will be a day we all remember here at Sycamore Financial Group and we are honored to have succeeded on your behalf.

We appreciate your continued business and trust,

Craig

Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.

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Comments contained above are meant to be generic in nature and are not meant for specific action.

Stock prices have advanced significantly over the last few years causing several indexes to reach new all-time highs. This has generated a couple of questions that we have been discussing frequently with clients.

Question: Should you consider selling because the overall market indexes are making new all-time highs?
Answer: We don’t think so. Near the time that I started in this business 1975 the Dow Jones 30 Industrial average was a little above 600…yes you read that right…600 total. Today it’s about 16,500. This index and many others that measure share prices, generally will reflect the profitability of the companies represented by the index and usually company profitability will follow the growth of our general economy. Our economy has grown over the years and continues to grow. The indexes as a reflection of that growth should continue to make new all-time highs. I’ve been witnessing this my entire career and believe that will continue.

Question: Are individual share prices over-valued?
Answer: Our answer here is the same as for the first question…we don’t think so. During the 2008 and 2009 market decline, share prices fell far more than the decline of most earnings. This difference was created from jitters caused by the banking crisis and concern about a possible recession. Some of these concerns came to pass, but as is frequently the case, some investors were willing to sell their shares at prices that simply, (in our opinion) were lower than could be justified by the corresponding drop in profits. By the way, it’s now easy to look back and see that this created an opportunity for investors. Isn’t hind-sight great? We believe the greater than normal increase in share prices over the last few years has simply brought them back to valuations that we would classify as ‘fair’ based on current profitability of businesses.

Thanks for your business and trust,

Craig

Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.

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Comments contained above are meant to be generic in nature and are not meant for specific action.

As a general rule progress comes in very small increments. Whether we’re talking about the economy or learning to play a piano, often the day-to-day gains are barely measurable. We are primed to want “more…better…now” and as time passes we reassess our long-term investments, asking “what have you done for me… lately?” Frequently the best way to appreciate a financial position is to stop and reflect on economic progress over a longer period of time. With that in mind, let’s compress time and evaluate our economic progress since the low point of the Great Recession of 2008-2009.

Before we start, we want to be up-front with an important disclosure: we’ve ‘cherry picked’ a bit (not a lot) and rounded off the numbers to give you a Big Picture that’s easy to follow.  Not all measurements are positive but certainly the majority are trending the right direction.

1. Gross Domestic Product (the measurement of the expansion of our overall economy annualized); Q3 2008- negative 8%…Q2 2013-positive 1.7%.
2. Retail auto sales (annualized); Q1-2009-nine million…Q2-2013 fifteen million.
3. New orders for durable goods; Q1 2009-$150 billion…Q2 2013-$225 billion.
4. Monthly retail sales; Q1 2009-$300 billion…Q2 2013-$380 billion
5. Total housing starts (annual rate); Q1 2009-500 million…Q2 2013-800 million
6. Industrial production (2007 = 100); Q1 2009-85…Q2 2013-100
7. Non Agriculture employment; Q2 2009-130 million…Q2 2013-136 million
8. Consumer confidence (100 = 1985); Q2 2009-25… Q2 2013-80

Yes, the economic recovery has been tepid; but we see the current trend continuing and a silver lining in the slow growth. There’s a possibility that the current expansion will last longer than most, and that inflation and borrowing costs (i.e. interest rates) will remain low.

Oh I almost forgot…one more statistic. The Dow Jones Industrial Average; Q2 2009-6500…Q2 2013 15,500.

Thanks for your business and trust,

Craig

Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.

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Comments contained above are meant to be generic in nature and are not meant for specific action.

Asset Class Allocation

In March 2009 the market hit a low point (I’ll bet you still remember). Since then it has risen about 100% so we’re all feeling much better except for those ‘nagging memories’. During the last few months, as some markets have reached new all-time highs, we’ve had a lot of questions about valuations. “Is the market to high?” “How’s the economy?”. “Should I sell and wait for a correction or change my allocation?”

Let me start with the markets making new all-time highs. When I started in this business…1973…the Dow Jones was about 600-700. Today it’s about 15,000. We’re used to the markets making new highs.

Now let’s turn to the economy. At this time we see the economy continuing to chug at a modest pace for some time before encountering another normal recession. Remember that recessions are periodically needed and expected. We also do considerable on-going research and analysis on the securities in your portfolio(s) and continue to find plenty of stocks selling at what we feel are bargain prices.

Change your allocation? Sell and wait for a correction (AKA market timing)? We don’t think so.

Whenever the market has a significant move up…or down…It’s easy to wonder if it’s time to be more conservative or aggressive but recalling what you have and why can help. Equity portfolios managed by Sycamore are broadly diversified with individual holdings in Large, Mid and Small Capitalization stocks and International holdings. Additionally portfolios are invested across our economy with holdings in 11 sectors (Basic Materials, Utilities, Medical services etc.)that we’ve identified. We feel the equity portion of your portfolio(s) are adequately diversified. This leaves the selection of your portfolio’s “class” (Stocks – Bonds) as the important question for consideration. Most of you have been clients for 20,30 or (yes it’s true) almost 40 years so you’re aware that we encourage clients to hold equities as long as their time horizon and tolerance to pain (or in some cases “shock and horror”) J are adequate. Our philosophy on this has not changed over the years and remains unchanged today. Why? Results! As we look at our long term client’s portfolios we find hundreds that have had far better results with stocks than with Bonds.

Consider this (yes we’re aware that we’ve written about this before but it’s important). Rounded off for purposes of this illustration, we find historic returns of about 10% for Stocks, 5% for Bonds. At first it appears that stocks earn about twice as much as bonds. However, we feel that the only ‘return’ to our clients that counts is the net return after adjusting for taxes and inflation. When we apply this formula we get an altogether different picture. First let’s look at the simple net (after adjusting for taxes and inflation) return for each class. Stocks start at 10% less about 2% for taxes and 3% for inflation leaving a net real return of about 5%. Bonds start at about 5% less 1% for taxes and 3% for inflation leaving a net real return of 1%. 1%?…1%? Not much huh? So after adjusting for taxes and inflation we find that Stocks earn about 5 times as much as Bonds. Now let’s just assume that you’re investing $100,000 for 20 years. What would your ‘net real’ (after taxes and inflation and allowing for compounding) earnings be on each investment? Well bonds/fixed investments come in at a blistering $122,130. Stocks/equities manage $271,264. Since each investment started with $100,000 the ‘net real’ gain on bonds/fixed was $22,130 vs. $171,264 for stocks. That’s about 1200% more. OK now to even the score a bit. Bonds and other fixed/guaranteed investments can play an important role in your portfolio. They offer a safety net and a pool of money that is assessable while other investment classes like stocks or real estate are experiencing their normal fluctuations (Bear markets). They can also bring comfort to the investor during recessions etc.

So… back to the question at hand. Should you consider making any changes based on our current market and economic conditions? We aren’t finding any reasons to do so at this time but we’ll let you draw your own conclusions.

Thanks for your business and trust,

Craig

Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.

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Comments contained above are meant to be generic in nature and are not meant for specific action.